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An Analysis of the Thornhill Method — Part 2: The LIC Trade-Off

Posted by on 4 June 2019 in Investing & Asset Allocation

Welcome to the next instalment of our analysis of the Thornhill Method. In the last post, we looked at dividends and showed that there is no difference between selling shares for income and living off a dividend stream. This is because any benefit of dividends is immediately arbitraged away in an efficient market.

But some readers correctly pointed out that, although we looked at high yield shares, we didn’t specifically look at listed investment companies. So in this article we’ll take a closer look at LICs.

In this article, we’ll break down how LICs were able to maintain strong dividends during the GFC. And then we’ll take a more philosophical look at “what you must believe” in order to advocate for LICs, and whether that actually makes sense.

I’m conscious that we still haven’t modelled out the performance of a pure LIC strategy (i.e. ignoring capital gains and focusing on dividend income) and a pure ETF strategy during the GFC. We’ll do that in the next post.

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