How to review the financial performance of an LIC

The investment managers of LICs are sometimes cynically referred to as "Invetertate Wool-Pulling Ticket Clippers".  The reason being, whilst they have a duty to promote the company to ensure it does not trade at a discount to NTA many get carried away and selectively use irrelevant metrics or inflated dividends to mask under-performance. This can extend to include delaying investment losses being recorded in the profit and loss account, paying out more in dividends than they earned, using investment return before expenses, using irrelevant metrics to indicate good performance. There are accounting standards regarding reporting but ASIC do not take action unless there is a complaint. There are two numbers that cannot be manipulated in the ordinary course of business. They are dividends paid per share and difference in NTA (after tax) per share. When processed using a spreadsheet, data over 1, 3, 5, and 10 years an investor gets a very accurate picture of the investment managers worth. An understanding of the "Sharpe Ratio" is very useful when comparing LIC's.

There are about 100 LIC's listed on the ASX. On average twice per week I do an analysis of an LIC and publish the result on the following blog
licanalysis.blogspot.com