[Australia Sucks]

The recovery in corporate earnings in Australia since the GFC has been very lacklustre to say the least. Here is a chart showing the long-term earnings per share of the All ordinaries Index (top 500 stocks in Australia):

https://www.aussiestockforums.com/attach...jpg.71925/

The above chart pretty much explains why the All Ordinaries is still below its pre-GFC peak (see chart in the link below):

http://www.marketindex.com.au/all-ordinaries (click on the ten year button on the chart)

My personal view is that earnings growth will be weak over the next year or two but will likely pick up after that.

[Justinian]

AS: What do you know/think about CLQ on the ASX? It seems a compelling speculation with the cobalt, nickel and scandium at the Syerston project; plus the water treatment technology; partnerships with Chinese entity; and R. Friedland on the bridge. The non-Congo cobalt seems especially intriguing with hungry Giga-factories being planned all over the place and a supply deficit already on us. I'm a bit discouraged with the recent move up as of course the lower the better and then being in Canada with a discount broker it's not the easiest transaction to make but I'm looking to get into this sometime real soon.

[Australia Sucks]

Justinian unfortunately I do not possess the knowledge to be able to make informed comments about this company.

There is too much geological/mining and engineering technical knowledge involved with these types of companies which I unfortunately lack. Also the technologies involved are too technical for me. I am completely out of my depth here.

Hopefully there are some people who work in the mining industry or relevant technology related industries on this forum that can comment on it.

Good luck with your investment.

[Australia Sucks]

I think in the current market Australian investors should consider using some leverage/borrowings to turbocharge their portfolio (not for beginners though). Here is why:

-I think the medium to longer-term outlook for the Australian market is bullish so borrowing will turbocharge your returns assuming you pick the right investments. See this thread regarding market bullsihness: thread-63841.html

-Low interest rates and attractive dividend yields make it affordable (often even profitable) to finance the borrowings. In general Australian companies have a bias (partly due to the tax system and partly due to low earnings growth in the past decade) towards paying high dividends (world leading in fact), with the dividend payout ratio (percentage of earnings paid as a dividend) of the market being between 70 and 75% on average currently, and the average yield being well over 4%, see this article: http://www.afr.com/business/australian-c...825-gr0ono

-In Australia a large proportion of established profitable companies pay a dividend. Not all dividend paying companies pay a fully franked dividend (the ones with a lot of foreign earnings tend to pay partially franked dividends) but most of them do. So let's assume the company you invest in pays a fully franked dividend yield. Sound dividend paying companies usually pay a yield of between 3 and 5% (can be more or less though but that is the typical range). People should think about borrowing against their house or investment properties (assuming they are experienced share market investors) to invest in shares. Margin loans can be used but they are less than ideal.

Below I will do a hypothetical scenario analysis of what it might look like for someone on a modest wage to borrow against property and invest in shares (figures below are in AUD). Please bear in mind that different loan types e.g. home owner principal and interest vs home owner interest only vs investor principal and interest, vs investor interest only loans all have different interest rates:

John is 30 years old and has a job in IT earning $85,000 salary before tax per annum (median full time wage in Australia is around $83,000 pre-tax). He owns a one bedroom apartment that he currently lives in that he bought 5 years ago in Sydney. The apartment is now worth $700,000 and he has a loan of $350,000 against it. He goes to the bank and gets the loan facility increased and now can borrow up to $560,000 (80%) against the property. This means he can now borrow an extra $210,000 which he decides to invest in shares. The extra $210,000 he borrows is interest only 5 year fixed rate. We assume his salary remains flat for the next 5 years.

For the purpose of this example we assume John is an experienced stock picker and knows how to pick stocks well. He invests the $210,000 split evenly into three stocks each paying a fully franked dividend and holds the stocks for at least 5 years. The average yield on the three stocks is 3.5% fully franked. That means he receives $7350 in dividends plus $3150 in franking credits. His interest on the $210,000 5 year fixed interest only loan is 4.6% (You can see the rate is realistic, just check out this website https://www.canstar.com.au). His interest costs are therefore is $9660.

$9660 minus $7350 in dividends means he has lost $2310 during the year. However when he does his tax return his taxable salary of $85,000 is reduced to $82690. His top marginal tax rate is 34.5% (32.5% + 2% medicare levy). Therefore he saved $797 in tax. Also when he does his tax return he is refunded the $3150 in franking credits (he made a loss so the whole amount is refunded to offset his salary income). Therefore his after tax position is loss of $2310 + $797 tax refund + $3150 franking credit refund. Therefore his net after tax cash flow is positive $1637. Remember he borrowed 100% and the investment put after tax cash in his pocket. Let us assume because John picked sound/growing stocks/companies they increase their earnings per share and dividends per share by 6% per annum. Let us also assume the share prices rise at 6% per annum in line with earnings growth. At the end of the first year his share are worth $222,600 (up 6%).

The next year his shares go up 6% and he receives $7791 in dividends (up 6%) and $3339 in franking credits. He pays $9660 in interest. $9660 minus $7791 is a loss of $1869 pre-tax. His annual tax bill is reduced by $645 and he receives a franking credit refund of $3339. Therefore his net after tax cash flow from the investment is $2115. Next year (year 3) using the same 6% growth his after tax cash flow from the investment is $2621. Next year (year 4) using same 6% growth assumptions his after tax cash flow is $3158. Next year (year 5) using the same 6% growth assumptions his portfolio value is $281,027 at year end and his after-tax cash flow is $3727.

Therefore at the end of the 5 year period he received total after tax cash flow of $13,258 and his share portfolio equity increased from $0 to $71,027. Not bad considering he did not invest a single dollar of his own money (100% borrowed money).

Now imagine if at the beginning scenario instead of being able to borrow $210,000 his borrowing capacity was $350,000 and imagine if he was in a higher tax bracket (equals more tax savings) and instead of picking companies that could grow 6% per annum he was skilled enough to pick companies that compounded earnings and dividends at 10% per annum, the returns in such a scenario would be truly massive.

-All of the above being said dividend yields should not be a criteria for selecting stocks. Buy a stock because its a good business that is undervalued, however given the nature of the market in Australia that company will often pay a healthy dividend anyway.

Conclusion:
In the current environment in Australia borrowing against property to buy (the right) dividend paying shares can give you after tax positive cash flow and capital gains. Borrowing to buy Blue Chip properties in Australia today will generally give you negative after tax cash flow possibly plus capital gains. However you can generally leverage more with property so assuming the same capital growth rates property will give you higher capital gains but the downside is your annual cash flow and your liquidity are worse with property so you have to decide which option makes sense for your lifestyle and financial situation.

When I say you can leverage more with property that is because the hypothetical $210,000 borrowings in John's example could have been used as the 20% deposit (down-payment) to purchase a property worth more than $900,000.

[BB1]

(06-06-2017 05:23 PM)BB1 Wrote:  

Out of the companies you have mentioned I own A2 Milk, Xero, and Pioneer Credit.

A2 Milk (A2M) is crushing it. Shares are now up 136% year to date.

The group’s core Oz and New Zealand business continues to perform brilliantly with a 3-year annual compound revenue growth rate of 60% for revenues to hit $439.6 million in Financial Year 17.

[Australia Sucks]

If you google Peter Thornhill you will see he provides evidence that Industrial shares outperform REITs and resource (mining and energy) stocks. Therefore in Australia a simple way to beat the market over the long-term would be:

1) Start with looking at every company in the All Industrials Index (All Ordinaries minus resource stocks). The All Ordinaries is generally the top 500 companies on the ASX.
2) Remove REITs from this index.
3) Remove non-dividend paying companies from this index (companies that did not pay a dividend in the past 12 months)
4) Remove companies with negative operating cash flow (in the most recent financial statements) from this index.
5) Invest an equal amount of money into every stock that is left.
6) Reinvest the dividends

If you do all of the above you should out-perform the stock market by a few percent per annum over the long-term.

[Australia Sucks]

The current reporting season in Australia is almost coming to an end with the majority of companies having reported already.

The Australian market (companies that have reported so far) did 18% earnings growth in aggregate boosted by resources earnings more than doubling. Excluding resources the market did 6% earnings growth which is still a healthy figure. Also business investment is picking up and business confidence is at multi-year highs. No signs of an impending major slow-down yet. Overall I would say the outlook for the Aussie market for the next few years is mildly bullish (just my opinion).

Source: last nights (4th September 2017) "the business" TV program on ABC - Note: that is the ABC TV channel in Australia different to the American ABC).

[BB1]

(06-06-2017 05:23 PM)BB1 Wrote:  

Out of the companies you have mentioned I own A2 Milk, Xero, and Pioneer Credit.

A couple of my biggest positions in Oz are Altium and Hansen Technologies.

I am winding down for the year so checking my YTD gains on the ASX.

A2 Milk up 267%
Xero up 70%
Pioneer Credit up 52%
Altium up 67%
Hansen down 3%

I highly recommend spending time researching and investing in ASX listed small/medium caps.

[[email protected]]

(07-11-2017 10:07 PM)Australia Sucks Wrote:  

[email protected] the U.S. and Australian stock markets are still going strong meanwhile Ethereum has recently crashed 50% from its all time highs very quickly. Crypto-currencies are the modern day tulips. Sure you might make big and fast profits if you are lucky but don't expect most of the current ones to still be around in 10 years time.

When you posted this Ethereum was roughly 200 USD. Today, 6 months after you made this comment it's around 700 USD. That's a 350% increase. Was there anything in the ASX top 100 that did that, I'm curious?

https://coinmarketcap.com/currencies/ethereum/

I did warn you but you dismissed crypto-currencies as a highly speculative bubble, something I would hear users on whirlpool forums say.

[PK1098]

Hi AS,
If we have a serious stock market crash tomorrow and you have 1 million dollars to invest, what industry will you invest in heavily, which industry to dabble in, and which industry to avoid. Personally I would avoid retailing, minin, energy, Tesco's. Is it likely you could turn the 1 million into 10 million or at least 5 million within 5 years?

[Atticus]

(07-28-2017 12:55 AM)Justinian Wrote:  

AS: What do you know/think about CLQ on the ASX? It seems a compelling speculation with the cobalt, nickel and scandium at the Syerston project; plus the water treatment technology; partnerships with Chinese entity; and R. Friedland on the bridge. The non-Congo cobalt seems especially intriguing with hungry Giga-factories being planned all over the place and a supply deficit already on us. I'm a bit discouraged with the recent move up as of course the lower the better and then being in Canada with a discount broker it's not the easiest transaction to make but I'm looking to get into this sometime real soon.

I'm a huge fan of battery metals.

I like CLQ, but take look at the following ASX listed companies:

PGM: Its Owendale project is only 7km from Syerston, with very similar mineralization and geological characteristics. (Also, huge Greenland assets, which are going no where at the moment, so the market has rightly discounted them.) How've, just on Owendale, PGM represents a huge arbitrage play on CLQ, given their disparity in market capitization (42 million vs 860 million).

Also, for cobalt, ARL (Ardea) is quality, and still very undervalued. They have the largest cobalt resources in the DEVELOPED WORLD. Charts are looking very good right now, too.

Seel also NZC. Cobalt miner on the DRC. Chinese cobalt giant just took a stake. Still very cheap, and a lot of exploration upside to boot. No brainer.

Now, my tip for 2018 is actually a lithium play. NVA. Project in Manitoba, next to Canadian listed FAR. MOU signed to jointly unlock the area.

Thank me later.

DYOR. These are all small mining companies, with a high degree of risk, so not for everyone.

[PK1098]

I do believe it is a bubble, but if our downside is addressed, we can still make a buck or two.

[Tail Gunner]

(01-01-2018 05:11 AM)PK1098 Wrote:  

Hi AS,
If we have a serious stock market crash tomorrow and you have 1 million dollars to invest, what industry will you invest in heavily, which industry to dabble in, and which industry to avoid. Personally I would avoid retailing, minin, energy, Tesco's. Is it likely you could turn the 1 million into 10 million or at least 5 million within 5 years?

At a market bottom, you want to invest in unpopular reviled sectors, which ironically are the exact sectors that you named: retail, mining, and energy. In fact, it is exactly your hatred for these sectors that proves the point.

It is mean reversion that pushes price towards the historical average. In this video, Doug Casey makes several key historical points based on research by Mel Faber:

1) Mel Faber studied countries with stock markets that declined 80% or more. On average, those countries saw their stock indices rebound by at least 120% in the next three years after the market bottom.

2) Faber also found similar huge rebounds in different industry groups. He studied U.S. industry groups going back to the 1920’s. When a U.S. industry group fell by 80% or more from a peak, the average return in three years was more than 170%.

Think about the profit opportunities just by using speculative funds (i.e., money that you could afford to lose). The suckers buy assets in hyped manipulated overheated markets and then see their paper profits implode during the inevitable market crash. The smart money buys distressed assets (the most beaten-down sectors) at a market bottom.

http://www.caseyresearchtraining.com/tra...mt721.html

(01-01-2018 05:11 AM)PK1098 Wrote:  

Is it likely you could turn the 1 million into 10 million or at least 5 million within 5 years?

Not likely. If the market tanks 50% and you invest at the market bottom, you will make a 100% ROI when the market returns to pre-crash levels. You could trade options, but it is very tricky (i.e., you must know the pitfalls of the Greeks when trading in a high volatility environment). One way is to invest in very beaten down sectors (e.g., down 80%) and take advantage of mean reversion as discussed above. If a sector drops 80% and then returns to pre-crash levels, then you can make a 400% return (if you are lucky enough to buy at the bottom).

[Cane Toad]

(01-01-2018 10:21 PM)Tail Gunner Wrote:  

The smart money buys distressed assets (the most beaten-down sectors) at a market bottom.

Distressed assets are "distressed" for a reason.

Warren Buffet famously said "turnarounds seldom turn"

[Tail Gunner]

(01-01-2018 10:29 PM)Cane Toad Wrote:  

(01-01-2018 10:21 PM)Tail Gunner Wrote:  

The smart money buys distressed assets (the most beaten-down sectors) at a market bottom.

Distressed assets are "distressed" for a reason.

Warren Buffet famously said "turnarounds seldom turn"

He was talking about turning around a single business, not the financial cycles of an entire business sector. You are comparing apples to oranges. Try watching the video before shooting from the hip. Besides, look at what Warren Buffet does, not what he says:

Quote:

And what about Warren Buffett? As a result of the losses American Express suffered from funding De Angelis, American Express stock, fell in price from 65 in October 1963 to 37 in January 1964. Believing this was temporary. Warren Buffett began buying shares and established a 5% stake in American Express for $20 million. As indicated by the chart below, American Express made a ten-fold move between 1964 to 1973. American Express was one of the first of the many successful investments Warren Buffett made.

http://www.businessinsider.com/the-great...63-2013-11

[Tail Gunner]

(12-24-2017 04:06 AM)[email protected] Wrote:  

(07-11-2017 10:07 PM)Australia Sucks Wrote:  

[email protected] the U.S. and Australian stock markets are still going strong meanwhile Ethereum has recently crashed 50% from its all time highs very quickly. Crypto-currencies are the modern day tulips. Sure you might make big and fast profits if you are lucky but don't expect most of the current ones to still be around in 10 years time.

When you posted this Ethereum was roughly 200 USD. Today, 6 months after you made this comment it's around 700 USD. That's a 350% increase. Was there anything in the ASX top 100 that did that, I'm curious?

https://coinmarketcap.com/currencies/ethereum/

I did warn you but you dismissed crypto-currencies as a highly speculative bubble, something I would hear users on whirlpool forums say.

This thread is about investing, not speculating. AS and I do not typically agree on much, but you simply cannot compare moderately safe investment returns to much higher-risk speculative returns.

I am a big fan of speculating (i.e., the use of small amounts of money that you can afford to lose to make oversize gains), especially asymmetric speculations, but anyone who thinks that they are investing when they trade crypto-currencies has no business calling themselves an investor.

Bitcoin is clearly a huge speculative bubble, but bubbles can also last a long time. Just know the risks when speculating -- and take some money off the table as you make gains as insurance against a future collapse.

[Cane Toad]

(01-01-2018 10:38 PM)Tail Gunner Wrote:  

He was talking about turning around a single business, not the financial cycles of an entire business sector. You are comparing apples to oranges. Try watching the video before shooting from the hip.

Ok, so what are you talking about?

A "distressed asset" is not the same as an economic cycle. An asset can under/overperform at any stage of the business cycle.

Sounds like you are comparing assets with cycles...

I don't need to watch the video mate, and my guns are holstered.

[Tail Gunner]

(01-01-2018 11:00 PM)Cane Toad Wrote:  

(01-01-2018 10:38 PM)Tail Gunner Wrote:  

He was talking about turning around a single business, not the financial cycles of an entire business sector. You are comparing apples to oranges. Try watching the video before shooting from the hip.

Ok, so what are you talking about?

A "distressed asset" is not the same as an economic cycle. An asset can under/overperform at any stage of the business cycle.

Sounds like you are comparing assets with cycles...

I don't need to watch the video mate, and my guns are holstered.

I am talking about cycles of sector expansion and contraction. For example, during the last great infrastructure expansion in China it consumed huge quantities of raw materials from Australia and other nations. This caused a huge capital expansion in the mining and energy sectors and drove up stock prices in those sectors.

Once these mining and energy companies reached full capacity, there was a contraction as the price of these raw materials declined both because of overproduction and declining demand from China. As a result of this declining demand and overproduction, the mining and energy sectors became despised by investors as stock prices dropped and, as a result, these companies became undervalued. As a further result, these industries cut production.

If there is a substantial stock market correction, these sectors will likely become even more undervalued and become a distressed asset. This is really just basic supply and demand economics. After a market bottom a change in the cycle back towards full production, rather than underproduction, will result in a mean reversion towards the historical average. The video discusses market distortions, mean reversion theory, and distressed assets (in 80% market corrections).

[Cane Toad]

Mate, no offense...but you know jack shit about mining economics in Australia. And yes, I do know something about this topic.

What's the story with you...trying to become a share advisor?

[Tail Gunner]

(01-02-2018 12:36 AM)Cane Toad Wrote:  

Mate, no offense...but you know jack shit about mining economics in Australia. And yes, I do know something about this topic.

What's the story with you...trying to become a share advisor?

This is a forum for exchanging information, knowledge, and ideas. Thanks for providng a useless comment, without any explanation, reasoning, or support for your position. Your claim is completely and utterly meaningless without an explantion to back it up.




What I described about business sector economic cycles, using mining as an example, is so elemental that it is beyond dispute:

Quote:

Global metal prices go from being way too high, to way too low, to way too high….

When prices are high miners and investors get excited and build and expand mines

Too many mines get built and the market gets flooded with metals causing prices to crash

The price crash kills new expansions and forces mines to close, eventually causing a shortage of metal and making prices go up

And so on and so on, over and over and over again….

http://www.nr.gov.nl.ca/nr/mines/prospec...Cycles.pdf

From the same article -- The market bottom phase that I described, where you can buy the stock of companies that have become distressed assets:

Quote:

Bear Phase: Major miners fire the management, stop grass roots exploration because there are no extra profits after paying for operations/debt payments/dividends, juniors become dot-coms or weed companies because no one will ever need an orebody again – prospector deals are tough to come by!

[Cane Toad]

(01-02-2018 01:37 AM)Tail Gunner Wrote:  

[

What's with the dumb arse hamster gif? Do you think you are talking to a woman?

[Tail Gunner]

(01-02-2018 02:45 AM)Cane Toad Wrote:  

(01-02-2018 01:37 AM)Tail Gunner Wrote:  

What's with the dumb arse hamster gif? Do you think you are talking to a woman?

Obviously, I was indicating that you were talking like a woman, making baseless claims without any supporting logic, reasoning, or evidence to support your criticism. In fact, you are still doing it -- by addressing the gif and changing the subject, rather than addressing the topic of discussion.

[Cane Toad]

(01-02-2018 12:02 AM)Tail Gunner Wrote:  

If there is a substantial stock market correction, these sectors will likely become even more undervalued and become a distressed asset.

Ok, let's stay on topic.

You seem to be confusing the meaning of market, sector and asset valuation. Or maybe we are just using different terminology?

A "distressed asset" generally means an owner is being forced to sell. The reason for the forced sale can vary, but it usually is a result of debt.

In your mining example, a mine is treated as a long term asset and the mine valuation is based on a long term cyclical forecast of commodity prices. A share market correction may have a short term impact on the value of the mining company on the share market - however the long term value of the mine is unchanged. The asset, in this case the mine, is not considered "distressed" even though the market may have placed an irrationally low valuation on the company that owns the asset.

The key point is that a decision to invest during a market correction is a decision based on market timing, not vulturing distressed assets.

The next topic for discussion is sector valuation. This is where commodity price fluctuations are important - but not the only thing to consider. Using your mining example, it is true that increased demand from China did drive up commodity prices, particularly iron ore. In response to the increasing prices the major producers increased production. This appears to be basic economics, however the decision to increase production was being driven by more than price. A rational mining sector would have reduced production to strangle supply and keep the prices high. This is how the oil sector works. A closer look at the mining sector reveals a different strategy - they intentionally increase supply in an effort to force high cost producers out of the market ie; they want to force the price down to drive the smaller and higher cost producers broke.

The key point is that sector valuation is driven by more than supply and demand. Big miners are playing the long game. Last man standing strategy.

Which leads us to asset valuation. In the face of falling commodity prices, the smaller mine owners often just stop producing ie; the mine goes into care and maintenance mode. The share price of these companies go down (basic short term NPV analysis). The mine asset now has a lower value - bit it isn't considered distressed. The mine owners don't have to sell the asset - they just have to accept a lower return on capital until the mine becomes viable again - which in many cases does happen because the effect of shutting down production creates a supply problem and prices rise again.

The key point is that decisions about asset utilisation and the resulting effect on asset valuation is an investment decision made by the asset owners. A mine might be worth $1 on paper today, but it's not a distressed asset. It only becomes a distressed asset when the owners are forced to sell - and for $1 most owners will just sit on their assets until market conditions improve.

So anyway, hope that clears up my initial comments.

[Tail Gunner]

(01-02-2018 05:48 PM)Cane Toad Wrote:  

(01-02-2018 12:02 AM)Tail Gunner Wrote:  

If there is a substantial stock market correction, these sectors will likely become even more undervalued and become a distressed asset.

A mine might be worth $1 on paper today, but it's not a distressed asset. It only becomes a distressed asset when the owners are forced to sell - and for $1 most owners will just sit on their assets until market conditions improve.

So anyway, hope that clears up my initial comments.

Fair enough. I agree with most of your analysis. I used the phrase "distressed asset" in the broader sense, as when an asset's value is severely depressed -- thereby presenting a great bargain when buying a company's stock. Often the value of an entire business sector can be severely depressed, which often occurs at the bottom of a cycle in a business sector. If the bottom of such a cycle also happens to coincide with a stock market bottom where investors are frightened and deleveraging, then you can really pick up very deeply discounted stocks.

[JimBobsCooters]

(01-02-2018 06:13 PM)Tail Gunner Wrote:  

(01-02-2018 05:48 PM)Cane Toad Wrote:  

(01-02-2018 12:02 AM)Tail Gunner Wrote:  

If there is a substantial stock market correction, these sectors will likely become even more undervalued and become a distressed asset.

A mine might be worth $1 on paper today, but it's not a distressed asset. It only becomes a distressed asset when the owners are forced to sell - and for $1 most owners will just sit on their assets until market conditions improve.

So anyway, hope that clears up my initial comments.

Fair enough. I agree with most of your analysis. I used the phrase "distressed asset" in the broader sense, as when an asset's value is severely depressed -- thereby presenting a great bargain when buying a company's stock. Often the value of an entire business sector can be severely depressed, which often occurs at the bottom of a cycle in a business sector. If the bottom of such a cycle also happens to coincide with a stock market bottom where investors are frightened and deleveraging, then you can really pick up very deeply discounted stocks.

When you use a very specific term, such as "distressed asset" incorrectly it makes everything you say harder to trust or believe and generates worthy questioning of your post.

While your overall point is actually a good one in regards to market cycles it is being undermined greatly by your misuse of that term.