Peter Thornhill 2018

Not I being in QLD but please report back here with your experience of PT’s presentation.

 

Great! It would be good to understand where you're at in your investing journey. We have all range of investors here. Welcome.

 

I'd like to go, mostly to bring my wife along so she has a better understanding of the direction we are taking. It's just not a good month for either of us though so maybe next time.

 

Will do! I'm not sure if it will be any different than what other people have reported although I'll certainly take lots of notes and share some of my thoughts from the day!

 

Thanks for the warm welcome! I started investing in property around 10 years ago. Around 2 years ago I decided to leave my corporate job and start my own business and I knew it would be at least 1-2 years where I wouldn't be able to get finance, so I started investing in dividend-paying shares/ETFs instead. I recently stumbled across LICs and Peter Thornhill's Motivated Money a few months ago and decided that is the style of investing I'd like to follow going forward!

 

That's the exact reason I bought my husband a ticket! It's not his idea of a fun way to spend a Saturday, but I'm hoping he gets some value out of it and understands the path we are taking.

 

First time poster, but have been lurking around the forum for a while.

I found PC by first reading @Snowball blog Strongmoneyaustralia (which I think is brilliant) and the comments made on there by @Nodrog (also brilliant). I took two weeks leave from work and read every post from the beginning on both the LIC thread and this one, plus read a bunch of books and audiobooks including of course Motivated Money. To top it off I wrote a 11 page proposal to my wife on how I would like to invest / secure our future and she got onboard. So basically, I completely ‘nerded’ out for 15 hours a day over 2 weeks trying to absorb as much as I could and to be fair, it was probably information overload at times.

One question I do have and it relates to the first paragraph in chapter 1 of Motivated Money, what benchmark are others measuring their entire portfolio against?
Firstly, before I get flamed, I know PT uses the All Industrials Accumulation index (which I'm finding hard to locate on a google search).
But, it appears as though a lot of people on here have the big players, AFI (S&P200), ARG (S&P200), MLT (All Ords), BKI (S&P300), WHF (S&P200). Obviously, we can compare how each stock performs compared to their individual benchmark, but as there are 3 different benchmarks in this example of a 5 stock portfolio, what do you measure the entire portfolio against? Or do you just simply track every stock individually?
And then the more stocks you may add such as MIR or international etfs with different individual benchmarks again, may muddy the waters further.

 

Good question but I don't have the answer for you are seeking unfortunately.

I stopped measuring. Haven't for a number of years. I don't see the point of doing it when my focus is dividend income. So the question is, I guess, why do you need to?

Like some others on this forum, but probably not many, I don't check the performance of the SMSF - apart from ensuring the tax return is correct because I have to certify it is. Nor do I bother measuring my holdings outside of the SMSF. Every six months or quarter something hits the bank accounts.

 

I don't benchmark performance against any index as I can not see the point. If bitcoin triples should I care? If my portfolio performs worse than the US market should that be a concern?

A portfolio should be selected based on risk versus reward. Everyone has a risk tolerance and that is your starting point. Then work out the portfolio that maximises your return whilst maintaining that level of risk. Diversification is a way of reducing risk whilst still maintaining return.

There are other factors such as growth versus yield. One reason Australians choose ASX based LICs is the sneaky kick of franking credits whilst maintaining an acceptable level of diversification. In theory we should invest only a few percent of our portfolio in Australia but the decision to overweight ASX is based on risk management. It may not result in the best returns but it is a considered decision.

With all these factors involved it is not possible to measure a portfolio against a specific index, as one doesn't exist.

Not advice

 

I think the comparisons of performance aren’t really necessary or helpful.

Reason being, the old LICs perform pretty close to the market average performance over the long term. So constantly comparing and trying to beat that probably isn’t useful especially considering our overwhelming focus is on the growing income stream.

The industrial index outperformed over the timeframe that PT has used but over the last 15-20 years the difference isn’t much at all, and the future is uncertain of course.

I think it’s more enjoyable by watching the income and our ownership grow over time with savings added and dividends reinvested. As for whether it beats an index of any kind, it doesn’t really matter.

You’ve probably read my post ‘the relentless progress of a dividend investor’ - that’s exactly what I focus on and where I think others following this approach should too.

Basically...

1. Every time we buy more shares, our dividend income increases.

2. Every time we reinvest our dividends, our dividend income increases.

3. And every time our LICs (or index fund) increases its dividend, our dividend income increases.

With this focus your progress is essentially a constant upwards curve, or if you prefer, like rolling a big income snowball

 

I think the millionaire next door said it best.
The rich are benchmark-unaware, opportunistic and thematic investors focused on absolute returns. They don't care what everyone else is doing, they are looking for their own returns

 

Plenty of great suggestions / thoughts already posted.

The LICs mentioned by OP in more recent times have struggled against their suitable benchmark being the ASX 200 / 300 index. That may or may not change in the future. Generally they are considered a proxy for the benchmark index but due to their structure which enables them to smooth dividends and the greater focus on stocks that are more reliable dividend payers some find this appealing.

LICs being a company structure has it advantages and disadvantages particularly the disadvantage if Labor succeed in removing franking credit refunds.

If you’re concerned about LICs not beating the benchmark then there’s a simple solution, invest in the benchmark itself being an index ETF which will match the benchmark less a “Tiny” fee.

Personally I want the best of all of what’s on offer. Firstly low fee, diversified, low turnover LICs focused on reliable dividends, the ability to smooth dividends and sensible long term focused active management which at times may offer advantages over and above a pure passive approach.

Secondly I also want to own the benchmark being a low fee index ETF (eg VAS) which has different structural advantages, guaranteed to never underperform the market, also pays great dividends albeit more variable and importantly provides an alternative fund to invest in when LICs are overpriced relative to their underlying holdings (ie NTA premium).

All this said personally I tend not to focus on benchmarks. I’m simply after a growing income stream without ever having to overpay for it. The combination of an Index ETF and Index Proxy LICs makes it much easier to achieve this outcome.

In fact I’ve finally put aside excuses, idealism, stupidity, stubbornness, bitten the bullet and reduced our portfolio held in joint personal names to just two holdings ARG and VAS. Now all that’s remains is to get the rest of ARG, the only remaining holding in the Family Trust, into Personal joint names. Overtime VGS (International) will be added to personal portfolio as Super pension withdrawal rules force this upon us. So eventually three holdings in total. Simple and minimal admin for everyone involved including accountant (lower costs) and heirs.

Final destination in personal portfolio almost achieved and SMSF getting closer to desired outcome as well.

The above might seem strange to those who have followed my posts over the last couple of years but events both personal and those I have witnessed around me have convinced me of how important simplicity is. My faith in LICs and increasingly in simple index investing more recently hasn’t changed greatly. It’s mostly just the number of holdings.

So to keep it simple for the OP ARG / AFI / MLT / BKI / WHF are all very similar but WHF is Industrials only, much smaller in size, less liquid with a noticeably higher fee along with other issues as discussed in the WHF SPP Thread. Any one of these will do the job but I personally would be reluctant to only holding WHF. Holding a few might present more frequent discount buying opportunities but increases complexity. Simply adding an index ETF can also present better buying opportunities at times compared to the larger LICs.

So finally an example using the above principles as held in personal names by your’s truely:

LIC: ARG
Index ETF: VAS

Simple as that.

Not advice.

 

Thanks for the reply SatayKing and point well made regarding having a focus on dividend income. You're in a wonderful position (a position I hope to join you in one day) and your approach sounds very stress free, although, I don't think I could help myself but to check in periodically on my SMSF / Folios.

Thanks for your response Zenith Chaos, I understand where your coming from. I guess I was getting mixed signals, or confused as in many articles & interviews that I've read on PT, his main focus is on the rising dividend performance rather than overall portfolio performance/value but then he dedicated the 1st chapter within his book named "What is your benchmark" which basically introduces us to his industrial benchmark.

And regarding comparing you portfolio to Bitcoin, assuming your folio hasn't dropped by 80% since last December, for what its worth, I think your ahead

Thanks Snowball, like both SatayKing and Zenith Chaos your point is well made and articulated. Yes, I've read your 'relentless progress of a dividend investor' post and have actually printed it out, along with your LIC reviews and have them in a little folder I've created.

I completely understand the mindset and get the excitement of watching the dividends grow over time. As I've just mentioned in my response above I was getting a little confused as PT appears to still track his performance. I can't find the article/post right now but it was only recently where I read that he stated his SMSF performance was running at something like 16% p.a. basically twice the performance of the aussie market.

But, I take what you and the others have said on board and accept your opinions.

 

I too have come around to a simplified approach whilst still capturing the best of both LIC / index ETF worlds.

Arrived at:

LIC: MLT
Index ETF: A200

 

Really absorbing stuff.

@oddshapes in respect of the phrase "What is your benchmark" it's possible to turn that into a question stressing the "your." I say that because the game revolves around you. It ain't what others do or think. For sure read what is written and take it on board but then ask yourself "How does that or should that apply to me?"

It has taken years to get it into my thick head.

And in case there are any expectations from some of youse lot, no, I am not going to say it and I now wish I hadn't.

 

I have a lot of respect for Peter T but the whole benchmark thing and his portfolio outperformance relative to the index is crap in my view to be honest. So many factors involved with history and luck being a huge part of it. The usual warning of past performance is no guarantee of the future should be applied.

I nowadays try to remove idealism and luck from the process. I keep it simple. Broad diversification, investing regularly over time, low fees, low turnover with a long term focus appear to be the key ingredients to success. Importantly settle on something that removes the urge to fiddle, worst thing. Less complexity seems to be helpful in this regard certainly in my case. What to invest in is easy, staying the course and dealing with behavoirial aspects is bloody difficult and where most fail.

No one can guarantee outperformance. In fact it’s rare when it comes to being repeatable over the long term. Hence I focus on the things I can control as mentioned above.

 

Surely not:

 

Will the SMSF look much different to personal portfolio?

For me I would like just like 4 stocks.

1) VAS
2) IVV
3) VAE
4) IJR

Although, majority of my portfolio is already in those 4 stocks but I do hold some individual stocks and LIC. Which at opportune time will be sold and replaced with above 4.

Cheers,
Oracle.

 

Hi Nodrog, what a fascinating post.

I know it probably shouldn't, but this concerns me greatly if Labor get this through, and as I live in VIC and saw what happened to our state election, I think it's all said and done Shorten will be our next PM in 6 months.
As I'm quite literally just starting my share investment journey, I feel as though my timing is off and I should probably wait until we get clarity on this before I plunge our life savings into the market with a particular strategy in mind as in 6 months, it may have to change or alter.

I'm well and truly sold on the benefits of LICS. It's not that I'm concerned about them under performing a benchmark, I asked my question purely out of interest as I thought, wrongly as it turns out, after reading Thornhill that most successful investors did track their performance against a benchmark.

This is really intriguing. I've been reading your posts now for a couple of months (my wife thinks I'm stalking hehe) and it may have been in the LIC thread where you provided a list of some of the stocks your owned, Large old school LICS, mid cap, international. I also read that Thornhill is culling his holdings also.

Starting out and being in accumulation phase, I think I'll purchase a number of LICS as others have highlighted, it gives you more chance to purchase in SPP etc.
VAS intrigues me though. You may have answered this before and may just be the case that you already owned this before A200 was listed this year, but is there a significant reason why VAS over A200?

I haven't read the WHF SPP thread so thanks for highlighting this, I'll check it out. As it stands today, I'm yet to plunge our savings into the market as I'm still waiting on my accountant to get my Trust registered, I should hear back tomorrow.

With regards to purchasing ETFs when the LICS are at high premiums, I've read this a few times from different people. It makes a lot of sense to not overpay into LICS for your future income but I think as I'm so new to this world, I'm very swayed by PT argument against ETF's.....he is very persuasive

Although PT views and investment style really resonated with me, I'm also well aware I need to find my own sweet spot and not blindly follow.

 

Nope, I couldn’t cope with that much complexity.