Over the weekend I had the pleasure of sitting in a coffee shop in the Harbour Town Shopping Complex on the Gold Coast while my wife busily saved me hundreds of dollars!!! The next best part of the afternoon was the chance to read the papers in more detail than I often allow myself. During my reading I came across a small article in The Australian's business section - 'LICs struggle to run with the bull'. The contents of the article supported the comments in a recent article written by learned colleague - Why L-I-Cs can be D-U-Ds.
The article in the Australian suggested that share price of about 80% of the LICs on the ASX underperformed the All Ordinaries index in the past 3 years. The article reported comments from Argo Investments chief executive, head of one of the two biggest LICs, who suggested that the resources boom was the explanation for the under-performance. He commented that LICs generally went underweight in resource stocks because they were highly speculative and did not pay high dividends.
The article reminded me again about the importance of a whole of market approach to investing. With a whole of market index style fund you don't have to explain away why your portfolio performed below the market return, the return that we believe an investor deserves. Nor do you have to 'time' the market i.e. decide when do you buy and sell what's hot?. If you read other articles on our website you will soon come to the conclusion that both activities - stock picking and market timing - do not lead to above market returns in the long run, quite the contrary.
Have a great week,