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

Number one reason: BECAUSE THEY NEVER PAID COMMISSION TO FINANCIAL PLANNERS. Plus they didn't spend a disgraceful amount of investor's money promoting themselves. So not many investors knew about them.

Since FOFO changes in 2012 commissions have been banned:
http://asic.gov.au/regulatory-resou...e-reforms/fofa-background-and-implementation/

Which is why LICs have been increasing in popularity since then. Financial planners are not favouring those funds that paid commission (managed funds) over those that didn't (LICs / ETFs).

Also since ETFs have increased in popularity LICs have made an effort to promote themselves better to avoid losing market share.

I wish LICs hadn't become more popular as it's harder to get them at a bargain. So please keep it a secret.

 

Yield on original share price may be similar but yield on current share price has halved. Thus, you could sell and double the yield.

E.g.
$10K of ARG is purchased generating around 4% = $400 yield without franking. Price of ARG doubles so yield os 2% = $400.

If you sold ARG and purchased MLT the yield is now $800. Problem is the CGT paid on sale. In addition it would be very unlikely to double without the yield increasing. It was just a question based on my statement.

 

Remember Thornhill's advice about selling: take an aspirin and lie down until the urge goes away. He has said it more than once that almost all of his investing regrets are selling related.

Not advice. As always, do what feels right for you.

 

I've needed to keep a whole cupboard of aspirin on hand over the years to help prevent me from doing a number of stupid things including selling. Hasn't always worked unfortunately.

I agree with Thornhill my worse mistakes have been the selling ones. For example I sold AUI 32 years ago for capital to "trade" my way to riches. You stupid, stupid boy.

 

I guess having a decent cash buffer can sooth these issues and treat it like a company cutting back dividends.

I ideally would like to continually hold and use some of my cash reserves until the yield looks attractive time again and I would not have sols any stocks and not paid any CGT etc etc!

 

You are probably interested to see this graph of AUI vs the asx200 then. It doesn't include dividends, you weren't entitled to then anyway

 

I think the thought of paying tax would stop me from selling

 

Yep, so I'm choosing to go against the tide

Along with a few others that are reading these posts

 

Because depending on your skill and luck, you may acquire a share that skyrockets over the year

2016 performers

• Saracen Mineral Holdings Limited (ASX: SAR)163.1%
• Whitehaven Coal Ltd (ASX: WHC) 152.9%
• Mineral Resources Limited (ASX: MIN) 138.2%
• Fortescue Metals Group Limited (ASX: FMG) 116.6%
• St Barbara Ltd (ASX: SBM) 114%

I've neither the skill or the luck

 

Thanks @Redwing

Most (if not all?) resources for this short list of last year's performers

May rethink my current BHP holdings... for now, until I have the foundations set up to move into LICs more fully.

 

Where did those figures come from? FMG was under $2 at the start of the year and mid $6s at the end.

 

For those wanting an overview about LICs (and unlisted managed funds to an extent). I found this article an easy read - Dividends and diversification - ASX.

I also found the last paragraph a good overview and the The ASX / Morningstar LIC NTA report series link - Managed funds market update. a great link. Do others use these reports (even though a month behind) or are there other more reliable sources of info for this? I assume NTA could change quite substantially from month to month (although NTA figures could be used as a guide?)

 

I find it useful as a summary. I used to get the NTA from there but it comes out quite late so instead I go directly to the LIC websites who publish the latest NTA information. It is the best way to calculate intra-month NTA as accurately as possible.

Another good comparison website is Australian ETF and LIC fund list, blogs, news. I find some of the information not totally accurate but close enough to compare.

NTA can change month to month as much as the share market index. If CBA gained 10% and Westpac lost 10% you may not see much of a change in NTA. If the entire ASX dropped 10% that is probably how much the NTA would drop.

I use this site to calculate exact dividends Search dividends

 

Great links and certainly makes for comprehensive analysis. Agree with going directly to the source for accurate NTA. Thanks @ErYan

 

Just saw this article on the site @ErYan

What happens when the axe hits LIC dividends?

 

Thanks @Redwing , great read. I also went onto the next article - How do the grandfathers of Australian LICs compare? which talks about the oldest LICs and an interesting discussion about Carlton Investments, which (I don't think) had too much discussion here.

 

Yes, good article.

And why I tend to favour the older LICs which are mostly "dividend harvesters". That is, being predominantly buy and hold funds they're merely passing through the dividends from the companies in the portfolio. Hence dividends are relatively reliable. Any noticeable cuts in dividends (if unable to smooth completely from reserves) are most likely during severe market downturns such as the GFC.

"Trading" LICs generally experience high portfolio turnover as these active Mgrs trade in and out of the market in the hope of making capital gains. Hence it's realised capital gains that make up the larger part of the dividends. They are also taxed more heavily in that if some stocks are held for more than 12 months and sold for a profit the 50% CGT discount can't be claimed.

Unfortunately traders can go through good and bad patches at anytime given the risky nature of the business. For every winner there's a loser. Then add in brokerage and research costs etc the odds deteriorate even further. Hence dividends from trading LICs can potentially be more volatile than those from the "dividend harvesters".

I know some probably redicule me for favouring the boring older buy and hold LICs. But they've been very good dependable investments for us over the long term that provide us with reliable retirement income and allow us to sleep like a baby even in the worst of times.

 

In the case of these you need to be resourceful. Pun intended.

 

Hopefully everyone reading through these threads have a similar approach in that they are using these companies for sustained, more consistent dividends/incomes, rather than the highs and lows that other companies/shares may provide for the traders. Sage advice in your posts.

 

So this is a really beginner question. I purchase some shares in ARG recently and have today received a letter. It says go to Computershare.com.au to update details like Tax File Number and email address.

So - is this just the ARG website? Or do I have to go here when updating details for all share purchases? Is this site run by ARG? To be honest I had assumed I would have to give these details to ARG but - this site doesn't look like it's an ARG site.