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LICs - Ponzi?

Discussion in 'Listed Investment Companies (LIC) and Trusts (LIT)' started by KR, 22nd Jul, 2014.

  1. KR

    KR Member

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    Hi all
    I only own one Listed Investment company - CTN, which is mentioned in this blog:

    The Great Australian Investment Ponzi

    This guy is claiming that many LICs are ponzi schemes, paying from newly-issued shares etc - there's no truth in that is there?
     
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  2. Waimate01

    Waimate01 Well-Known Member

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    Interesting post. In my view, this guy adopts the somewhat shrill tone of a conspiracy theorist, and his emotional language in calling people "criminals" is somewhat unhelpful as it makes him sounds like a member of the tinfoil-hat brigade.

    That said, his actual content seems to be mixed in its validity.

    A lot of his labelling people as criminals really just comes down to his view that LICs should be considered on a post-tax NTA basis, not a pre-tax NTA basis. Well, that's a view and it's certainly worth debating. But to claim fraud and criminality is very much over-the-top, especially given most LICs cheerfully disclose both pre- and post- NTA values.

    Another swag of his concern relates to LICs with external management, and the way a whole bunch of the income earned is diverted to the external manager. To me, this is naivety. Of course an external manager is going to be interested in maximising their own financial outcome, and will do things like expand AUM to increase their fees (to their benefit; not so much yours). *Always* look to the money flow to understand motivations !! Oh, and only use LICs with internal management, thereby avoiding the conflict.

    He's also upset about how prices move. But dude, it's a market! And a market is defined by its participants. Ever noticed how the market (not just LICs) often takes a jag upward on June 30 so everyone can report a slightly more rosy result? Just because things are transacting at a price doesn't mean you have to take that price.

    So, "ponzi"? - not so much. But are they universally run by people looking out for your best interests over their own? No. "Criminal?" - I think not, except perhaps a few outliers. Certainly not to the extent he's spraying.

    Some homework and diligence required, just like when hiring a plumber or any other service-provider.
     
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  3. KR

    KR Member

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    Thanks for such a good reply

    The blogger certainly feels very strongly about the subject!

    I did notice that most LIC's the number of shares does creep up over the years which is consistent with his claims.

    Anyway fairly reassured by your good analysis
     
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  4. jodie123

    jodie123 Active Member

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    Great explanation Waimate01! Very helpful indeed!
     
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  5. FinanciallyFreeAustralia

    FinanciallyFreeAustralia Member

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    Hard to take this website seriously and I agree fully with the earlier reply. As per Waimate01 : "his view that LICs should be considered on a post-tax NTA basis, not a pre-tax NTA basis. Well, that's a view and it's certainly worth debating." This is a legitimate issue and something I am keen to discuss further too actually, but will start a new thread on it.
     
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  6. twisted strategies

    twisted strategies Well-Known Member

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    ** paying from newly-issued shares **
    i assume they mean apart from DRP distributions ( which is quite common .. look at the WOW DRP share issues ).