Avoid These Investments
Updated: Jul 26
Legendary investors are far and few between. This however, doesn't stop anyone from trying - and it certainly shouldn't. Eventually though, you realise what you're good at and what you're not so good at. This however, doesn't stop most people either. Unfortunately, the power of narratives keeps the population interested long enough for the music to keep playing. It's not until someone drags you out of the nightclub, and you sober up the next morning to realise how embarrassing it was - how ashamed you feel.
I recently watched this Livewire Markets episode, where Chris Brycki, Founder and CEO of Stockspot, Australia's leading robo adviser was, in my humble opinion, not being taken too seriously. Chris was also a guest of mine in Episode 05 of Masters in Investing where we go deep into the basics of investing, the odds of success and why stock picking is a mug's game.
During this episode, the host throws a handful of LIC (Listed Investment Company) ideas to the guests for a BUY, HOLD, SELL recommendation. Chris rated each as a SELL - laughter was all that Chris received.
I decided to take a look at the so called "three of the sectors best". I took each of the LIC's discussed in the show, and compared their total return performance to either their own index and/or an equal. Here's what I found:
WAM Capital (purple line)
This one is run by investor Geoff Wilson, and it's been running for a lot longer than the other two. It's most recent performance has been nothing but sub-par, as indicated by the purple line in the below 3 charts. I mean, it under performs it's own index. There's nothing else I need to say here - just buy the damn index.
RF1 - Since Inception (purple line)
This one's only been running since September 2020 - not much data on it. The LIC has done really well, although trying to see through the underlying exposure is a little hard. Interestingly the performance leading up until the COVID collapse was more or less in line with the index, in fact, at times worse.
The fee structure is super high, 1.50% pa and a 20% performance fee with the hurdle being the RBA cash rate! Time will tell with this one, I'm not confident. History tells us, the higher the fee structure, the less likely the chances of outperforming over the long-run. It's really hard to tell based on 1 year of outperformance.
PL8 - Since Inception (orange line)
This one has been running since 2017, and although it has a few years' under it's belt, it's failed to beat it's own benchmark. The chart below doesn't show this, as I didn't have the index data available to me (S&P/ASX 200 Franking Credit Adjusted Daily Total Return Index), but simply referring to the funds own website, the fund has failed to beat it's own benchmark since inception.
When it comes to investing in public markets such as the stock market, you either have a set of rules to play by or you don't. In other words, you are clear on your investment philosophy and you have facts and research to back you up, or you're flying by the seat of your pants. You're either investing, or you're gambling. I think it's as simple as that.
If anyone has any idea about how markets works, the odds of long-term success, fee structures, sustainability of short-term returns and so on, you will know how difficult it is to beat the market. It's hard to excited about boring indexes and ETFs, but the fact is, let me say that again, the fact is, is that you're not going to find a better way to stack the odds of success in your favour. It's basic mathematics. Chris actually wrote an excellent article about all of this recently. If you're interested, you can read it here, I strongly encourage you to do so.
I just don't think there's anything regal about these LICs.