Following on from Darren A’s request for a brief explanation of LIC’s I thought I would create a LIC specific thread. Just quickly I will cover off what a LIC is, then I hope the thread can evolve to LIC specific discussion. Please note; I am not a professional, just an interested amateur. OK, to the question at hand……….what is a LIC? A bit of googling will give you a bunch of answers some more helpful to the uninitiated than others. So, I have come up with the below which I hope is helpful. A LIC is a pooled investment vehicle, in the form of a company, the stock of which can be bought and sold on the ASX. The Company holds a basket of stocks, and will also have a varying amount of cash on hand. This is the company’s tangible assets. Its investment managers make assessments about which stock to add to the basket, and which to sell, when, how much cash to hold for future buying opportunities etc. In exchange for this service, the Company charges a management fee. Management fees of the largest, longest established LICs are extremely low, typically 0.20% per annum or lower. LIC’s must report their Net Tangible Assets, and their top holdings each month. This allows a potential stock holder, to know exactly what the value per share is of the basket of stocks the company is holding, and which stocks the LIC is holding. http://www.afi.com.au/Last-12-months-ASX-Announcements.aspx At any time, the basket of stocks, on a per share basis may be worth more, or less than the stock price of the LIC. This is referred to as a discount or premium to net tangible assets (NTA). A LIC trading at a 10% discount to NTA for example, is holding $100 worth of stocks which you can have by buying the LIC’s stock at $90. A 5% premium to NTA however, will cost you $105 for a basket worth only $100. Clearly, you want to avoid the latter. LIC’s will pass on dividend income received from its basket of stocks to stockholders in the form of a franked dividend. Depending on their view of economic outlook, the managers will decide to hold back some of the dividend income as cash for future use. They use this to take advantage of opportunities to buy stock cheap, and also to smooth their dividend payments to stockholders. It should be remembered that during the GFC the largest LIC’s did not decrease dividend payments to stockholders, while many of their stock holdings suspended dividend payments. The LIC’s funded these dividends from their cash positions. There are a wide range of LIC’s operating on the ASX, with varying focusses and strategies, fee levels and historical performance. Speaking very generally, the largest LIC’s by market capitalisation are the longest established, and have the lowest fees. They are focussed on income and value, typically holding a diversified portfolio of mostly large cap stocks, and they do not trade their portfolio much. They have proven good stewards of capital over the long term. Many of the newer LIC’s have much different approach, employing all kinds of active management and specific sector focus. In addition to a management fee, often 1% or more per annum, many often charge performance fees that levy an additional cost to the stock holder should the LIC hit a particular rate of return in any given year. Like any investment, past performance, cannot be relied on as a guide to future performance. It will however give you some kind of an idea of how they handled past circumstances. You have a wide range of choices on the ASX, so due diligence is important. Note I don’t really want this to become an active vs. passive (ie. LIC vs Index ETF) thread, we will have an ETF thread as well. I’ll add more over time and welcome other contributions, I am just a punter after all.