Peter Thornhill

If using active International "listed funds" PMC is the best chance you've got of getting a decent dividend. Reliability of dividend is pretty good but not quite as high as local older LICs. With PMC when they do on rare occasions miss a dividend (likely to see its price nosedive) experience has taught me to take advantage of this as an excellent buying opportunity.

FGG is new with an objective to pay a reasonable fully franked dividend but won't be as high as the Aussie LICs. I have high hopes for this given that Geoff Wilson (who runs LICs such as WAM) is the driving force behind it. He really understands the importance of a decent dividend for a LIC to be successful. Might be better to wait for confirmation but downside is the possibility of a large premium by then.

ETF WDIV is passive option paying a decent yield but haven't looked into it in detail. Still a little on the small side.

For what it's worth in our SMSF I hold the following for our International asset allocation.

CORE (Index, passive):
...VGS

SATELLITES (Active):
...PMC
...FGG

Note: Not intended as advice.

 

Downloaded the ASX200 list of companies with it's sectors included.

The file has these sectors:-
Consumer Discretionary
Consumer Staples
Energy
Financials
Healthcare
Industrial
Information Technology
Materials
Telecommunication
Utilities

Other than the obvious Industrials and Financials, which other sector does Peter "Industrials" cover?

And even within Industrials and Financials, are there certain criteries?

 

@Wukong,

The Falcon's severely under the pump at work and probably will be for quite some time so you will have to make do with me I'm afraid.

ASX 200 - GICS sectors

• GICS Australian Real Estate Investment Trusts (A-REITs) X
• GICS Consumer Discretionary
• GICS Consumer Staples
• GICS Energy X for most constituents
• GICS Financials
• GICS Financials excluding A-REITs
• GICS Health Care
• GICS Industrials
• GICS Information Technology
• GICS Materials X
• GICS Metals and Mining X
• GICS Telecommunication Services
• GICS Utilities

A-REITs, Materials, Metals and Mining need to be excluded. Most of the Energy sector is also out.

Some knowledge of stock selection is useful. I think Thornhill is highly likely to own the majors in most of the non-excluded sectors along with other selections chosen for outstanding qualities.

Given the strength of MOAT as a quality filter perusal of the constituents of the following ETF (being sure to exclude those from taboo sectors as mentioned previously) could be worthwhile as part of ones further research:

Overview | UBS Australia

https://www.ubs.com/au/en/asset_man...Ib2xkaW5nLmNzdg==/UBSR-Holding.csv?nomobile=1

And when you've finished your research into selecting stocks then ideally you need to work out when to buy!

Remember once you start taking the direct stock route as opposed to or in conjunction with Listed Funds you need to know what you're doing. And that takes some knowledge, time and effort.

Note: not intended to be taken as advice.

 

@austing been reading the back and forth between you and Falcon, all good information.

I'm not smart enough to build or identify moats companies. What would be the amateur way of identifying these companies? i.e. piggybacking by viewing the top holdings of mentioned LICs like MLT, QVE and also just buying the top few stocks per sector of "industrials"? i.e. never wrong to go with big 4 banks, it's just when.

You were mentioning about keeping a small position of a stock open to take advantage of SPPs. Are you able to share an example. Does it always happen exactly like in Motivated Money per the CBA and WES/ WOW example of buying at a discount?

 

As per my last post for a start (did you read it fully):
https://www.ubs.com/au/en/asset_man...Ib2xkaW5nLmNzdg==/UBSR-Holding.csv?nomobile=1

Or you could subscribe to Morningstar.com.au for detailed information.

Quite frankly I'm really not the person to be giving stock picking advice as I'm somewhat lazy and like to keep my investing simple, easy and low maintenance for various reasons. And I consider myself an amateur as well!

For anyone new wanting to go the direct stock route baby steps are best until knowledge and experience is gained.

Remember too that Thornhill also holds a significant core of LICs in addition to his direct stocks. Also he professes to not being a gun stock picker hence the high number of stocks across sectors. But he has a vast amount of experience behind him.

Here are some examples of implementing Thornhill's approach. Not all are perfect with Thornhill himself telling me that although his LIC holdings have some resource content one has to be pragmatic in ones approach!

1. LICs ONLY (extreme low maintenance):

In rough order of preference:

Large Cap: MLT, BKI, ARG, WHF, AFI, AUI
Mid/Small Cap: QVE, MIR

2. TOP 20 DIRECT STOCKS and EX-20 LICs (low maintenance):

Top 20 industrials (allow some leeway):
CBA, WBC, ANZ, NAB, CSL, WES, WOW, TCL, MQG, BXB, AMC, SYD, IAG, RHC

Ex-20 LICs: QVE, MIR

The above requires minimal stock picking skills and is lower risk than trying to pick stocks outside the Top 20. Outsource this more difficult area to a high quality Ex-20 LIC such as QVE. This is somewhat closer to the approach I take but I also hold Large Cap LICs and a few direct stocks outside the Top 20. I also apply a little more filtering eg don't like general insurers, airlines etc

3. DIRECT STOCKS ONLY (low to medium maintence):

I won't even begin to go into detail here. As I've said I'm lazy and like relatively simple and low maintenance. I've given some ideas in previous posts of mine for shortcuts etc. Importantly read any of the posts by The Falcon to gain some great ideas on stocks and strategy.

But here are some thoughts:
1. Exclude unwanted sectors (resources, REITs etc) as discussed in this thread.
2. Use a quality filter such as MOAT.
3. Weed out volatile cyclicals.
4. Diversify across sectors.
5. Hold a higher number of stocks (and avoid having too much exposure to any single stock) to reduce stock specific risk and minimise the monitoring required. A concentrated portfolio (low number of stocks) will require a much higher degree of monitoring.

Critically the above helps you determine WHAT to buy BUT it doesn't tell you WHEN to buy.

Importantly do your own research. You need to be comfortable with your stock selections.

Phew, I need a break. Back to budget analysis.

Note: I'm not liscenced to give advice, general information only.

 

From your earlier posts I gathered that MLT and BKI have a more industrial tilt than the others, but keen to understand how you ranked the others.

 

From memory Thornhill holds AFI, ARG, MLT, WHF. He likes LICs that have been around at least 50 years regardless of their Resource exposure. Can't argue with that criteria for survival and track record! He once told me that the LIC resource holdings are not ideal but his direct shares dilute this down substantially.

WHF is the only pure Industrial LIC available albeit it holds REITs. I chose MLT, BKI and ARG over WHF due to size and smaller fee. AFI and AUI bit heavier on resources. AUI incredibly cheap fee and very much old school type LIC. Also sometimes easier to get at a discount and occasionally attractive Rights Issues etc are on offer. Excellent record of historically paying a rising dividend but less likely to do so in next couple of years due to a recent heavily discounted Rights Issue. It is my last choice due to reasons I think I explained to you awhile back.

Importantly don't get too tied up in knots trying to achieve a perfect implementation of Thornhill's approach. Any of these LICs will do what's important. That is, deliver a reliable, consistent growing dividend stream. Sometimes a simple, easy, low stress and extreme low maintenance approach will be better for most even if the returns might be a little lower. Don't forget life is for living, not stressing over and/or spending too much time fiddling with ones investments for a potential little more return.

 

My view, just buy MLT. And keep buying it, take the rights issues and discounted DRP when available. Frank Gooch and the guys are managing the portfolio for you for about 15bps. After a while if you are still keen then there is plenty of info in the stock resources thread about where to start looking to educate yourself. Austing's filters are good, you are also looking for balance sheet strength and dividend history. This fits in with moat theory as well.

Then you must start to consider portfolio construction, buying, selling, review and triggers for each. Then position sizing, sectoral weights etc, and the rules by which the portfolio will be run. Underpinning all this is the question, what do you want to achieve, and are you prepared to underperform the XJO and if so will you stick with it?

I think to do this you need to be an enthusiast. Take your time

 

Couldn't agree more about MLT. Hence why it is my first choice in previous post and also the largest holding of all my LICs. However I have seen times when it has struggled when smaller and also other times when it was frighteningly overweight Banks. Also there is a tendency for the Milner group to lob their related companies in there ie Cross-holdings. This can be good for keeping corporate raiders at bay but at other times I feel it goes beyond that! But overall I feel it has improved with time to the point where I'm now happy for it to be my largest holding.

Main reason for suggesting holding a few LICs is in part for buying opportunities. Take for example the recent AUI Rights Issue and prior to that MIR SPP. And of course when ones portfolio becomes large I personally feel a little more relaxed having our investments spread across a number of listed fund managers.

No right answers. Only each individual will know what feels right for them.

 

For sure, I was really thinking of someone just starting out. Start with any of the LICs we talk about, follow it, read the updates, see how nta moves around, follow the market movements and experience the emotions, go along to the agm etc. This is the beginning of the learning process. I think a lot of people are looking for a quick answer, which isn't really the kind of answer you need

 

Latest article from Thornhill:

Fear factor should start the hunting season - Cuffelinks

 

Interesting that in the comments section Peter lists WHF as the LIC of choice to invest in the industrials...

 

Yes, make sure you read the comments after the article for some more useful information from Peter.

For those who missed the articles:
In share investing, perception is reality - Cuffelinks
The major weaknesses of LICs and managed funds - Cuffelinks
Fear factor should start the hunting season - Cuffelinks

 

From:
Fear factor should start the hunting season - Cuffelinks

1. 
   Joe Blogs May 21, 2016 at 3:31 PM #
   Correct me if I’m wrong Peter, your statement
   
   “Throughout all this, $100,000 invested in Australian industrial companies in 1980 now generates an income of about $80,000 a year and has a capital value of about $1.8 million. A term deposit is still worth $100,000 and delivers income of about $3,000 a year.”
   
   This is assuming:
   1) Interest collected from term deposit is not reinvested
   2) Income from shares are reinvested and total return includes franking credit
   
   This does not put the 2 investments in a level playing field, what will the outcome be if the interest from the term deposit is reinvested ?
   
   Reply
2. 
   Peter Thornhill May 21, 2016 at 4:33 PM #
   Jack, I am comparing on a like for like basis. In both cases all income is spent. If interest and dividends are reinvested the deposit comes in at around $1.3 mill and the industrials value would be just over $10mill.
   *** Also, the benefit of franking is ignored. ***
   
   Yes, take note "FRANKING CREDITS ARE IGNORED". Imagine the result with this included.
   
   Start young, select the best asset (Industrial Shares or Low Fee Fund with similar holdings), re-invest the dividends, let compounding do its thing and what you could end up might just blow your mind!
   
   Not advice, general info only.

 

In relation to comments following this article from Peter,

Fear factor should start the hunting season - Cuffelinks

there is always someone determined to put down a well proven strategy without all the facts. Some seem to think that in a short article every aspect of investing and financial planning could be covered.

I have thrown in my amateur comments from having personally experienced the benefits of Peter's approach and knowing others with similar experiences. I might as well post them directly here for greater visibility so others here can see them for better or worse:

Will probably get savaged by someone, always a possibility when putting ones views and experiences out there in the public domain. Might have to call in someone younger, more well read and smarter than me for backup if I cop a flogging - you there just incase @The Falcon?

 

Thanks for sharing! I forgot to check in to see if anyone replied to my comment until now. But turns out I had my facts wrong! ARG and MLT did cut their dividends following the GFC.

 

From memory some LICs did and some didn't. They do their best to smooth dividends but with dramatic events like the GFC there is still the possibility of a cut. However hopefully their dividend volatility is less than that of the broad market.

An important lesson here is that when dividends overshoot for a period of time there will generally be a reversion to the mean. Fortunately the older LIC managers are more aware of this than many investors and try build up their reserves in good times.

Basically good old common sense Investing 101, in good times makes sure you put something away for a rainy day!

 

Attended Peter Thornhill's 1 day course over the weekend.

It's not easy to have the level of patience and use his 'boring' approach to investing.

His two mantras of 'spend less than you earn' and 'borrow less than you can afford' is easier said than done. The course covers a lot about his preference for industrials (obviously) but it's also a lot about patience and having the foresight that 30 - 40 days of 'boring' accumulation will give everyone a chance of financial freedom.

@austing @The Falcon I brought up QVE as a new LIC and he said no thanks. His LIC criterias being more than 50 years old, low mer and no performance fees. He focuses on a fund's management philosophy making sure it doesn't change over the decades.

The 4 LICs he holds are ARG, BKI, WHF and MLT. Today, he says he 'advises' his children to only buy WHF and it's just easier to focus on 1 LIC.

My question here is the LICs form his CORE holdings and he also has direct stocks as Satellite holdings? He constantly brings up CSL and Cochlear which he bought into 15 years ago. These two stocks has given him back more than 20x just by capital gains over the last 15 years while ARG has only doubled since 2000 or so?

Not including the dividends here as if funds comes from a LOC, it's partially offset?

Accumulating LICs only wouldn't give the same results but he mentioned both his LICs and direct stocks has contributed to the same amount of growth over the last 20 years. Something I can't seem to grasp my head around?

As the pros in this thread, he does highlight the power of compounding and having access to SPP at discounted prices. He however no longer/ never did the DRP tick in the box and says the minimal dividend reinvestment is a pain come tax time. He rather pool the dividends into an offset/ LOC and then buy parcels of LICs at $5K or more and mainly during SPPs and dips in pricing. He brought up his chart in 'motivated money', for those who have the book.

SInce the weekend, WHF has been dropping in price, might be a good time to get some

 

I wonder if the WHF SPP has put downward pressure on the price, is that common?

Miners are the only things in my portfolio that have hurt. Post GFC about half my purchases were miners. Only playing with small change but lesson learnt, don't buy direct stocks if you don't know what you are doing, further lesson especially miners. There is a great alternative in LICs.

Interesting he is recommending just buying WHF, holding the four mentioned I would have thought would increase the chances of an attractive SPP. Which would offset the small holdings of miners

 

@austing not sure if he used to have a lot of preso slides. His presentation slides are a mix of the 'my say' posts on his website and the 'crash and fear' articles over the past 30 years where opportunities will arise every so often for buying opportunities.

Like yourself, he has a significant amount sitting in an LOC to buy at dips.

In terms of advice, given that he's not licensed, he delegated everything to his financial adviser. He offers to share contacts of the financial advisers who follows his industrial/ investing method. Of course, he does emphasize self education. Buy a small parcel, try and read the reports, attends a AGM etc. Financial advisers charge a %/fee which does not make sense as one is starting a portfolio. No point going for low mer LICs and then pay a fee to a financial adviser.