Peter Thornhill

The videos are well worth a look!

 

Buffett speaks to UGA students
Its Business
Hope you enjoy

 

The application is the major thing missing from the book (got my copy early this year), I presume it is by intention and not oversight as he is happy to state he is not an adviser.

The book promoted professional advice as a way to go for implementation among a few others. If it was the only thing I'd ever read it probably would have led me to pay someone to manage my money, maybe it was just my interpretation or that I found it so at odds with keeping fees low that it stuck out in my mind.

 

Just for completeness here is another Thread were I posted some comments and an old Thornhill article called DO AS I SAY, NOT AS I DO:
Exchange Traded Funds (ETFs)

It deals with the extremely important topic of "FIDDLING" with ones shares which Thornhill himself and many of us are guilty of.

Welcome - Motivated Money (DO AS I SAY, NOT AS I DO)

Must admit I'm still occasionally guilty of this at times. And nearly everytime it turns out to be a mistake. As I have said many times the strategy is dead easy and boring, the biggest danger is ourselves and always will be.

 

Hi CatCafe

Where will you have the cash reserves (LOC)?

He should shout you a beer or 3, I ordered his book a couple of months ago also based on posts such as yours

 

Dingoes of the ASX for us Aussies


Link

 

I'm lost sorry. What's the "Dogs of the Dow" strategy got to do with Thornhill's approach?

Yes there's the dividend connection but WPL and FMG? The Dingoes equivalent of DOTD for sure is a mechanical approach but a little more thought is required. Plus from memory once a year a new Dingoes list is compiled and the portfolio adjusted accordingly. Just had another look and noted that all stocks are sold at the end of the year and the process starts a fresh again.

Thornhill's approach is about identifying suitable Industrial stocks / LICs buying them and hanging onto them indefinately until there is a strong reason to sell. For example, dividend suspension with little prospect of reinstatement in the short to medium term.

You're not just doing this to get even with me for trespassing in the Boglehead thread I hope.

 

Is there something searchable to do this?

 

Based on communications with Peter in recent days I owe @Wukong an apology. Some things have changed since my discussions with Peter a number of years ago.

Correct. Peter no longer holds IML Small Companies Fund which is similar to QVE LIC.

His previous writings gave the impression he held AFI. Not so. The above is correct. Although BKI contradicts the 50 year rule. Excluding
AFI makes sense as it has the highest resource exposure.

Peter expanded on this. He recommends WHF as a starting point for young investors. It gets them started investing in Industrial shares without having to devote much in the way of time to managing the shares. WHF is also low profile and unlikely to be popping up in the financial press hence it's less likely to be a distraction (less fiddling). As confidence and knowledge builds the young investor can then diversify further into direct Industrial shares and / or other LICs. Therefore it doesn't appear that Peter is suggesting that one put everything just into WHF over a lifetime.

 

@austing - what does he have for overseas exposure?

 

His UK LICs are:

1. City of London (exceptional dividend history)
2. Henderson Lowland Investment Coy
3. Murray International
4. Securities Trust of Scotland

 

Re: Peter Thornhill's chart where $100,000 is invested into industrial shares and the same amount is invested into one year term deposits



I found something similar where it looks at the ASX200 All OPrds & the ASX200 Industrial and ASX200 Resources over similar periods using the same type of graph

This graph covers the ASX 200 index which contains both industrials and resources stocks


It assumes that the initial investments took place in March 1982. Further, the 2008 data is only up to the end of December 2007 and hence includes some of the recent share market volatility. Overall, this is approximately a 25 year investment period and includes booms (1987, 1995-2000, 2003-2007), busts (1987, 1994 relatively minor and 2001) and periods of sideways movements. dividends have not been reinvested using this approach. Instead, they have been taken in cash

The below shows the result if the dividends had been reinvested. This is a somewhat meaningless graph because many companies listed on the ASX do not allow their shareholders to reinvest their dividends. Nevertheless, it is an interesting exercise to show how compound interest would work in the real world.



What would have happened with the ASX 200 All Industrial Index and the ASX 200 All Resources Index? The results are contained in Figures 7 and 8 respectively.



As can be seen quite clearly, the level of income paid by industrial companies is much higher than that paid overall by resource companies. Further, it is quite clear that, between March 1982 and 2003, resources performed quite poorly compared with industrial shares. Since June 2003, resource stocks have performed extraordinarily well. The resource sector out performance has been such that our $100,000 investment in March 1982 is now worth more than the same investment made in industrials.

Link

Resource stocks have of course pulled back again

 

This update from Thornhills My Say is also worth adding in here

 

Hi @Redwing,

Yes that is an excellent article. Thanks for posting. I've hard copied it here so that it's permanent. A must read for every investor in my humble view. Also sometimes readers don't bother with the weblink.

Welcome - Motivated Money
Round and round we go - My Say No 53
23-04-2016 17:36:28

It is that time in the cycle that Listed Property Trusts (LPT's) rear their ugly heads once more and encourage me to revisit the them.

Apparently, in the recent past, listed property trusts have outperformed shares in 4 of the last 5 years; a statistic I can't argue with. However, what I would argue with is the time frame, the benchmark used for shares and the yield trap.

The justifications from property advocates haven't changed over time and remain as misleading as usual. So, let's start with number one; the time frame.

LPT's were seriously damaged goods during the GFC as result of a prior massive increase in debt levels and poor corporate governance amongst other things. Their resulting decline was substantially greater than other indices so using the low point after a huge fall as the starting point for the performance comparison with shares must be of concern.

As usual the benchmark for shares is the All Ords index, the favourite for all property comparisons as it contains a large element of resource stocks. Since the mining boom failure (which coincided with a sharp recovery in LPT's) we have seen this index severely compromised by the steep decline in resource share prices.

Comparing over 5 years one index that is declining sharply with one in recovery mode, from a discount to net tangible assets, seems moderately unfair!

For those familiar with my philosophy you will know my disdain for the All Ords as a measure of performance for any serious long term investor.

Below is a comparison of the 3 primary indices. As an investor I personally have never been happy with resources and thus have chosen the Industrials Index as my benchmark. I cannot see why I should add resources to my portfolio to drag it back to the All Ords.

No doubt someone will say that 'actively' managing the portfolio enables you to access the best of both worlds!



Instead of the All Ords, if I pitch the results for property against industrial shares we have the following picture.




It will be apparent that over a more 'meaningful' time frame the result for shares is a far more attractive outcome. Let's face it, if one could make more money owning property than running a business, why would anyone bother to go into business. Property is a deadweight on the balance sheet of a good company.

It has taken 200 years of European settlement for the penny to finally drop with company boards in Australia that it makes good commercial sense to get the property off the balance sheet and to lease premises. Fortunately for them there is an unhealthy appetite amongst the unwary for the cast offs.

This brings me to the final concern I have; the yield trap. The high yielding property trusts have always been a favourite of those seeking income. The chart below shows why; the yields from property have clearly exceeded those from industrial shares.



The reason for this is quite simple. Property trusts, as a result of their structure must distribute 100% of their income to avoid potential double taxation. As a consequence, the vertical income bars (pink) in chart 2 above represent a 100% payout ratio.

In contrast to this, the vertical yellow bars represent around 50% of the profits generated by industry. The corporate structure enables companies to retain profits without penalty for research and development, new technology etc.

The trap is baited by the fact that the yield is an abstract numeric (income divided by index value) that basically tells you where the value line in chart 2 lies in relation to the top of the dividend bars. If dividends remain stable the simple numeric relationship means that if share prices fall the yields will rise; conversely, if share prices rise yields will fall.

It will be apparent from chart 2 that the high yield of property is simply a function of the fact that the capital value is well below the dividend bars. Similarly, the industrials are low yielding because the value line is much closer to the top of the dividend bars.

Now, try and imagine the yield on shares if all companies, like listed property trusts, paid out 100% of profits every year!

It is this sophistry that enabled a journalist to write an entire article on this topic back in September 2010. The article was titled, "Trust returns to listed property". Look at chart 2 above (in particular the 2010 period) and then read the following quote.

"With a current average dividend yield of 5.7% property trusts have again become one of the most attractive sectors for income investors".

Can anyone tell me what person in their right mind would ever buy LPT's for income?

Forget yield; shares are income investments and, as I have highlighted in previous articles, the bulk of the return from INDUSTRIAL shares comes from dividends, not share price movements.

As a final comment, I mentioned above my disinterest in resource shares. It is worth noting that the industrials index above has the LPT index as an integral sector within it. As a simple investor, the two filters I apply are firstly, no resources and secondly, no property.

This has enabled me, over time, to comfortably outperform not only the listed property trusts and All Ords but also the industrials index.

 

I posted this on InvestChat but for completeness I thought I would post it here also. I've put too much energy into this thread to let it die. It highlights a few things about Thornhill's charts that some readers often miss:

I don't believe in lifecycle investing. The strategy I started with in my twenties is the same I follow in retirement albeit with some stupid reckless and forced detours along the way.

Accumulation during the working years was all about growing an "income" stream for the future. Every additional LIC / Industrial share purchase kept getting us closer to our passive income retirement target. That wonderful goal where passive income replaces employment income.

Here's a similar strategy worded more eloquently by a poster elsewhere on this site:

PRE-RETIREMENT:
Investing for dividends during "accumulation" years is shown in the chart (dividends reinvested) below. The yellow line is the one that interests us being an investment in Industrial shares and / or LICs which are more focused on Industrial shares. Of course a lump sum was invested here at the start but it gives an illustration of the huge impact of compounding.

Note that franking credits haven't been included. These would pay most of ones tax or in Super give an extra 15% boost to income returns. Outside Super, the use of Bonus Share plans (AFI, WHF), Discretionary Trusts and bucket companies etc would help with the rest of the tax in the case of high income earners. So this chart would still show an excellent result even after tax. As you can see an initial investment of $100K in Industrial shares compounded into a massive $10.288 Mil over a period of 35 years:


POST-RETIREMENT:
Now we come to retirement where income is being spent.

The following chart shows a lump sum of $100K invested in dividend paying Industrial shares where the dividends are being used entirely to fund ones lifestyle in retirement. There is NO reinvestment of dividends.

Again franking credits aren't included which could be used to pay tax outside of Super or in Super (Tax free pension) provide a 30% boost to income:


I know I keep boring poor members here with these charts but they really are what have guided our investment strategy before and after retirement. As they say a picture is worth a thousand words!

Not liscenced to give advice.

 

Thanks for the great and continued contribution @austing .
The charts really highlight the power of compounding and in fact the whole idea of investing in shares for the long run.

 

I'm trying to calculate the average annual increase in dividend income over the 35 years

Any tips from the more mathematically inclined?

 

I've just booked in to see Peter Thornhill present his course in Sydney on 26 November. Link is here for info:
Understanding Investing for Long-Term Gain Course
I think it was Wukong who attended earlier in the year. Looking forward to it.

 

This is where figures can be fiddled with...
Average increase is simply
(A-B)/35
A been last dividend
B been first dividend

Guessing (I could be way off!) you actually want average % compounded as this figure is probably more useful, so see the link below

Compound Interest Calculator