LIC & LIT Reading LIC share value...

Actually you've made me realise I'm forgetting some of the research lately that made a lot of sense to me, that is "positive skew".

I've seen it in action in the last year or so with the older LICs. From memory most have been underperforming the index in recent times. Reading their financial reports over the last year or more I've seen them state that the Fund has underperformed the index because:
1. AReits have performed strongly but we are underexposed to sector because they don't have much in the way of franking credits,
2. Small caps outperformed but we don't have much exposure,
3. Mid / small Resources outperformed but we don't tend to hold these as they are considered speculative.
...

Positive skew is well worth reading about. The more stocks that are excluded from a portfolio the more chance there is of missing those small number of big winners. The following article is an excellent read:
Lopsided Stocks and the Math Explaining Active Manager Futility

Thanks for jogging my memory @Il Falco as we were only discussing this last week.

 

Yep, Skewness is why active management is so hard.

 

Good post.

One issue though, one rationale for investing in companies that pay a dividend is that you do get a material return on the companies profits. It's all well and good to invest purely for growth, but what if the company does not achieve said growth? There is a role for dividends, one just must be mindful of the payout ratio. Too much of a payout, and the company risks limiting growth in favor of shareholder payouts, too little payout and all the eggs are put into the growth basket and the company strategy for this growth simply may not pan out.

There are but a handful of CEO's in the world who i'd be very confident of undertaking and executing a growth strategy with very little shareholder payout; Bezos, Buffett, Son, Watsa etc etc. For the vast majority of the remaining, id be more than happy to take a piece of their profits rather than watch them **** it all up the wall on some pie in the sky growth venture.

 

What's missed here is that a lot of earnings are that would be paid as dividends in the US market are used for on market buy-back. This provides is a more tax effective return mechanism than dividends in that market. It's not like low/no dividend payers have free reign to just blow cash. Owners everywhere are pretty vocal.

 

presuming the shares are trading at or below fair value?

 

Who determines that?

 

ha. sure, presuming their projections on their growth strategy are correct

 

But your comments regarding the 18% top up tax on franked dividends is important. Im in my mid 30s and the vast majority of my income is in the top tax bracket. Perhaps I should look closer at overseas stocks, its just hard to step in atm given how stretched the market seems to be.

 

There are two sides to every coin. How many businesses "dividend aristocrats" have at times had to compromise on capex that would likely have provided strong roic when there was blood in the streets just to maintain their dividend record? Bloody plenty no doubt because they would be punished by dividend hunters if they didn't.

I get that some kind of dividend policy creates tension around capex and it likely provides some edge of sorts on average.....but there are so many variables here - just thinking that high payout is a winner because one doesn't trust those that run the business, i.e. created the earnings won't know how to reinvest seems pretty ridiculous to me.

 

What are you doing here? I thought you'd be over at Cuffelinks picking on the elderly again:

Australian LICs versus Berkshire Hathaway - Cuffelinks

 

i think its more a hedge than anything else. there doesnt have to be an all or nothing policy with dividends. you can get some dividends whilst the company still retains enough earnings for growth plans.

 

Ha. No interest. PT isn't interested in discussion, just swallowing his confirmation bias.

 

I agree with that for the majority of businesses.

 

p.s-tell me which compounding companies i should invest in please

 

And what are you swallowing at the moment, wine, cocktails, beer ...?

 

Bintang / Dark and Stormy / Cab Shiraz in that order...

 

ARG, BKI, MLT, WHF

 

Confirmation bias that you're an alcoholic.

 

I'd say the evidence is empirical.

 

Sorry, being silly tonite. Snidely please answer the question.