Peter Thornhill 2019

So for AFI, assume you have a starting "balance" of $10,000 of AFI shares. This is important for what Peter is saying, he's assuming you already hold.
It paid out $541 last year on your balance.
Say your interest rate is 5%.
Then, $541/0.05=$10820

So what he's saying is to get a loan of $10,820 and buy more AFI shares with it. The idea being that the divvies you receive will cover the interest repayment. But that's from an initial balance of $10,000, but you'll now have $20,820 worth of shares, so you're dividends will be almost double.

Then you let compounding do it's bit, either through buying more shares with the divvies, or using some to pay down your debt.
Debt recycling becomes an option if you have a PPOR loan.
Not advice, blah blah.

 

Uncertain times but be ready to lock and load - Cuffelinks
by Peter Thornhill on January 16, 2019

 

Thanks @Tink, @Redwing, and @wombat777. I'm reading Thornhill's book atm and this concrete example is really helpful.

I'd like to ask a naive question. With interest rates so low, why would the banks not themselves invest as Thornhill suggests instead of directing so many funds to lending (or increase lending fees until they were proportional to the alternative investment). I presume it's to keep the customer base etc, but I'd love some learned opinions.

 

Prob because banks can use leverage and lend large amounts for each dollar of capital they hold, earning a higher return on equity in the process.

 

Just came across this new interview with Peter.

https://www.aussiefirebug.com/podcast-peter-thornhill/

Enjoy.

 

PT’s definitely on fire, popping up every where.

 

Also a new Cufflink article from him too.

Uncertain times but be ready to lock and load - Cuffelinks

 

I get this but the assumptions are:

- you had seed capital/shares with no leverage in the first place.
- you can borrow 100% of stock values (you can't)
- banks will lend money on share dividends alone (they won't)
- the rate on a margin loan > yield of most LICs

I could be wrong, but those are the realities I see that prevent what seems like a totally plausible strategy being actioned in full.

 

Here is the full transcript (I went looking to find where it came from):
Peter Thornhill - interview with an investing genius

I think in the full context of his commentary, it is referring to debt recycling, so yes, assuming you have a non-deductible asset to borrow against. I think what he is saying is that if you are not comfortable borrowing massively for share investing, start small.

Cheers,
Inertia

 

Did you end up buying tickets to this? I couldn't wait for the 'maybe' trip to VIC so I'm taking my wife along to his March event.

 

Thanks @Snowball

 

Hadn't actually gotten around to it yet as I have to ensure my calendar is clear. I hope to have confirmation and purchase the tickets sometime this next week.

 

I was led to believe that PT mentioned borrowing the dividend! Ie if argo payed out 1000 dollars a year for your holdings you would then borrow 2 to 3 years of the future dividends (2k to 3k ) and have these working for you. Rinse and repeat.

 

But wont the dividends barely cover the interest...in fact it might not even do so at margin loan rates. Am I not understanding it?

 

In this article PT refers to investment examples like ETF's a couple of times... Must be getting soft in his old age

 

The idea was to just get started investing and getting future divs working for you. He always mentions spending less than you earn and borrowing less than you can afford and having cash buffers in case you lose your job. PT mentions constantly time will do the bulk of the work not gearing up to mega levels.

 

Haha, maybe PT read this skeptisism

Sounding the Depths – A Skeptical View of Listed Investment Company Investing

 

Yes I would definitely attend if in Melbourne. Anytime around April/May/June would be great, that way I can get in a game of footy also

 

I’m thinking maybe it won’t go ahead cause having to secure a commitment from so many people is hard. Maybe come up to Sydney

 

Ahh bugger. Yes I will have to do the Sydney one. Hob to Melbourne is just a much easier trip etc.