LIC & LIT Beginner's Guide to Investing in Listed Investment Companies

Such an important lesson in this - psychology is tough to overcome and in FP industry during GFC we had clients completely hoodwinked by media hysteria and could not think for themselves any more even though we educated all our clients about what to expect and cycles are normal, market will rise and fall all the time but trend up etc.

Unfortunately some people's common sense went astray and they accepted the premise that their portfolio could actually go to 0 value when in reality that would mean there is no Australian or International economy any more and they would not have a job!

Clients were all well insulated from risk with excellent spread of 100's of different Aus & Int quality blue chips (all the names we know and a few more) and yet there were still a minority of clients who insisted they wanted out. Why? Psychology got the better of them and they had never really accepted in their mind the legitimacy of shares representing a pure form of business ownership and how valuable a thing for their own long term future that was going to be. Instead they had bought in to the perpetual myth of the uninitiated that the share market is inherently dangerous and even with a diversified, high quality portfolio you can lose all your money in a crash.

So 2 players can look at the same chess board and see entirely different possibilities and that is exactly what happens every time the fear sets in in the market. Common sense says CBA, NAB, Coles, Woolies, BHP, RIO etc won't be shutting up shop and going down the gurgler any time soon.

The questions for an accumulator are twofold....
1. What kind of investment vehicles in the market do we use to grow the portfolio?
2. How do we get a sense of when the market is approaching good pricing on our specific investment vehicles?

If we can answer these quickly and efficiently using tools that allow for a macro view (very efficient for spotting the best opportunities quickly) then we are well on the way to constructing a repeatable, consistent strategic plan.

 

Short and sweet, thanks! Great summary.

 

You could be lazy like me and just check this on Mondays...
Listed Investment Company (LIC) updates - Cuffelinks

Indicative NTA down the page. It's prob good enough

 

Yep definitely good enough for me. Enough to make a decision on which has the biggest discount on NTA and top up on that one.

 

I also like Australian ETF and LIC fund list, blogs, news (though I'm not sure how fast the NTAs/figures are updated on this site, therefore how current they are, but I'm assuming they can't be wildly off, and I check the fund sites if necessary).

 

ETF Watch updates once a month, on or after the 15th as far as I can tell.

 

Thanks, I thought it would have been maintained, good to know once a month.

 

After getting to know a bit about LIC's ( still learning ) ,decided to plunge in the world of LIC's investing. Based on the MER's had shorlisted few LIC's and decided to invest a little amount every month. This morning when I checked the market price of LIC's only two funds seem to be under discount. So I can buy one of the two LIC's under discount. Is my approach correct ? or am I doing terribly wrong ?
Code 31-07-17 NTA 31/07/2017 P/D

AFI 6.09 5.89 3.395585739
MLT 4.6 4.48 2.678571429
BKI 1.7 1.61 5.590062112
WHF 4.53 4.89 -7.36196319
QVE 1.36
ARG 7.98 7.71 3.501945525
MFF 1.99 2.14 -7.009345794

 

1. You're not doing terribly wrong, you have thought about your strategy thay is relatively low risk when combined with other strategies.
2. Of those I would go for WHF as the only one at discount to NTA or potentially VAS which has come off the boil recently.
3. MFF is an international LIC but it has outstanding options that reduce its actual NTA. It is also high in fees and has performed very well in the past, so much so that I wonder how long it can continue . Think mean reversion plus noone can predict the market.
4. This strategy should be considered with an international allocation. Right now VGS, VTS etc are cheaper because of the strength of the Australian dollar. They and other unhedged international ETFs might be a good choice.
5. More recently I have been convinced to have a larger cash allocation. The overall market / global economy is expensive and many believe a correction is on the cards.

In conclusion, if you get WHF for example, make sure you consider your overall allocation between Australia (WHF, VAS) , International (VGS, VTS, VEU) and cash/bonds (e.g. VAF or at call account). Once youve understood the reasoning for your allocation try to stick with it whilst being practical about brokerage (ie buying larger chunks that may skew your allocation until your next purchase).

Not licensed to give advice.

 

Thanks ErYan,
I think the most important knowledge for me form the above post for the day ( not that rest of the points were not valuable) is :

'MFF is an international LIC but it has outstanding options that reduce its actual NTA. It is also high in fees and has performed very well in the past, so much so that I wonder how long it can continue . Think mean reversion plus noone can predict the market.'

Will lookinto it further. Actually I had few ETF's in my list as well. Had not inlcuded VAS in it. If none of them were under discount would have bought one of the ETF's.

I know we cannot predict when the next fall would be , and understand it would be best time to purchase when it happens . But instead of waiting for too long i thought let me invest in small chunks regularly and when the big opportunity arrives jump in with all the funds available.

Is there any LIC or ETF investing in Indian market ? I believe India market has got lot of potential and its a good option under International allocation.

 

@Ideacrash

Great growth, but how about stability/volatility?

India ETF List

 

Thanks redwing,
I am still a novice , however with what little I know with the current government the economic view for the future looks good and should reflect in the stock market as well. Overall the market is relatively stable I believe and if you are a long term investor the the minor volatility should not impact.

Not advice.

 

Company tax rate confusion creates chaos

LICs caught up in franking chaos from company tax reduction

 

Hi - all, appreciate the thread and the work on the beginners guide which has been very helpful.

One query I have is in relation to the Peter Thornhill and other recommendations in the beginners guide of never selling and choice of initial LICs. If I’m never going to sell should I focus on high income dividend or capital growth LICs/ETFs or a mix?

Is the theory of never selling based on the BHP vs TLS example in the following
Five yield traps - ASX

 

From my perspective, the reason to never sale is that I plan to generate enough passive income to never have to sell part of the portfolio to fund lifestyle in retirement.

Also if you plan to retire early then buying high yield shares/LICs makes sense, if not then it also depends on your goals, tax rate, when you plan to retire etc..

In saying so, a mix could be a good option.

 

Exactly, why worry about a 4% withdrawal rate if you can get 4% dividends and growth of capital, you just need to have enough capital invested. $500,000 in your Superannuation will only net you $20,000 dividends per year

 

Don't forget you receive the benefit of franking credits.

 

Too many people spend money they haven't earned, to buy things they don't want, to impress people that they don't like.

The quickest way to double your money is to fold it in half and put it in your back pocket.

The only way to beat the lawyers is to die with nothing.

Don’t gamble; take all your savings and buy some good stock, and hold it till it goes up, then sell it. If it don’t go up, don’t buy it.

Will Rogers had a lot going for him.

 

And Drink more Gin.

 

Martin just in case make sure you have the latest LIC Guide (V3) attached.

It would be worth looking at recent discussion on the main LIC thread also.