LIC & LIT Listed Investment Companies (LICs) 2021

{Note from mods - this thread continues from here: Listed Investment Companies (LICs) 2020}

This is the key - if it will help you to stay the course go with it. The pros and cons of dividends have been discussed a lot here, make sure to read over the reasons and be happy with the decision you make. As @SatayKing would say it's all about me. People like Peter Thornhill and Paul Merriman I find admirable as they stick to their guns no matter what, and regardless of whether they are "optimal" have done amazingly well for themselves.

 

Thanks again, I’ve read every LIC and ETF thread since 2017, what an education! Ive also read 7 or 8 investing books by professionals and honestly learnt as much from here about the basics, especialy great to have local knowledge as most books are US focused.

Never would have thought behavioural things would be the hardest part, i constantly want to buy every payday instead of waiting until i have reached my target funds to buy, then want to own every LIC and every ETF! Is a constant battle i guess. Some would say coffee helps but not sure on the science of that one

 

A great book, by one of the best writers in personal finance.

 

Coffee = Behavioural things.

The science is in.

 

Hi Geoff,

The book was posted as a reference to the below (highlighted) finance behavioural comments by DCA

Morgan Housel is a partner at The Collaborative Fund and a former columnist at The Motley Fool and The Wall Street Journal. He is a two-time winner of the Best in Business Award from the Society of American Business Editors and Writers, winner of the New York Times Sidney Award, and a two-time finalist for the Gerald Loeb Award for Distinguished Business and Financial Journalism.

I'm not a fan of Motley Fool as they seem to have a bet each way, depending on authors and there's a plethora of those, however, they do have some interesting articles on occasion, and authors (even Strong Money Australia has contributed )

The below podcast from the rational reminder is a good introduction to Morgans book

Episode 128: Morgan Housel: The Psychology of Money

 

Thanks Redwing, i’ll add the book to my ever growing list of reading material. I used to only read about rock n roll and sports, now im more excited about p/e ratios and asset allocations. must be getting old (or already there)

 

@Ross36 did you find this difficult to implement and if it came gradually or you went cold turkey?

I admit it took me a while to cease continually checking and I still have the occasional thought but then mentally go "Why the need to bother?"

With the DRP arrangements I have now put in place, it's a way for me in even further removing the temptation to look and fiddle which will simply mess things up.

 

This is a bit long sorry - but I think it was a combo of a few things:
1. Finally understanding and buying into the inability of anyone to predict the markets outcome. Pre GFC I was a sucker, buying newsletters and studying forecasts and balance sheets. After that I read a lot more and became a bit of a "but that's not optimal / but back testing shows you should tilt to...." muppet. Now I realise that literally noone knows what the outcome will be in the long term, but if I hold a diversified portfolio for 20+ years in all likelihood the outcomes will far exceed my wildest dreams. Being a bit of a worry wart I tend to focus on the worst historical outcomes when I think about what will eventuate, then remind myself that even if that happens the world won't end. Probably the only way I can truly screw things up is to make the common mistake of panic selling during a drop. Thankfully I've been tested twice now (GFC & covid) and passed. The real test would be a 70s style drawn out loss of real capital with inflation chipping away year by year. I hope to emulate the thornhills and merrimans of the world and stick to my style through thick and thin.
2. I thought long and hard about a voluntary redundancy this year, which forced me to consider what a drawdown strategy would look like. Looking over the edge of the cliff like that really forces you to think about what you're doing. So I set a plan I can live with and move forward.
3. Appreciating that optimists typically triumph. Reading very long term histories like Elroy Dimsons work was most helpful in understanding that short term oscillations become long term blips on an upwards moving line. But diversification is key.
4. For me the portfolio diversification is vital - I like thinking that I own a bit of everything! The only thing I don't own much of is emerging markets (which is really China...). I could see me being uncomfortable with it and thinking about it too much, so it's a no for me. I'm very comfortable that global real estate and equities will exist in 20 years so don't need to worry about them. I also believe in the USA and the power of capitalism and the passion of founders - hence the USA midcaps. And the Oz portion makes sense with our franking credit advantages and sector diversification compared to the other countries I have. Every one of these I'd happily never sell. And if Australia has a drawn out decline I have enough in overseas non-hedged currency shares to start again.
5. There are many ways to take advantage of sell offs, including tax loss harvesting and rebalancing. Running the numbers on these made me much more comfortable with market sell offs.
6. Keeping a relatively large portion of money in "safe" assets to minimize volatilty. It may not be optimal for maximising returns, but running my numbers I don't need to shoot for 10% per annum growth. My hats off to people who are 100% in shares, I know I couldn't do that without anxiety so found a good balance for myself.
7. Last but not least - a thank you to the @Nodrog and @SatayKing 's of the world for your shared wisdom on here. It's crazy to think about the quality of info about share investing on a property forum!

Don't get me wrong though, I still check occasionally out of pure interest but the big difference now is I don't see it as "wow I'm 1.5% richer today" or "oh no, I just lost 28 weeks worth of savings this week because the share market dropped 5%". I'm much more emotionally disconnected from the numbers now than I was. It's more "academic" then personal now.

 

Thank you for the comprehensive and absorbing reply @Ross36.

Interesting in that it shows people can sometimes travel different pathways yet still arrive in the same place.

 

Perhaps even more so for older retirees where time frames are potentially shorter. If investing for the next generation then that may be a different matter although in the meantime one might still find it hard to ignore if that way inclined.

By the way your overall post was great thanks. I can certainly relate to what you posted. Our portfolio has progressively been simplified to where it’s getting closer and closer to the 3 fund portfolio but cash / term deposits replace the bond component which is relatively small anyhow. As a retiree VGS is broad enough to meet our international exposure needs although we still have a legacy LIC holding being PMC.

It seems weird having so few holdings now but in a good way. I suppose it’s so boring that there’s nothing of interest to fiddle with. Hence it gets left alone to do its thing without me messing around and potentially impacting performance negatively. Record keeping and tax time is certainly a breeze now. Also the wife is no longer horrified at the though of looking after the portfolio if I kick the bucket.

Life is good, no magniicant actually.

 

Bargains?

 

lol mate your images are always on point.

as they say "a picture is worth a thousand words"

 

I wasn’t sure whether turning 61 soon should be a happy or depressing thought. I just logged onto Facebook and was greeted with this:



It appears Facebook considers it a depressing event.

 

Great to hear! I've been reading your posts for many years, and your wisdom has been a great guiding light for many of us on here.

VGS is such a great product and I'm a huge Lars Kroijer fan. I only went with IJH instead for my non currency hedged international component because I wanted to make sure I wasn't underweight USA given my overweight to Oz shares.

 

Didn't see the start of this thread.

 

That's easily fixed, we'll create a Property Chat Charity so you can donate to all of us Nodrog

Can someone help me with a query on QVE? Maybe not Nodrog as he deserves a day off on his birthday....

I'm hesitant to buy QVE purely because of survivorship concerns, am i correct in thinking the major drawback to a LIC closing is the loss of dividend yield from the shares i might purchase this year, for example QVE SP now is 90c and annual dividend 4.4c. in e.g. 20 years time the shares i buy this year would potentially be receiving a dividend of 10c in year 2040???

 

I don't think this is a major issue, as if it closes it will be similar to selling your shares. You can then use that money to buy something else and obtain that dividend.

There are however many real problems with a closure, including the tax issues and the timing of closure. If you are forced to sell all of the shares at once you may well get slugged with a large tax bill. If it is to close it is likely to be after a long period of underperformance, so you might get a double whammy of a tax hit and selling out of a strategy that you intended to stick with for the long term.

Eg. If you wanted small cap value and bought a fund that invests in it, but SCV underperforms for a few years versus a growth fund and people lose interest in it, that may be when your fund closes. But that's possibly the WORST time to close if you believe in mean reversion, and that it will soon be SCVs time to outperform. So then what do you do with the money returned to you?

For me when I looked at it QVE charges a very high and unclear fee relative to its competition (seems like their indirect cost ratio is over 1% but even they don't know how much it is vs. EX20 at 0.25%), has performed very poorly over multiple years while others have done well, and has key person risk in that a single "star" stock picker is the reason it exists. If he leaves it would anyone want to own it? These are all major concerns for me.

The most concerning part is this from their FAQ on their website:

"Although QVE has not done any in-depth analysis on the ICR going forward it is expected that there will be approx 0.25% in operating costs giving an estimated ICR of 1.125%. Please note this is an estimate only."

If they can't run the numbers on their own company how can they do it well enough on the ones they purchase with the intent to beat the market?

 

i normally have a look at the annual report and estimate MER as a ratio of total expenses vs net assets, according to QVE latest report their total expenses were approx 1.1658% for the last financial year.

For some LICs, especially the ones charging performance fees, those numbers can be quite staggering, not unusual to see figures between 3 and 5 percent!