Peter Thornhill 2017

{Note - thread continued from here: Peter Thornhill}

 

To give you the idea
$100K invested
Term deposit (RBA data)
Period: 9/1991 to 12/2015
Tax rate: 30% for shares (franking)
Term deposit calculated and reinvested each month
CBA or WBC (reinvested using DRP or close of the day on payment day)

Capital:
Term Deposit: $506,181.00 (no tax paid)
CBA: $4,117,467.00
WBC: $3,282,366.00

Income 2015:
Term Deposit: $12,540.00 (no tax paid)
CBA: $235,045.00
WBC: $186,424.00

Even if the dividends were not reinvested the returns are:
Capital:
CBA: $1,166,556.00
WBC: $1,040,968.00

Income 2015:
CBA: $94,458.00
WBC: $86,432.00

 

A real eye opener above, great job!

I have noticed Peter Thornhill loves to bring up his favourite charts of CBA, WES and the like and yes he has bought in opportune times and in gloom to give him a better margin of safety, however i guess we are looking for todays CBA stocks, and todays CSL and other growth/income stocks which are set to grow long term to get the same compounded results for the future!

I guess therein lies the challenges!!!!

 

Since this is a Thornhill thread, I'm going to give my two cents from the perspective of income growth investing.

There are various ways to approach this, but if going down the passive route, then an ETF or LIC should grow it's dividends over time. LICs in particular have this as a stated goal.

If you believe, like many people do at the moment, that the top 20 on the whole won't have much earnings growth for a while, then you could add in some small caps, some international holdings, etc. Just make sure whatever vehicle it is has a focus on dividend growth. If it's an ETF then this should happen over time passively, though in a more lumpy manner.

So you have your ETF or large cap LICs as your core. I would think QVE, MIR in the small cap space, FGX as a fund of funds, various UK listed investment trusts on the FTSE.... all have a focus on growing their dividends over the medium to long term. You can add some of those in there, if you think bank payout ratios, commodity prices, supermarkets etc all spell problems for Australian dividend growth. I don't necessarily think this, but it's a prevailing view at the moment.

I also bought SOL recently for the express purpose of growing dividends. I sort of see it as a highly concentrated LIC, but still governed by some conservative people. It's paid it's dividends consistently and grown it's dividends higher than the market over the long term.

 

I just finished Michael Holmes' Super Smart Money book.

Well worth the read. You can get it for like 5 bucks as an e-book on Amazon.

He's a disciple of the Thornhill approach but this book goes into details about the various tax efficient structures one can/should hold their investments in and the tax breaks you can get by doing so.

 

He he feeling cheeky again.

@johnpendlebury, Gotta be even quicker than quick, discussed earlier in thread:

Peter Thornhill (Super Smart Money)

But please keep posting thanks as the threads are long and the reminders great. I'm sure you will eventually find stuff that I and others have missed and we all will be grateful.

Keep up the great work.

Cheers mate.

 

Hi @BingoMaster,

Agree. Peter probably wouldn't be impressed with some of my holdings but I do as you say. We own QVE / MIR for small caps, FGX for all things active in OZ, FGG and others for international and would love to own some of the UK dividend focused LICs but accessibility and tax issues deter me. But the older LICs ("dividend harvesters" as opposed to "traders") are the major part of our holdings.

The important message in all of this is about building a reliable passive dividend income stream that will one day replace employment income. The greater focus on Industrial companies (for their dividends) and associated franking credits may help one get their quicker.

Importantly as @BingoMaster stated check the LIC / ETF / product's dividend policy to confirm that a regular and growing dividend stream ( and capital growth) is the primary objective. And importantly avoid those that have a nasty habit of repeatibly raiding capital to prop up what appears to be great dividend growth!

I don't own SOL as we get indirect exposure through our large stake in MLT.

As an aside I had a little more thought about WHF. I wonder if WHF's broadening of their portfolio into higher growth mid / small caps more so than the other oldies (from memory) in the last couple of years has resulted in less dividends now but greater dividend growth in future years? Must look into this more if enthusiastic enough.

 

View attachment 11876



What you need is to recognise value, learn patience and when the market hands you opportunities like these, back the truck. the market is there for your benefit. concentrate on the income
Since 08 CBA capital growth 20.42% WES 16.88%, but if allowed to compound the income (dividends) around the 13% mark.
The capital growth from early 90's to 08 is generally lower than from 08 to today by 1 to 2%.

You need to challenge what you believe question everything don't just believe, check it out and understand why you have that belief.

 

Great post.

Our truck's patiently waiting for the next heavily discounted load. Have no debt whatsoever now but LOCs on standby to pay for the next truck load. What a fantastic opportunity the GFC crash was. Damn sad when I ran out of cash and exhausted the LOCs.

I smile when others continue to talk down a number of the top 20 asx stocks. They're doomed, disruption, no growth .... . What's not often mentioned is what great income assets these are and will continue to be especially if you buy them when they're great value. Relatively safe, reliable and growing Income streams for life.

Given I've no great interest in spending time analysing direct stocks nowadays I mostly stick to the no brainers like CBA and WES WHEN the entire sector or preferably entire market tanks. Not much expertise required to recognise value in these situations. As @Intrigued_again's charts highlight no need to take higher risk in trying to find the next CSL. Some patience, the ability to recognise value / opportunity and even more importantly having the guts to buy in these situations when the herd is terrified, bailing out and heading for perceived safer pastures.

That said, as mentioned previously I hold a couple of small / mid cap LICs (also purchased at opportune times) who have a far better chance of finding future CSLs than I ever would.

I can assure you Peter dreams of another GFC. The likes of CBA and WES are again likely to be at the top of his and my bargain buying shopping list.

Disclosure: I own CBA, WES and others but LICs dominate the portfolios.

 

A post by @Newfast on the LIC thread has prompted me to post this old article by Peter. A great article that is just as relevant today. When it comes to markets nothing ever seems to change, round in circles we go. Don't be a victim, use it to your advantage:

And Peter got his wish with the GFC. He's now eagerly awaits the next one:

 

Hi @austing

Can I ask how you determined when to start buying during the GFC? Some people would think a 20% correction is great and load up, but if they did that then they would miss out a further 30%+ falls. How do you buy when you start backing up the truck? Sorry if you have covered this before. Thanks

 

When most start sh*tting themselves and wanting out. Doom and gloom everywhere particularly in the media. Eg This time it's different, get out of shares or risk losing your money for good blah blah blah. Believe me you'll know.

No one will pick the bottom. No set rules in my case. The market at around 20% down certainly seems like a reasonable point to start averaging down. Averaging being the important word. If it's a genuine bear market or crash you'll have plenty of time to buy. A few I know like to keep averaging in at decreasing 5% intervals when in bear market territory. The market has a tendency to overshoot (bust and boom) and go on longer than most expect. So despite one's best attempts you'll likely be filled with regret either because you exhausted your funds too early (more likely) or left it too late. Just be content that you caught a good chunk of a rare buy opportunity.

Of huge importance when averaging down is that you know what you're buying. That is, Quality shares / listed funds. Note also that an individual company can go bust but Diversified listed funds / Cap weighted Index ETFs with a proven history rarely do. There's been no shortage of investors who occassionally find themselves averaging into a company all the way down to zero! Remember price doesn't always equal value.

A constant reminder that I'm just an amateur investor with a simple approach and being retired have plenty of time on occasion to bore others with same. Conservative, Simple and boring best describe me.

 

Well said, thank you. If any other long term investors have a different strategy, I would also be interested to hear.

 

Ok so I've been doing some numbers on my own situation and using splits @ 20k rather than being able to redraw out every from a flexible LOC delays the home pay down by a few years. So a flexible LOC would be ideal,

However I've not ever seen any of these flexible LOC products around? I would assume normally you have a preset limit on your LOC and it would have to be re-evaluated to change the limit?
Has anyone been using a set-up like this?
Is it truly flexible as it sounds?
Are banks still offering it now post-APRA?

 

The products should be available. Our resident expert will be able to help.

@Terry_w, can you comment on this please or refer him to a useful post?

Relates to the attached Debt Recycling strategy (using dividends) given to me by Peter T.

Thanks in advance mate.

 

AMP have an excellent facility which they call the 'master limit'. it allows loans to be restructured without creating a need to reapply and pass a credit assessement.

Here is a simple example

X has a $100,000 non deductible home loan
He then asked AMP to split it into 2 portions
Loan A $80,000 as an IO loan + offset
Loan B $20,000 as a LOC

X then pays off the $20k LOC completely.
He then borrows to buy $20k worth of shares
Interest is now deductible on this split

X keeps saving in the offset account and now gets his dividends paid into the offset as well.

Pretty soon X has another $20k saved and does the same thing.

Now he has $40k of the original loan deductible and 2 lots of dividends coming in. This speeds up the debt recycling.

to speed it up further X could consider periodically selling the shares when they are high.

X sells the first lot of share that he bought for $25,000. He pays off the $20k that he used to buy then and has $5,000 left over. He has to pay some CGT but he may be left with $4k. He parks this in the offset and saves even more non deductible debt. He immediately rebuys more shares (after getting tax advice about wash sales). Even if he bought back the same shares at the price he sold them for he would be ahead. He might even get them cheaper.

X could do the same with the second lot of shares too - then he might have $8k extra cash to pay down the non-deductible debt. This considerably speeds up debt recycling.

Once X had purchased the shares with the LOC he would have immediately converted the LOC to an IO term loan as the LOC has a 0.15% higher rate.

 

IMPORTANT

PLEASE DON'T POST ANY FURTHER MATERIAL ON MARKET VALUATION AND TIMING HERE (or unrelated to Thornhill). I'M ARRANGING FOR THE PREVIOUS MATERIAL TO BE MOVED TO A SEPARATE THREAD CALLED:

MARKET VALUATION AND TIMING STRATEGIES

 

Thanks @Terry_w
I like the second idea - I'll have to investigate this further.
However my line of thinking was if there was a "flexible" LOC product available as Peter suggests? In your example it's 20k chunks via splits - what I'm wondering if there is a one that is "dollar in, dollar out",
ie every dollar put into the mortgage is then able to be redrawn from the LOC?

 

Only if the loan is a LOC. But then you would have mixing issues.

 

Strategy: Using AMP’s Master Facility to Debt Recycle

I just created a new thread on debt recycling using AMP.