LIC & LIT Listed Investment Companies (LICs) in 2016

BingoMaster · 31st Dec, 2016

johnpendlebury said: ↑

No, I don't so. The question was put as to how he was able to put together a portfolio that initially was producing approx $1000/yr in dividends to one that was producing approx $400,000/yr (what he said he was earning in the video posted) in the space of about 15yrs.

I think if you do want a portfolio that produces those sorts of dividends over that time frame then you prob do need significant earning power to put away large $$. But 1) you don't necessarily need 400k/yr in dividends to retire and 2) you can do it over a longer time frame than 15yrs
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Im pretty sure his time frame was longer than 15 years right? I think he said in the interview he started using microsoft money in 1988 or something. So more like 28 years

johnpendlebury · 31st Dec, 2016

BingoMaster said: ↑

Im pretty sure his time frame was longer than 15 years right? I think he said in the interview he started using microsoft money in 1988 or something. So more like 28 years
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Yeh, I now realise that.

Nodrog · 20th Nov, 2017

"STICK TO WHAT YOU KNOW AND UNDERSTAND"

Seeing I went to the trouble of typing this up in a email reply to someone I thought I might as well post it here. It sums up my simple approach and highlights that I'm not all that clever when it comes to investing. An amateur investor is all I am.

The discussion was initially about HHV's current drama where Peter Hall has quit and sold 20% of his holding to SOL. And importantly the risks associated with external management. That is, other Mgrs often through activism don't have to buy anything, they can just make an offer to the Funds "investors" to change the LIC's current investment mgr! If successful the new mgr has paid nothing but gets all future fees or can wind up the LIC particularly if it was trading at a sizable discount to realise the market value of the portfolio.

Don't panic when you read my view on WHF and BKI. Despite external management I still consider these low risk due to a loyal and conservative shareholder base etc. I continue to hold these and add to them but less so than to the others. They will be relatively smaller holdings overtime compared to the older internally managed LICs:

(Have removed the other party's comments due to privacy)

Yes and why I really don't like external Mgrs much at all. Wasn't happy when WHF did it and I'm not happy BKI did it. They aren't getting as much of our money nowadays as the internally managed LICs do. I've seen too many bad things happen with externally managed LICs over a long period which caused shareholders a lot of stress and grief. Our holdings in the externally managed LICs are smaller (or will be over time) than the old internally managed ones. We have large holdings in MLT / ARG and sizable holdings in AFI / AUI / MIR. QVE is a reasonable sized holding for us but I do feel a little uncomfortable with a bit of key person risk and external management. The charity focused LICs FGG/X I'm comfortable with being multi-Mgr, low fee compared to going direct and the fact no one would dare consider activism against them.

I know a number of the above holdings don't appeal to you due to recent performance and their unwillingness to sell. The older internally managed LICs might be boring and performance considered ordinary at times compared to some of the high fee, new breed externally managed LICs. But they let me sleep well at night and are likely to be around long term compared to the likes of HHV which has (had) key person risk or being a modest sized, externally managed LIC is potentially at risk of activism against it. Anything under $300 - $400m in particular is an attractive proposition to activists if the circumstances are right.

As for boosting the performance of the old style LICs I get it through being patient and grabbing more in extreme gloom, when discounts arise in the right market conditions and through SPPs / Rights Issues / Bonus Issues etc.

I'm not really that smart so for better or worse I still predominantly follow the same relatively safe, simple and boring approach Daryl Dixon (and Thornhill later on) taught me in my 20's. That is, stick mostly with the internally managed, conservative, low fee LICs and try to buy at a discount.

The following AFR article will unlikely excite you but shows that Dixon himself (a very wealthy man) is still following the same approach he advised me to follow over 30 years ago. For better or worse for Dixon and myself it essentially comes down to keeping it simple, focus on dividends, let other conservative, knowledgible and informed people do the work but for a low fee, a long history of proven performance, buy when cheap and "stick with what you know and understand":

"May 27 2011 at 1:44 PM
Dixon takes conservative approach to his fund

Stick with what you know and understand. This pretty much sums up the investment philosophy of one of Australia’s foremost experts in the field of do-it-yourself.

Daryl Dixon is the founder and executive chairman of DIY specialist firm Dixon Advisory; a former employee of the Treasury department and the International Monetary Fund in Washington DC, and an economics graduate from Cambridge University.

He has the financial expertise, and no doubt the funds, to invest in every whiz-bang product that is launched from deep within the financial laboratories of global investment banks. But he doesn’t, preferring to stick with straightforward instruments such as listed investment companies, cash, bond funds and preference shares.

Dixon established his self-managed scheme in 1990 and has three fellow trustees: his wife, Katherine, and two adult children, Alan and Alice.

“It has always been conservatively managed," says Dixon of the fund.

“My experience over many years is that it pays to be a conservative investor. I tend to pick investments to buy and hold."

And those investments are straightforward and transparent.

“You are at real risk if you don’t understand the investments," he says. If an investment sounds too complicated, you need to be cautious. The best investments are relatively simple."

Over the past few years, the fund has become even more defensive, partly because it is paying a pension to Dixon and his wife and partly because of the uncertain economic environment.

As a result, about 20 per cent of his DIY scheme was invested in high yielding securities, such as bank preference shares, bond funds and cash by late last year.

Today after payment of this year’s pensions, the cash holdings are closer to 10 per cent. This is sufficient to pay two more years’ pensions. Future fund earnings will be used to replenish cash holdings.

Over the years the portfolio has invested in more risky investments “at the appropriate time" such as stakes in biotech companies but that “time" is clearly not now.

Some 60 per cent of the portfolio was in listed investment companies at the time, including Australian United Investment Company, Diversified United Investment, Milton Corporation, Carlton Investments and Brickworks.

Dixon is a big fan of investment companies that are quoted on the Australian Stock Exchange.

From time to time when he has held other assets in the portfolio they have invariably been replaced with listed investment companies.

“The advantage is you get a diversified portfolio," he says. “You could not get such a broad-based portfolio otherwise.

“Twenty stocks are about as many as any reasonable [DIY] fund can manage and one of the troubles with investing in individual companies is the surprises get you, as we saw in the global financial crisis."

Furthermore, he argues listed investment companies are run by knowledgeable, informed people, they charge low management fees and have outperformed the index over much of the past 20 years.

One downside of holding shares in listed investment companies became evident during the sharemarket crash of 1987, when they fell by more than the market and were being punished for doing their job.

Listed funds remained liquid while everything else dried up, so investors desperate for cash sold out. Happily the share prices did recover.

The remaining 20 per cent of the Dixon family super fund was invested in Asian equities and resources at the time of interview, mainly through the Dixon Advisory-run Asian Masters Fund. Perhaps unsurprisingly, this is also a listed investment company.

According to the 2009 annual report, the Dixon fund holds 500,000 shares in Asian Masters, which would value the stake at about $500,000.

There is also a small stake in a technology company.

Dixon says the fund has outperformed the All Ordinaries by between 2 per cent and 3 per cent a year. It fell 20 per cent during the crisis but a large part of that loss has since recovered.

The trustees did not change their investment strategy during the crisis but contributions were kept in cash until markets began to recover.

The investment management fees, Dixon says, are about 0.1 per cent of the fund.

So what has been Dixon’s best investment?

“The best investment is to put money into a fund and hold good yielding listed investment companies," he says.

And his worse investment?

“The returns from some of the more speculative investments probably didn’t justify the worry involved."

Dixon cites Biota, a biotech company as an example. The gyrations in the share price were too much and he eventually sold out.

“Such volatility is not appropriate for a self-managed super fund," he says."

Dixon takes conservative approach to his fund
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{Note - thread continues here: Listed Investment Companies (LICs) in 2017}

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LIC & LIT Listed Investment Companies (LICs) in 2016

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