Questions for Thornhill (Advanced)

I find it disappointing that a few of us here put an enormous amount of effort into building the PC Thornhill thread (when most here didn't even know who he was) which encouraged sharing of information including that from course attendees. That appears to have stopped with new Thornhill converts now being more of a closed shop with little sharing of information here. Essentially one has to attend Thornhill events to be privy to the information.

My other concern is that new converts are only getting an excessively optimistic view of investing in Shares / LICs including some potentially incorrect information. A few of us have highlighted these issues but such is the power of guru syndrome it appears to be falling on deaf ears. So it makes no sense in wasting our time challenging some of these views.

As @pippen said, DYOR.

 

Lets be honest....the "advanced" Thornhill stuff is very basic stuff....oh what returns should i expect going forward Pete ??? Oh can i get the 14% ?? please say its so and tell me everything will be alright?? i'm just a wood duck but i want to be rich , so please tell me the answers ?? Give me a break.

 

@Il Falco strikes again:

Mawhawhawha

 

All the valuable info has already been discussed at length in this subsection of the forum.
It seems to me attending an "advanced" course is another way to get some reassurance in the whole thing. But then if one is not convinced or uncertain now, it does not bode well for the future when the correction happens.

I just feel everything to say has been said and repeated several times already. There is only so much to discuss about buying LICs really.

 

Yep, far better off doing the work by oneself, rather than listening to a mantra. I am sure among members we can provide a pretty good reading list if people are actually prepared to do the work, and then come to their own conclusions and from that make their own plan.....might take a few years though! Thats all boring though....aint nobody got time for that! mwahahahaha

 

About LICs themselves yes, but perhaps there is potential to discuss the raw mechanics of how to start building a LIC portfolio... stuff that we mostly take for granted here on PC. For example the following scenarios:

• Fresh out of uni with HECS debt, graduate-level job but no savings
• Renting, looking at alternatives to rentvesting
• Own a property with low LVR, want to structure for a liquid portfolio
• Living off super (or close to it) and want to take control of an independent income stream
  
• etc etc

All this depends on how licenced he actually is, but I think new investors can be as fired up as ever but that energy goes to waste if they don't know how to implement.

 

Best thing is to learn by doing. That includes making mistakes.

Start with small investments first and build your knowledge.

 

Making that first step can be quite scary and intimidating though. I dreaded the thought of househunting for years until I bought my first apartment. Then I delayed my first managed fund purchase for 2 years while I procrastinated with endless reading, researching and Excel models before I finally bit the bullet and filled out the form.

It's tricky because the real learning doesn't start until you make that first step, but at the same time you can't hold someone's hand all the way through it as they'll get cold feet once they're on their own.

Maybe the advanced, "PT2" seminar could be free, but only for attendees who have held $x of LICs for y months. That might give PT1 seminar-goers some motivation to act.

 

It would be great if Peter and other experienced investors like @austing could present how they do stock research and selection whether it be LICs, direct stocks or ETFs.

 

I thought someone would bite at this by now. So I will.

BKI seems a reasonable LIC. It is one that PT uses (if my notes from the event I attended are accurate).

But it sounds like you have a back story and have cooled on it now.

Care to share?

 

No bad story per say but perhaps don't expect the same out-performance in the future. Early on the fee was high and New Hope coal was a substantial holding. Hence being new (listed in 2003) and given these issues etc BKI traded at a substantial discount. As FUM have grown, the fee has reduced, communication and portfolio makeup etc has improved the NTA has gone from a noticeable discount to roughly a slight premium. This has given Total Return (share price not portfolio / NTA) a one off significant boost which investors are unlikely to see again in the future.

So the 11.53% pa for BKI that @wombat777 was highlighting as exceptional performance is in part due to a narrowing of NTA from discount to premium. A situation less likely to be repeated in the future.

The following BKI chart tells the story:


In summary it's a worthwhile LIC (which we hold) but be realistic about future performance.

 

Thanks. Good explanation.

 

Great post.

This is why "past performance is not an indicator of future performance" is required in all pds. It actually means something after all.

 

This is what I'm interested in and what I was asking in an earlier post. If you have one or more IP's, can you explain your path diversifying into LIC's?

 

See post #55... unless you don't have any non-deductible debt, in which case maybe consider an equity release on an IP. Whether you use IP or PPOR as security just be aware you may have to juggle with substituting securities in the event of a property sale. Getting a bit advanced for this advanced thread so would be worth asking the smarter people in the Property Finance forum

 

"If that's as stupid as people are, they deserve to be taken advantage of."
Peter Thornhill

 

Thanks.

All my debt is deductible, so was wondering how this would work. Is there anyway to run the graphs/spreadsheets that @devank put together in LIC vs IP with the 100k coming from an offset (ie with an interest rate of ~4.3%)?

 

If you take that 100K out of your IP's offset then your interest cost will go up by $4300. However, you will get back 37% (Or your tax rate) back. So your out of pocket is only 2.7%.

I have posted mathematical workings regarding this matter before.
Here it is....

Say the Interest Rate = R.
The tax rate = T.
The dividend rate = D.

So, by placing the fund 100℅ into shares will give D℅.
The extra interest we need to pay is R℅
There is a negative gear benefit. So the actual loss = R x (1-T)
So as long as D > R x (1-T), also the price doesn't fall, we are better off.
Eg: R = 4℅, T = 37℅
R x (1-T) = 2.52℅
So any shares give more than 3℅ fully franked dividend should be fine.

 

Thanks. So if your tax rate is 37%, and you're using money from an offset, offsetting a loan of 4.3%, does that mean R=2.7%?
If so, does R x (1-T) = 1.7%? I this case any shares give more than 2℅ fully franked dividend should be fine?

And, also if you have a tax variation at 20%, doe that mean T=20%, and if so,
R x (1-T) = 2.16%?

Either way, anything more than a fully franked div of >3% works?

 

D > R x (1-T)
D > 4.3 x (1-0.37)
D > 4.3 x 0.63
D > 2.709