The latest Investing Matters Podcast episode featuring financial educator and author Jared Dillian has been released. Listen here.
Someone can correct me if I'm wrong, but I would think these are closed funds: no new members, and probably final salaries have been fixed, so the liabilities are known, and LGEN can calculate what assets are needed to cover the liabilities.
You can't base your decision (whether to sell) just on how much the share price has fallen. If you do, you're setting yourself up to follow the common strategy of buy-high-sell-low.
As Peter Lynch has said, you need to know why you bought the share in the first place, so you can ask yourself whether your original investment thesis has been shown to be wrong. If it hasn't been, you shouldn't sell.
I find it easier to concentrate on shares that pay stable dividends, and hold them for the dividends, not for capital gains. As long as the dividends keep coming in (and if there's no good reason to think they won't continue) I have no reason to sell. Also, I think it's easier to value a company that has stable earnings than one where you're relying on the company to grow.
I think it was Warren Buffett who said that stocks are the only things where people complain when the price goes down! This year's big discounts have suited me, as I had quite a lot of cash to deploy. And if prices go down further, well that just means I can reinvest my dividends at even lower prices. My policy is to invest mostly in stocks that pay high, stable dividends which should be able to keep up with inflation, so I don't have to worry about the share price. I can just hold long term for the dividends. True, I feel better when I see that the prices of my shares have gone up than when they've gone down. But I just remind myself that lower prices (for new purchases) = better returns.
I'm not selling, but I'm also resisting the temptation to add more at these low prices. I'm at my limit for a more risky share (about 3% of my portfolio). I think it's a mistake to sell a share just because the price is down if you haven't got some other reason to doubt the fundamentals. I think that's a recipe for buying high and selling low.
I made that mistake not long ago with GGP. On the other hand, I held on to JLP and it seems to be on the way back up now. (I hope I haven't just jinxed it.)
@casapinos
If the index-linked bonds are being held to pay for index-linked annuities, then LGEN's receipts on those bonds and payments on the corresponding annuities will rise about equally. So no gain from inflation.
Similarly, if the durations of the fixed bonds are appropriately matched to the expected durations of the annuities (and if the average annuitant dies when they're supposed to) the bonds will just cover the annuities, plus the expected profit margin. Again, no gain from inflation, and profits possibly not even keeping up with inflation.
However, I don't know if it is the case that the assets consist entirely of bonds matched to the annuities. Probably not, in which case this question depends on just what the mix of assets actually is.
For new business, hopefully LGEN will be able to increase its margins in line with inflation. But I see no particular reason why they should be able to increase them by more than inflation. It will depend on what the market can bear. Anyway my main concern here is with the existing annuities, where LGEN no longer has much control over its margins.
All of the above is "as far as I can see". I don't claim any great knowledge of the subject.
By the way, my holdings in annuity providers (CSN and LGEN) make up about 15% of my retirement pot, and I added to CSN a few days ago. I wouldn't own them if I wasn't fairly optimistic about them. I just don't want to be over-optimistic.
P.S. To put it another way... You mentioned rising interest rates as an advantage. But LGEN's existing holdings of fixed-interest bonds don't benefit from rising interest rates. And higher interest rates on future bond purchases will likely be matched by higher annuity rates on new annuities.
@Meconopsis
Thanks. Those are good points. But here's a possible contrary factor. If the annuity provider has funded the non-indexed annuities by means of matching non-indexed bonds, then it won't benefit from inflation. In fact, it will lose out in real terms, because the difference between those matched interest receipts and annuity payments will be fixed (other things being equal).
So I think it comes down to a question of how the funds are invested. You probably know more about that than I do, so I'd appreciate your view on that subject.
I just discovered the Sprott Copper Miners ETF:
https://www.hanetf.com/product/55/fund/sprott-copper-miners-esg-screened-ucits-etf-acc
It has 2% of its value in CAML.
In my experience, when companies say that they 'benefit' from higher inflation, they only mean that their nominal earnings go up with inflation. But it's not a genuine (real terms) benefit unless X% inflation causes more than X% earnings increase. What can create such a situation? The main two cases that I can see are:
1. The company has net fixed-rate debt, which will be inflated away.
2. Greedflation, where a company uses inflation as cover for increasing its prices by even more than inflation.
I doubt that either of those is true for LGEN. Of course, there could be some other explanation that I don't know of. But I think it's more likely that LGEN is not talking about a genuine, real terms, benefit.
My policy now is to invest for dividends, at the expense of growth, and then just hold for the dividends regardless of what happens to the share price. In theory that was always my policy, but I too often succumbed to the temptation to play the market, which I usually ended up regretting. I must resist...
That said, I don't rule out swapping out one share for another if I see a particularly good opportunity. But I'll now only do so if I have high conviction.
P.S. I also wanted to dispel a misunderstanding that may have been created by The Oak Bloke's latest post (linked to by couple of people here). He claimed that, based on the side 11 projection, the current dividend could be continued for the full 50 years of the projection, even with significantly increased capping costs. In a comment to the post, I pointed out that his claim seems to be based on a misinterpretation of slide 11. (I commented there under the name Richard W.}
@Trek
Yes, the current dividend should be sustainable for a while. The slide 11 you mentioned (which I'm familiar with) only talks about the current dividend being fixed for 5 years (starting a year ago). And the whole projection is based on gas prices being higher than they are currently. I'm fairly optimistic about future gas prices, but it's a source of risk.
Anyway, my comment was in response to Santiago, who was talking about replacing one's entire portfolio with 25% of that amount of DEC, on the grounds that earning 20% dividends on DEC would give you the same returns as earning 5% dividends on 4 times the capital in other stocks. My point is that they're not equivalent because the 20% is not as sustainable as the 5% in a broad range of other stocks probably is (depending on the stocks of course).
I just bought some AERS, on nearly 30% discount to NAV. Not bad when most of the UK renewables have narrowed their discount in the last few weeks. Of course, you have to consider how representative the published NAV is. I note that it's based on a lower discount rate than UK renewables.
AERS is pretty thinly traded, compared to its Euro-denominated equivalent, AERI. And on Interactive Investor I had to buy it by phone, not on the website (but they only charged me the web transaction charge).
Https://m.youtube.com/watch?v=gLvkWpnzba8
First part is about capping oil and gas wells in USA.
If you've paid 30% WHT, you might be able to reclaim half of it, as described here:
https://the-international-investor.com/investment-faq/reclaiming-withholding-tax-foreign-dividends