Stock investment resources

@Player refer page 4 in this thread ;

What is your backup plan??

 

Yes, you could spend a lifetime trying to learn how to pick stocks including analysing company reports and valuing companies etc. As suggested above by The Falcon perhaps take a short cut, let others with a proven track record do the work at no cost to you. The vast majority of income from the "buy and hold" oriented LICs is produced by a relatively small number of their major holdings. Therefore check the top 20 or so holdings of these (eg AFI, ARG, MLT, BKI, AUI, WHF) look for common holdings then eliminate Resource stocks and LICs. Woohoo potential instant industrial income focused portfolio. Now get set to pounce on these stocks when they are being hammered for enhanced yield. Not what I do exactly but food for thought.

As usual, Not advice.

 

Hi Falcon. Thanks for the link. I actually read the whole thread. Business and shares (investing/trading) featured most.

What I meant was, do you invest in very early seed rounds of innovative startups that eventually commercialise and (potentially) go onto VC funding and exits to acquisition by large companies or IPO's? This would involve creating say a portfolio of 20 or so of these investments with the potential of possibly one or two coming home to roost in a (very) major way.

Does this fly in the face of your dividend/income style investing in direct stocks, LIC's and ETF's? I find you posts very insightful and wondered if you invest in the space I described or do you see it as too high risk?

I'd appreciate any further thoughts or opinions you have about the space.

 

Hi Player, no for unlisted/start ups I only invest in things I am hands on in. I have friends and associates that play on the sell side of start ups and it all looks like a racket to me. (they have a bit of a laugh about it). If I'm not personally involved I prefer to take a more conservative approach.

 

Thanks Falcon. I agree it is risky as not everything becomes Uber, Air BnB, Instagram, or Snap Chat etc. Your mates on the sell side are obviously the one's taking commission cream from putting deals together and connecting the funders with inventors and entrepreneurs. They get paid regardless of outcome...............Hmm, now there's a business

I've only dabbled in a few so far and they areas I have expertise in, viz health and biotech. I don't take large enough positions to have a say in control although have made a recommendation to one of them that was taken on board and will be implemented. The one's I stay away from are the managed fund type products where "expert (sic) fund managers" pick a tranche of risky start ups looking for money and create a portfolio to flog to time poor investors. Here there is no say whatsoever in what you are delivered. I go through things one by one if and as they appeal and do as much of my own DD as I can and invest in individual ideas

Not everything we own are in trusts, so if I didn't have so many investments in personal names I would sit on a board or two as I have been approached in the past. I don't have entire faith in directors cover insurance and so forth. That's where you get a say and can take a stake in the right company.

Nevertheless I digress and don't want to derail the thread further. I appreciate your insights and just today I had three books arrive in my PO box that were mentioned in the opening posts of this thread. "One up on Wall Street"; "Fooled by Randomness" and "A Random Walk Down Wall Street." Time to start reading.

 

Thanks for sharing this! What are your thoughts on AUI? Given the other major LICs are trading a substantial premiums, I'm beginning to consider AUI but their track record is not as impressive.

 

I just bought some QVE today. I like how diversified they are and that they don't hold asx 20 shares because VAS has a large percentage of their allocation dedicated to the top 20.

 

Yeah read through the QVE IPO prospectus and other stuff on their site, you do pick up a lot more sector and stock diversification as well as small - mid growth factor when you add a chunk of QVE to a cap weighted index or large LIC based portfolio. Good stuff. I've thought that MVS which is small cap dividend payer ETF also gives access to this diversification and growth factor, importantly the dividend filter eliminates a lot of the speculative rubbish at the bottom end of the exchange, this is much preferred to something like a pure small cap ETF for mine. Take a look at rules if interested. Problem at the moment is MVS is still very new; low capitiisation, liquidity, and fees aren't cheap. Market maker movements will also hurt the fund.

 

A good LIC. Longer term performance a little better than the index. Recent underperformance due to it being overweight resources. Popular with a few high profile investors such as Daryl Dixon. Excellent history of paying a rising dividend stream even during GFC aftermath due to good management of reserves (see below). Ridiculously low fee at 0.10%. More likely to be able to get it at a discount to NTA compared to others with similar holdings. I used to hold before simplifying our portfolio and found it an excellent dividend grower.

Disadvantages include:
1. Poor liquidity but company is trying to improve this. This can be an advantage to buyers at times however.
2. Tightly held with Ian Potter Foundation owning around 40%.
3. Occasionally some events occur that may not be in the best interest of all shareholders such as discounted private placement of shares.
4. Overweight resources.
5. Be aware of heavily discounted recent rights issue at $6.50.

Overall however I consider AUI an LIC worth owning but only if you can get it at a generous discount to NTA. The likes of Milton and BKI are more to my liking having greater Industrial holdings and perhaps better active management. Note that ARG are happy to hold around 15% of AUI which suggests they consider it a decent asset. Likely however that ARG would only have purchased AUI at deep discount to NTA.

Dividends paid for each of the full financial years since 1993 are as follows:
Year, Cents Per Share

1992/93 7.5
1993/94 8.0
1994/95 8.5
1995/96 10.5
1996/97 11.0
1997/98 11.5
1998/99 12.0
1999/00 12.5
2000/01 13.0
2001/02 13.5
2002/03 14.0
2003/04 15.0
2004/05 17.0
2005/06 19.5
2006/07 23.0
2007/08 25.0
2008/09 25.0
2009/10 25.5
2010/11 26.5
2011/12 28.0
2012/13 29.5
2013/14 32.0
2014/15 34.0

So as you can see dividend history is excellent which is important given many of AUI's shareholders are retirees dependent on stable income.

As usual, not advice.

 

MVS grabbed my attention also when It first appeared with its small cap dividend filter. However TF nailed it with the above problems. Plus there still seems to be a high allocation to Materials. I came to the conclusion that given MVS's relatively high MER of 0.49% and above mentioned problems, QVE an exceptional manager with a modest MER was a far superior option. I also consider MIR an excellent LIC in the small/mid cap space. Getting it at fair value though is a damn problem. Others favour WAM Capital but note the fees. It would appear though that outperformance has been strong enough to keep shareholders happy for the fees paid. With WAM Key person risk is my main concern.

But for those who prefer index ETFs as TF stated MVS is a far better option than the traditional small cap index. Just need to hope there is enough interest in it for long term survival.

Not advice.

 

With WAM key person risk are you referring to Geoff Wilson? It was my understanding that he doesn't have as much of a key role in the investment process these days, and is more in the managing and marketing side of things. Because as we've discussed before, communicating with shareholders is important if you want your LIC to trade well - and the Wilson LICs definitely do this. Chris Stott is the chief investment officer, and he is a younger fellow, so that makes me less nervous. He also has significant equity in the funds I believe, personally and in via his trusts, which I like to see for allignment of interests.

I agree with you on the fees though, and don't see why they can't post their post fee returns on their site - it's my one major gripe with this, and the other "new breed" of LICs that seemed to have followed their model - CDM, GVF, etc.

Note - I don't hold WAM. The premium has always put me off. I may do so in the future however, if an opportunity comes up.

 

Thanks heaps! I ended up picking up some MLT instead as it was trading at within 1% premium today.

 

I meant key person in general. From what I understand the likes of QVE are more process driven. Hence if a key person gets wiped out in a plane crash for example the fund may still continue to perform well. With WAM I may be wrong but I get the feeling that individual skill is paramount to good performance rather than process. Happy to be corrected though.

Perpetual is a classic case of being process driven. They periodically lose their key personal (usually to set up own boutique funds) but have managed to perform well for a very very long time.

 

I had a very quick look at calculating MLT's NTA premium/discount today and my 2 min back of the envelope calc, using @TheFalcon 's method from earlier in this/other thread gave me a result of around 2.5% premium using the asx 200 as a benchmark. I'm sure I'm probably doing it wrong, but it lead me to thinking.....
Does anybody know of a spreadsheet that exists that tracks NTA premiums/discounts of popular LIC's in real time based on this methodology?
If not are there any excel whizzes willing to give it a go, free for the benefit of all?
My excel skills re fairly rudimentary but I would be willing to give it a go if there was any interest.
If so I could start a thread to gather input for choices of free data, best calculation methods etc.

On the other hand I note that Morningstar provides a free monthly report here Monthly LIC Reports. I don't know how far into each month it is published. But maybe it is just enough to scan this monthly report and buy based on this report once a month if something appeals. Thoughts?

 

NTA is published monthly officially on the asx page I believe. If you want inter monthly you could put their top holdings into excel including weightings, price at last NTA and current price. Is the added accuracy worth it over that an estimation from the index provides?

 

I wasn't aiming for added accuracy by using top 20 holdings rather than a benchmark index, I was aiming for a quick way to reference on a current basis.

So currently if you want an inter month estimate of NTA premium/discount for each of a handful of your chosen LICs (for me that's 10) at any time you have to do the calculation manually for each one.

I was suggesting creating a lazy mans spreadsheet which is manually updated with NTA details once a month (unless there available data), uses feeds of historical and current prices of the LIC and benchmark to auto calculate and display current premium/discount automatically at any time during the month.
So you open the spreadsheet and there it is, a list of your fav LICs and their estimate of current premium/discount to NTA, live. You can then decide if you monitor by the minute, hour, day week month - whatever takes your fancy.

It was just a thought bubble.

 

I have found the Monthly LIC report to be very inaccurate at times. From memory I think that LICs are required to report EOM NTA within12 days? after the end of the month. So just get the end of month NTA for each LIC of interest from your online broker (announcements) or LIC website. Then apply the Falcon's method.

There are a couple of brokers who maintain real time approximations of LIC NTA but it won't be free.

Okay time for some straight talking. Honestly NTA within reason just doesn't matter that much for long term investors. It evens itself out over time.

Some rules of thumb (obviously there will be exceptions):

1. Large LICs generally trade at a discount during market strength (eg bull market) when every man and their dog seem to be winning no matter what stocks they pick. Essentially a rising tide lifts all boats. Hence LICs become out of favour because most market participants are convinced they can do better picking individual stocks rather than investing in boring old diversified LICs.

2. Large LICs generally trade at a premium during market weakness (eg bear markets and crashes) when participants who in a bull market though they were stock picking geniuses start losing more and more. So they gravitate to large LICs which are perceived as a safer bet in a bear market.

First up, personally I believe the older LICs leave the index for dead. There is so much more benefits to them than a simple performance comparison, do your research. For the better LICs I'd happily pay 5% over NTA rather than buy the ASX 200/300 especially during major market weakness.

Investors get so hung up on waiting and waiting to buy for a discount to NTA but consider the following 2 situations based on above heuristics:

1. Roaring bull market and large LICs trading at a discount.
Vs
2. Market crash of 30, 40, 50% plus and large LICs trading at a premium.

I'd take the second option anytime.

Occasionally a situation (contrary to above heuristics) will arise where in a severe bear market (a year or two after the GFC from my poor memory) when the large LICs traded at a significant discount to NTA. This is gold. I was in there buying them like there was no tomorrow with every bit of cash and borrowed funds I could get my hands on.

I apply some other simple measures. I lose interest in LICs and the index in general when the yield is below 4% excluding franking.

I applaude CatCafe for buying MLT today. Did she get the NTA calculation right? Who cares. MLT a fantastic LIC purchased on a gloomy day at a price around what it was back in late 2013. Yield around 4.4% (add 100% franking to give 6.3% gross). A LIC with an excellent dividend growth history and occasional special dividends. If Cat hangs on, a wonderful set and forget "growing" income steam will continue to flow potentially forever to Cat without him/her? even having to lift a finger.

To keep party poopers happy (eg some accountants, planners etc) the above is not advice.

 

Thanks austing, makes alot of sense.

CatCafe, didn't mean to argue or even disagree with your NTA calc and as I stated in my post the way I was calculating was most probably wrong. If it came across as disagreeing or arguing then I apologise. That was not my intention. The only reason I referenced it was because it was me trying to replicate your calc that gave me my spreadsheet idea. Congrats on your purchase.

 

@austing 's position on NTA is actually the same as Thornhills. I've seen him comment on the ntA thing and he's not bothered about paying a few % over NTA at times...he takes every rights issue / SPP to avoid dilution though. Difference is bugger all long term, but I'm guilty as anyone of wanting to feel I've had a win on a bargain

 

Hey Mr Butler,

I didn't think you were offending anyone and I'm sure Cat didn't. I only mentioned Cat due to the fact Cat grabbed some MLT today. Sorry if I came across suggesting anything sinister afoot. I don't think straight when I have run out of beer