Peter thornhill 26 August 2018 talk

Hi @Cambridge I was the dude sitting next to you sorry we didn't stick around, had to relieve the baby sitter, so didn't exchange usernames haha.

My understanding of his issues with ETFs:
* LICs certainly can benefit with dividend smoothing. Because they don't have to pay out all earnings, they can syphon off a bit at a time and you end up with more uniform dividends throughout the year.
* Take an ETF tracking the A300, such as VAS. They (by definition) need to hold the top 300. This includes the big resources players (BHP, Rio, etc). But another downside is they have to hold onto a dying company until they drop out of the 300 club, whereas an LIC could kick them out early.
* The inverse of the above is also true. An index fund has to wait until a company grows big enough to take it on. An LIC could pick up some new guns that are growing.
* One downside of the above is holding onto something purely because you don't want to sell it and trigger a capital gains.

That's my noob understanding of it all. Jump into the PT2018 thread and find the StrongMoneyAustralia post where PT was interviewed recently. He goes into detail covering a few of his grievances, and also elaborates on his holdings and why he holds them.
*EDIT* Peter Thornhill on LICs, Dividend Investing and Other FAQ - Strong Money Australia %

Agreed that the food was great. Was certainly not expecting that for $100.

I'd read his book, but my partner hadn't. She loved the presentation. It was well tailored to all different experience levels, but wasn't too basic, nor too advanced either.

 

Hi @ShireBoy - nice to 'meet' you

I was also quite surprised when they said that Peter essentially does the seminars at cost. That is very generous of him.

 

I respect Peter T greatly but his ETF view is outdated and way off the mark.

Dixon Advisory in the past have been huge fans of the old LICs and have a history of investing in them far longer than Peter ever has. Daryl Dixon introduced me to LICs around a decade before Peter returned to Australia and ever invested in them. You know why they had a number of their clients in cap weighted ETF STW. During the GFC when a client needed to sell they found that even the likes of ARG / AFI lacked liquidity at times whereas STW didn’t! STW which I owned during the GFC has been tested under stress. No issues with market makers running for the hills. As stated above better liquidity than the two biggest LICs.

Ok LICs offer dividend smoothing but the popular ETF equivalents offer quarterly distributions. Smoothing is easily done with a modest cash buffer. ETF turnover in cap weighted ETFs is bugger all. AMIT in theory should have reduced issues associated with capital gains in a trust structure from others selling but the handling of it may not be ideal. But LICs are reluctant to sell as they get hit with company tax rate regardless of the investor’s tax circumstance. A good thing at times, a bad thing at other times. LICs may be hit hard if Labor is elected and franking credit refunds are abolished.

I love LICs but I also believe traditional ETFs are a great product. Both have their advantages and disadvantages. The ETF trust structure of today is not like the unit trust structure of the past when Peter worked in the industry.

The important message from Peter T is “shares for income”! Both LICs and cap weighted ETFs can fulfill this role.

 

I was also there but 2 tables back from the front (being older my hearing, eye sight and attention span need me to be closer.) This was my second attendance (had attended the Sydney Uni course previously) plus I had read not only PT's book but also 'Super Made Simple' by Michael Holmes which is largely on the same subject and specifically mentions PT and also includes SMSF aspects. No notes were handed out but you could request screen shots. Points I noted were

• Time (Compounding) + Discipline + Patience were required when investing to enable investments to grow. (I think a comment was made (not sure by whom) that Buffett's fortune didnt start till he was over 60 but I'm not sure how accurate that is. From what I've read, perhaps in Snowball, Buffett started working and saving at a very young age. He asked his father to buy him shares when he was only 11 in 1942, and created the partnerships about age 30 or so.);
• In addition to his usual two teachings of 'Never spend all you earn' and 'Always borrow less than you can afford' he also added 'Don't own the lifestyle - rent it'. This latter comment was in regard to expensive toys and 'the need to find a bigger fool to own them after you'. Used examples of his hiring an e-type Jag in the UK and a Ferrari Dino here.
  
• Long term returns from industrial shares were 19x but if dividends were reinvested then it increased to 120x for the same period
  
• Be careful with graphs - for accuracy prefer log scaled to arithmetic scaled graphs;
  
• Watch out for a future bond market crash
• Always use total return when comparing investments - dividend income plus capital growth;
• 'Fear' - volatilility does not measure risk, it measures the liquidity of a stock.
• As stated earlier he spent quite some time outlining debt recycling. Being 66, with limited taxed income from my part-time retirement job, I didn't think I could use that strategy successfully but my mind tuned out as I started to think whether instead of putting a lump sum directly into my loan offset account as I had proposed, whether I might instead buy bank shares and try a modified version of it.
• Whereas Buffett and others (such as Mike Kemp) talk about establishing a 'margin of safety' by waiting till stocks are at their cheapest before buying, PT was more of 'just buy them and move on'.

I was appreciative that Oscar and others weren't 'pushing' the Fortitude business to any great extent. Rather makes me want to speak to them than if they had adopted a hard sell.

 

Really enjoyed it! I read his book earlier this year, mostly the same info today but great to have it presented in Peter's own manner. Some good q&a at the end. I'd go see him again I reckon!

I was quite surprised there was no "hard sell" from Fortitude, compared to just about any other seminar I've been to there was vurtually no sell. No brochures, business cards, bookings etc.....which was refreshing!

Great to meet @vectra and @Nick23 there today.
Cheers,
Ben

 

Great summary.......I need to work on my note taking Think I was sitting behind you. Yes "rent the lifestyle" was a good one, I won't be renting Ferrari anytime soon but would apply that to toys like caravans, boats etc.

I enjoyed the greater depth he went into comparing past crashes, as in the percentage fall rather than how it looked on the graph, or how many points etc, would help with those 'this time it's different' thoughts.

 

I remember he said that if he was ever to get in strife, he could sell off the shares and the LOC would be cleared instantly.
But his number 2/2 rule was never borrow up to your limit. So no rate is too high as long as you're below your serviceability limit.

Just know that Peter has a portfolio of around $11M, paying $450k+ in dividends yearly and he has two years worth of income (so another $900k) sitting in cash.

 

I think that isn't too clever, 900k in cash can't be a great use of money.

 

I dont understand this statement. He has about 8% in cash which serves as a buffer. What is the issue with that? What would be a better use of the money? He is an old man with $12m in equities and cash.

 

Here's my sources:
(I think it was this one where Canna straight out asked him his portfolio size - don't have speakers here with me, so can't confirm)

- Switzer asks how much cash he has on hand

And again
Peter Thornhill on LICs, Dividend Investing and Other FAQ - Strong Money Australia %

If you’re ok with it – could you tell us the size of your portfolio nowadays and the level of grossed-up dividend income it generates? This would help readers get an idea of what’s possible with this strategy.
Peter Thornhill: Currently around $11 million. The dividend income on our return to Australia in 1988 totalled just under $1,000. Last year, our total investment income was approximately $400,000.

And regarding his two-year buffer:
We haven’t had a recession in Australia for over 25 years. How should we approach living on dividends in a recession – just a cash buffer of 2 years spending as you’ve suggested elsewhere? Any mental advice for dealing with downturns?
Peter Thornhill: Yes, over the last 117 years we have never had a period where there has been more than 2 years of consecutive negatives. Besides which, why are people incapable of dealing with a little bad news?

Fear is based on ignorance and the sense of entitlement rules. Anyone who believes that governments are in control will always get a nasty shock.

 

Maybe, maybe not. What if it's all in super to cover the cost of an account-based pension for two years if things go really pear shaped and to give time for things to recover? Then it makes sense as there is a minimum legislated percentage to be paid. Nor does it mean ALL of the amount is spent once it's in the personal accounts and so it's quite possible that an amount could be reinvested in the market.

So many possibilities I'm hesitant to make a generalised statement about the best use of the relevant funds - not that I would make a statement as it's not my funds or my call.

 

He is waiting for the Sydney property to crash that so many experts has been calling on for. He wants to go hard to buy up big time when prices crash 40%. His portfolio is a little bit skewed towards shares and wants some diversification by mixing some property. And then he can have seminars for both property and shares win/win situation.

Cheers,
Oracle.

 

Cash is also a position @Gockie . Let's remember he isn't in his 30's or 40's Based on his age, not a large component of his portfolio really. It's a handy buffer and nice margin to have in case of a decent pull back so he can go shopping to add to his holdings.

 

That's a sobering statistic when you look at those numbers,plus the 900k just sitting there waiting as you could do a lot of damage on a 8% upwards trend over 10 days,or a good quote..
""Trading may have princess , but nobody stay's a king""

 

Buffett was no average Joe even back in the days. He was a millionaire by his early 30s I think. Which means a heck of a lot more than today.

Testament to the power of compounding is the fact that the majority of his wealth came after the age of 50.

 

The 80/20 rule of compounding interest.

 

Might only be two years living expenses.

 

That's $8600 per week....
Ok maybe if you choose to live at Sydney's waterfront.....

 

Re PT’s cash holdings I think you’ll find he means two years SMSF pension payments so the cash component only applies to the required SMSF withdrawal rate based on age which in PT’s case is 5%. Not all their wealth is in the SMSF. Apart from local shares in own names Peter has a UK SMSF equivelent and his wife personal UK share holdings.

Hence I think the cash holding is likely to be closer to a few hundred K’s rather than $900k.

He has discussed this in comments section after his Cuffelink articles from memory.

 

Yep, you're right. I've misinterpreted a single word and gotten the wrong figure.