Achieving wealth through shares...how?

[JohnMichael]

(RE: my question about the platinum asset management funds)

I was actually concerned with the key man risk. Kerr Neilson looks like an older chap, I'm not sure how old though. When you say they will be wheeling him out... I take it you mean you think he'll stick around until he's an old fella like Buffett

Yes, their international fund has actually slightly underperformed over the last five years.... but if you look back over twenty the outperformance is massive. At the moment they're massively invested in Asia vs the majority of fund managers, while the US has been booming, so they've underperformed recently.

 

[equitymate]

Would just like to add. If you were to value AFI from fundamental analysis point of view it is currently trading at P/E ratio of 25. BHP trades at 17 while CBA trades at 16.

EPS growth since 1997 (10.4 cents) to 2014 (24.3 cents) is 5.1% pa. Similar to what you expect the index to return over the long term. 5% CG and 4 to 4.5% dividend growth.

Hence, most of the outperformance of AFI seems to be from P/E expansion. If AFI were to trade at P/E of 17 it's price would be $4.10. To me this is a risk. I don't know how big though.

Cheers,
Oracle.

I will try and make this as simple as possible if an LIC has only one share lets say CBA pe of 16 yields 5% and doesn't realize any gains losses through the year ok? The pe of the lic will show as 20 even though the underlying holding is on a pe of16. Have a think about why.

 

[oracle]

I will try and make this as simple as possible if an LIC has only one share lets say CBA pe of 16 yields 5% and doesn't realize any gains losses through the year ok? The pe of the lic will show as 20 even though the underlying holding is on a pe of16. Have a think about why.

I like to keep it simple as well. Irrespective of what stocks you hold, the P/E ratio is price your stock trades at vs the EPS you report on your annual statement. That currently is at 25. Not much room to move higher IMHO from here. Any share price increases from here will have to come from EPS increases and P/E ratio maintained. This is how it's always worked and I don't see how it is any different for LICs.

Cheers,
Oracle.

 

[equitymate]

I like to keep it simple as well. Irrespective of what stocks you hold, the P/E ratio is price your stock trades at vs the EPS you report on your annual statement. That currently is at 25. Not much room to move higher IMHO from here. Any share price increases from here will have to come from EPS increases and P/E ratio maintained. This is how it's always worked and I don't see how it is any different for LICs.

Cheers,
Oracle.

You know whats funny your ETF would have a similar PE if it were a company not a trust, actually your ETF would have a higher PE because it contains non investment grade companies.

Since the penny didn't drop I will tell you something shocking PE is irrelevant with an LIC (or an ETF)because it only relates to dividends received and realized gains/losses .

What is relevant is the underlying asset and the underlying yield

 

[The Falcon]

I like to keep it simple as well. Irrespective of what stocks you hold, the P/E ratio is price your stock trades at vs the EPS you report on your annual statement. That currently is at 25. Not much room to move higher IMHO from here. Any share price increases from here will have to come from EPS increases and P/E ratio maintained. This is how it's always worked and I don't see how it is any different for LICs.

Cheers,
Oracle.

Come on Oracle, this is investment 101. Suggest spend some time boning up on what LICs are before resuming discussion.

 

[equitymate]

Oracle this is not the first time you have busted in pointing to LICs claiming the emperor has no clothes because it doesn't wash with the altar of John Jack Bogle.

You are entitled to your opinion even when the facts politely shown point otherwise.

One thing I think we all agree on is it is best you stick to ETFs and in fact your analytical skills just proved it.

I like ETFs too by the way. I just don't think my way of investing is the only way.

 

[The Falcon]

Oracle this is not the first time you have busted in pointing to LICs claiming the emperor has no clothes, because it doesn't wash with the altar of John Jack Bogle.

You are entitled to your opinion even when the facts politely shown point otherwise.

One thing I think we all agree on is it is best you stick to ETFs and in fact your analytical skills just proved it.

I like ETFs too by the way. I just don't think my way of investing is the only way.

Herein is the problem with the Indexers dogma. It's almost like a religion...you don't have to know anything, just follow Saint Jack and all will be ok. Have a look at Bogleheads for example, or rather, don't.

 

[dajackal]

*cracks out the popcorn. This gonna b good!

Just finished reading Peter Thornhill's book. Invaluable resource and highly recommend it. Wish I had come across it sooner!

Whilst he doesn't go into LICs in the book I did watch an interview of him where he said that a large portion of his wealth is held in LICs.

 

[The Falcon]

*cracks out the popcorn. This gonna b good!

Just finished reading Peter Thornhill's book. Invaluable resource and highly recommend it. Wish I had come across it sooner!

Whilst he doesn't go into LICs in the book I did watch an interview of him where he said that a large portion of his wealth is held in LICs.

No need for popcorn. Nothing to see here

Thornhill's favourite LIC is WHF for those interested....all industrials (incl. financials) ...he hates resources. I know someone who is a close peer/friend of Peters As an aside, it was also the favourite of that Rockefeller bloke who got murdered in Melbourne while up to no good..he was a top 10 holder.

 

[equitymate]

also that Rockefeller bloke who got murdered in Melbourne while up to no good..he was a top 10 holder.

Too much time on his hands with his set and forget investments

 

[The Falcon]

Too much time on his hands with his set and forget investments

Yep, spending all day prowling craigslist and collecting the divis is a dangerous recipe.

 

[dajackal]

Personally I'm comfortable with AFI ARG MLTs exposure to resources...i believe they're underweight relative to the index?

I took all the good parts of his book and chose to ignore his anti property anti resources viewpoints.

 

[The Falcon]

I took all the good parts of his book and chose to ignore his anti property anti resources viewpoints.

Good move. Same needs to be done with any property books chapter on stocks.

 

[Phiber]

Very interesting conversation, thanks guys.
I am thinking a bit of both VAS & ARG/AFI can't hurt too much, perhaps depending on whether the LICs trade at a discount to the NTA.
Great stuff learning from experienced guys like you. Thanks again.

 

[JohnMichael]

So far no one has convinced me not to go in with the platinum fund haha

Maybe in the future I'll go 50/50 Platinum and VGS. At least currently, they have extremely different weights anyway

 

[Phiber]

Is platinum unhedged too?
I am looking at VGS too for international exposure: I like the diversification across countries and sectors and the top 10 holdings representing 9.6% of the fund is a good diversification.
Contemplating whether to use VGS or it's hedged brother VGAD for long term accumulation. I guess with the $AUD around the 0.80 mark, would tend to go the VGS way as over the next few years it could trend downwards towards the low 70s... But just guess work!

While on the subject of international exposure: are there LICs with international exposure (if that is even possible)?

 

[oracle]

Come on Oracle, this is investment 101. Suggest spend some time boning up on what LICs are before resuming discussion.

Oracle this is not the first time you have busted in pointing to LICs claiming the emperor has no clothes because it doesn't wash with the altar of John Jack Bogle.

You are entitled to your opinion even when the facts politely shown point otherwise.

One thing I think we all agree on is it is best you stick to ETFs and in fact your analytical skills just proved it.

I like ETFs too by the way. I just don't think my way of investing is the only way.

That is exactly right, we are all entitled to our own reasoning for why our investments are less risky or more risky.

The point you are missing is LIC are run as a company where the buying and selling is determined by the person running the LIC. To disregard fundamentals of LICs (EPS, P/E ) and somehow think even though over the past 14 years the EPS has gone from 10.4 cents to 24.3 cents increasing at 4.88% while the stock price has increased at nearly 7% during the same time and if you believe that has got nothing to do with P/E expansion then I am sorry but we have to agree to disagree. LIC is a company and eventually it's valuation will be determined by the profits it makes and the assets/book value it holds.

You seem to be putting a lot of faith in the person/fund managers to continue to outperform the market over the long term. Except handful of investors everybody has failed to do so over the very very long term (Irrespective of whether index hugging LICs or not). I am no expert in timing and knowing when a particular LIC has reached it's End Of Life and is now run by a below average fund manager and move my funds out (Triggering CGT event) and then jump on to the next LICs that (I believe) is going to outperform.

Again, I stress I have my reasonings for investing in index funds because over the long term the odds are certainly in my favour. Some LICs might beat the index while others will not but index will continue to provide you with decent returns.

The greatest investor of all time Warren Buffett is no idiot when he says:

What I advise here is essentially identical to certain instructions I?ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife?s benefit. (I have to use cash for individual bequests, because all of my Berkshire shares will be fully distributed to certain philanthropic organisations over the 10 years following the closing of my estate.) My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard?s.) I believe the trust?s long-term results from this policy will be superior to those attained by most investors ? whether pension funds, institutions or individuals ? who employ high-fee managers.

He knows the odds over the long term are in favour of index fund investor.

I have no issues with others investing in LICs. It's not my money on the line. I am not promoting anyone to invest in Index funds. I am basically stating what I do and why I do.

I acknowledged above that AFI has clearly beaten the index over the past 20+ years and good for AFI investors. I wish not to invest for the reason I stated above.

Cheers,
Oracle.

 

[The Falcon]

The point you are missing is LIC are run as a company where the buying and selling is determined by the person running the LIC. To disregard fundamentals of LICs (EPS, P/E ) and somehow think even though over the past 14 years the EPS has gone from 10.4 cents to 24.3 cents increasing at 4.88% while the stock price has increased at nearly 7% during the same time and if you believe that has got nothing to do with P/E expansion then I am sorry but we have to agree to disagree. LIC is a company and eventually it's valuation will be determined by the profits it makes and the assets/book value it holds.

You still don't get it and it seems you never will. Equitymate has made it extremely clear. Can't believe you are continuing down this path frankly.

Anyway, last I'll say on the matter...those that get it will be wanting to reach through the monitor and slap you with a wet fish

Not breaking any new ground with that Buffett quote either...yep, that would work. Understood in context and it makes perfect sense. I'd be waiting for the inevitable price to book contraction when he passes and adding to my BRK.B position but that's just me

 

[oracle]

You still don't get it and it seems you never will. Equitymate has made it extremely clear. Can't believe you are continuing down this path frankly.

Anyway, last I'll say on the matter...those that get it will be wanting to reach through the monitor and slap you with a wet fish

Thank you!

I know what equitymate is trying to say. He is saying the P/E ratio will basically be determined based on the yield the LIC is providing. If the yield changes to 4% P/E jumps to 25.

My point is in terms of earnings and dividend growth it has not done much better than the long term index average and hence the outperformance cannot continue unless LICs earnings increases more than indexes.

Cheers,
Oracle.

 

[equitymate]

If you applied the same 'earnings' scrutiny to your sacrosanct ETF you would be even more disappointed. By all means continue on with your confirmation bias for all to see.

I see Warren Buffett still has all his money invested in BRK what is essentially an LIC. It seems he doesn't practise what he preaches. But its a fair and reasonable argument .

I would suggest you look at the make up o the SP500 stock weightings etc and compare to our market it is a totally different beast. So be carefull trying to extrapolate US info and applying it here.