Questions for Thornhill (Advanced)

I've got 25 years ( at least ) before I can access my super. I'm going to adopt the Thornhill approach in my super as much as possible. Careful asset selection as well as understanding of and tolerance of risk is quite critical.

 

Wombat, thanks for the reply.

I suppose the biggest question I have, and I plan to ask it in this Saturday's seminar, is probably one that most property chat members can relate to..

I suppose most property chat members have 1,2,3,...or x investment Properties. And I'm sure most would have significant amounts of money built up in their LOC's, offset's etc. Typically, one would then have a choice to either invest in another IP or purchase LIC's/shares the Thornhill way.
I have read the book and understand how one uses his strategies, and also for debt reduction of a PPOR, etc. But what I'm interested to know is the mechanics of how you would invest/use this strategy when you are pulling out money from offsets/LOC's/ undrawn loan split, etc to pay for these shares? Also, ultimately does it make more sense to do this, rather than leaving the money in the offset instead?

 

I'll pose another question.

What happens when a bank (as it has the capacity and power to do) calls in a loan (for whatever reason) and the LOC or offset has been maxxed and there has been a softening of the property market at that time in the area that property is located in and (as can happen) there has been a sharp pull back in the stock market?

I imagine it isn't just margin loans that can be called. APRA might continue to tighten the screws on investors.

I would hasten to point out that people undertaking this strategy should keep their LVR's quite skinny (or use cash they are happy to have a paper loss on) in case the property funding the LIC/ETF investing is slightly under water (in an LVR sense compared to when it was last valued)......just saying that it could get messy.

Ca$h and off$et$ are also a position. I fear for those (and there have been plenty posting on various threads of late) who consider that cash (or available credit lines) are being wasted if they aren't invested in the stock market.

 

I'm no expert ( nor licensed to give advice ) but would only consider it for assets where the income return is consistently better than the interest saving created by having the funds in offset ( a warning here is that this will get harder as interest rates rise ).

Put some significant effort into honing your techniques for both selection of assets and when to buy them.

I like to use sharesight for comparing performance ( backtesting ) of assets over different time frames and how they tended to perform in the past ( compared to the ASX or other indices or compared to each other ). I'm not doing anything sophisticated, just looking at trends in historical income returns ( as well as capital returns compared to various indices ). Of course you can use other websites and tools for this but I like sharesight because it will generate details of income return for hypothetical investments made in the past. Other web tools don't handle the income part of it very well.

I also think it's very important to only buy assets when they look cheap. That's why I think a shopping list approach is good. Have a list of assets that meet your general 'Thornhill' buying criteria, but when deploying funds select from those that look comparatively cheap. If you think nothing looks cheap, wait.

@Player's warnings above also apply.

 

I'd honestly not really thought of using Sharesight to do that - thanks for the tip.

This can be a tough one to follow - sometimes I just find it's better to 'start the ball rolling', and buy a parcel. That way, upcoming dividends can be realised, and it often isn't until the share price moves after we've bought it that we work out whether or not we actually got the good deal we may have originally anticipated.

 

@wombat777 has adressed my concern with very wise caveats. Keep powder dry for when things are cheap not just for being a market participant for the hell of it when valuations, P/E ratios and other metrics are stretched.

The Thornhill approach which ignores pullbacks and corrections (except to top up holdings if finaces allow) does not suit everyone. Mindset and wishing to tinker with the plan by selling at less than opportune times will threaten the outcome. Clearly this also depends on the stage of life that investors are in.

 

One thing i always tell my mates about LIC investing is to not expect to make just one single purchase, but to have a plan to accumulate periodically. If it's 3 months, 6 months, 8 months, whatever it is. To the Melbourne people attending - hopefully see you this Saturday

 

My questions are as follows:

If one was looking to exit the rat race as soon as heavenly possible, how much of a passive income buffer in excess of living expenses is advisable? e.g. 20%? 50%?

How much cash should be kept in dry powder to top up during the next GFC event?

How critical is it to top up during a GFC event? Is it a required piece of an early retirement strategy in order to protect purchasing power, or does Peter only do this to prove a point?

 

Amazing work @wombat777 !!

Those stats seems to nicely line up with what was described in this article: "Over the long haul, the average dividends per share in Australia has risen by about 7% a year"
Why Australians love dividends and franking - Cuffelinks

 

Thanks @Jack Chen. Sharesight is a powerful tool for monitoring a portfolio but also analysis of hypothetical portfolios. They just need to improve it to provide better performance graphs that incorporate franking.

 

My thoughts as well. If you think about PT's comments around participating in the purchase plans when they are offered, it's basically value investing 101 (buy when they are cheap or offered at a discount).

 

Would it be a lot of trouble to redo the stats just purely based on the LICs? I.e. removing WES and CBA?

Not sure if anyone else is in the same boat, but I'd be keen to avoid direct stocks out of pure simplicity.

 

If I strip it down to just the LICs. Figures are year by year income growth, not yield.

 

In this case... I have to say... fairly dismal!
All factors like share spilts etc taken into account?

 

Offset: split PPOR loan, pay off (nearly) with offset cash, invest from new split
LOC: invest from LOC, convert LOC to SVR
Undrawn loan split: invest from it

Basically where a PPOR or other non-deductible debt exists, you want to use your new investments as a vehicle to increase your deductible debt while decreasing your non-deductible debt.

 

I think we all have to realise lic's and Peter thornhill is not a magic pill and won't turn ppl into millionaires overnight!

Sadly the last 10 pages or so of the peter thornhill thread and to some degree the lic thread is people trying to sell event nyts and functions which I believe for a person in Darwin or remote Perth or tasmania is abit tough to make it to!

I don't think going to a PT nyt will turn ppl to overnyt millionaires although it will open their eyes in seeing what's possible and I of all people love what PT and his investment returns are doing however the timing of the graphs are pretty favourable to sell a product or investment process!

If you want great returns invest in yourself and improve your job and spend less than you earn and brow Less than you can afford!

Do this for 30 years and you will be a success and buying stocks in a premium and discount will seem like child's play!

Hopefully we can get back on track and ppl can share their investment ideas or opinions without $$$$$ being the forefront of poles minds and getting paid off PT'S wonderful ride of industrial share investing!

 

Y

I think it's quite good. This is just income and shows income growth beyond a significant downtown. Capital growth of asset base is excluded.

I think this is where careful selection of more direct holdings is also important to provide a boost. This is part of Thornhill's approach.

 

PT sells success through simplicity; LICs just happen to be his favourite vehicle to talk about.

I hear what he has to say because I've had a variety of successful growth assets (both property and liquid) and am now at a stage where I want to start diversifying into more stable investments like index funds and LICs. However I would not be at this stage if I only bought LICs from the start.

If I was starting over again from my early 20s, I would have been able to incorporate those safer investments from the very beginning, but I suspect the PC audience is a bit light on the 18-25 age group and as such an off-topic slow-moving strategy is a tougher sell.

 

Fully understandable, just a bit concerned that all these questions to PT won't be covered or answered in one nyt and then on the merry go round we go jet setting around Australia for another event nyt!

Sometimes we have have to do our own research too!

 

It is all on par for the course. Many folks get excited about investing and jump on the bandwagon with great gusto. The weak-willed and the downright silly get bored quickly looking at market returns that anybody with pea sized brain can get by investing regularly. The markets will appear to mostly do nothing much for great lengths of time and that is akin to their “plan” not being sophisticated enough. Some of the posters on forums such as this will start peeling away. I have seen it numerous times with property investing (on SS and PC) since 2010 where many a fresh-faced investor promises to stay with it and buy an IP (or LICs) every year and let Mr Market and Time do its thing. They may even buy a property or two. Most are disappointed soon after the initial dopamine effect wears off; nothing much seems to happen and you are just living your ordinary life. You feel no more special and unique than you did before and your happiness quotient returns to how it was pre-purchase.

Then comes the great winds of change. First it will be 12-18 months of turbulent winds. Then there will be a savage market downturn followed by one more 6 months later. Because each downturn is different, people will feel that “this time it is different”.

The Forum will again be full of lengthy posts about how the days of recurring and growing earnings are over. "Just look at that payout ratio will you, no way can they continue to keep paying dividends with those earnings. Where is the growth going to come from? Have you looked at the national debt? It is nearly a trillion dollars! The days of steady dividends and growth are clearly behind us and we will not see it again for another decade" they will say There will be posters who will complain about how everybody promised that dividends would never be cut. But now their favourite LICs have just reduced dividends by 40% and their market commentary says dividends will not increase until further notice.

Again a great many will sell up and move on to other shinier things. Provided the conditions are right, property might just make a roaring comeback on these forums.

Of course, some will continue to invest prudently as they would have seen this movie played out before. They would know that their preferred LICs have lived through this story multiple times and managed to do OK. One or two amongst us will have the smarts to capitalise and make their money outside of the share markets (usually) through business income. Using their intellect/street-smarts and tenacity, they make a killing in the stock market when everybody else is running for cover. They are the geniuses the rest will look up to soon enough.

Once the dust settles down and the green shoots tend to appear again on the LIC trees, there will be renewed interest from a new crop of budding investors hankering after a session with PT.