Ever want to shout AAAARGGGHHH ?

[MDW1954]

Gosh! What an excellent thread! One of the best HYP threads I've read for a long while.

And would it even have been permitted under our previous moderating regime? Dunno.

But seriously, where is Luni now that people are openly talking about danger zones??!!

MDW1954

[dspp]

thebarns,

If you go to Firecalc at http://firecalc.com/ and dial in a 100% equity portfolio you can see the range of theoretical variations a typical random walk is going to take you through. If you go to the Bogleheads forum (he is the founder of Vanguard, venerated by many) on https://www.bogleheads.org/forum/ and read through the actual experiences of many who were in the market during the last downturn you can see the different reactions of people watching 50% of their capital disappear in front of their eyes. For some it came back, but not all. You can also go back to the HYP boards on TMF UK to read through reactions here at the time.

This is the reality of being in a pure 100% equity situation. Being partly in bonds, or in annuities is designed to manage that risk to a tolerable level but comes with at least a commensurate level of reduction in the reward. Over the long run equities have outperformed bonds, but who can say which of us will survive the long run ? For that matter as Firecalc well illustrates there are path dependencies - if you start investing and early on suffer bad years then your portfolio's value becomes permantly impaired compared with the same portfolio that happens to suffer bad years later on its life. If in equities the hazards of picking individual stocks can be managed by picking index trackers or funds so as to spread the risk.

There is no sure way - but it is right to read around and think and question what you are doing and why. Here is a good place to discuss the HYP approach to individual stocks/shares. There are other boars here on TLF that specialise in index trackers, funds, bonds, etc and on them there are very valid points being made so it is worth reading around and asking questions.

regards, dspp

[thebarns]

Thank you DSPP, very useful.

[Leither]

I am fortunate in that I do not rely on dividends to support myself, and can afford a portfolio that has a yield that is more in line with the market. The resultant portfolio has proven resilient with decent growth of dividends and share price. But I would feel nervous if I had to reach and stretch for yields much north of 4% in order to pay my bills.

Totally agree Lootman, I'm in the same boat, ie not dependent on the dividend income in my retirement. In fact, I'm not really interested in even matching the market yield - the older I get, the less interested I am in high yield shares. I just need to look at Pearson, Billiton, Carillion and Centrica and the capital losses I've made there. And I think it's extremely foolish to look at share price drops as "buying opportunities" or "sale bargains". OK, Astra Zeneca, Compass, Unilever and many others have done very well but I'm much more interested these days in selected investments trusts with long histories, both of dividends and capital appreciation and selected shares like James Latham, Fuller's and Croda. Low yields but excellent little companies in their different ways. For me, safeguarding my capital as far as possible is more important than chasing income.

Regards,

Leither.

Moderator Message:
Earlier on in this topic I pointed out that there were two threads here, one was ok for this board the other was for the strategy. We are again moving in that direction with some posts. Also remember that HYP is about dividends, capital is an aside (an important aside I grant) so bear that in mind when replying. Thanks.

[Dod1010]

I'm much more interested these days in selected investments trusts with long histories, both of dividends and capital appreciation and selected shares like James Latham, Fuller's and Croda. Low yields but excellent little companies in their different ways. For me, safeguarding my capital as far as possible is more important than chasing income.

In which case of course you are on the wrong Board! (Good job this is not TMF)

But chasing yield is never a good thing and I totally agree with your sentiments about 'buying opportunities'. 'Dropping back nicely' is another rather silly comment I always think.

Dod

[Raptor]

A good point there about chasing high yield. I think we all set a yield we want from our portfolio and if we beat it great and if it is beating some form of FTSE or other benchmark even better.

I sometimes think of Luni and his danger zones, "is there a reason that we have missed for the high forecast yield that we should consider"....

Myself, like Dod, Leither and Lootman have started to not chase the higher yields so much now, just want to keep it simple and sustainable.

Raptor.

[csearle]

I think we all set a yield we want from our portfolio and if we beat it great and if it is beating some form of FTSE or other benchmark even better.Raptor.

I don't really set a yield I want from my portfolio. I compare mine with the FTSE-100 and hope to beat that (mind you mine has dividends re-invested so I'm aware that it's not a fair comparison) Haven't got around to using the Total Returns index yet.

Using my spreadsheet I keep an eye on my HYP (astonishingly, on average, I've updated my spreadsheet 3.6 times per day). In terms of actual action though I rarely tinker - I feel quite diciplined.

Regards,
Chris

[Lootman]

I don't really set a yield I want from my portfolio.

And it's not strictly necessary unless you are using that portfolio for all of your income AND you never want to touch capital AND you wish to ensure that the annual dividends from that portfolio, after tax, are enough for you to live off.

Moreover the "high" in "high yield" isn't defined so it's really a matter for each investor to determine that. For instance the overall UK index right now yields about 4% - that's the average and yet I would say that's a high yield, given the current rates of inflation. In fact the UK market is always one of the higher yielding ones, on a global basis. If you agree then you could just buy a low-cost UK tracker or ETF and capture a high yield without all the hassle of shares, corporate actions and so on.

Another thing that HYP doesn't define, in addition to "high", is what percentage of your net worth to allocate to it. Clearly some here have 100% of their investible funds in a HY strategy. Whilst for me and some others, it's just one of several strategies run in tandem. If this is just one string on your bow, you can probably go higher in yield because the extra risk thereby incurred will be counter-balanced by your other allocations which, typically, will be lower yielding.

The account that runs my HY strategy yields about 3.6%. That is actually below the average UK market yield and yet I still consider it a HY account. If a share has a decent dividend then I'm going to consider it part of my yield strategy. On the other hand if the yield is tiny or non-existent then conceptually it sits in my growth portfolio. But I tend to be more picky about buying a share if it doesn't have support from dividends, so I also would not say I am totally indifferent to yield. Just mostly agnostic.

[kempiejon]

I personally think chasing yield is absolutely something that should be done on the HYP board.
...
My worst losses have been from picking the highly admired companies on a low yield. My best performers by far have been from bottom fishing in the danger zone among the damaged goods.

Absolutely, pick a selection of shares, highest yield in any sector that meets safety factors and diversification, that's the jist of how we pick HYP shares isn't it? Your best performers, would that be capital? Yield as a proxy for value perhaps?

[Arborbridge]

Moreover the "high" in "high yield" isn't defined so it's really a matter for each investor to determine that.

Well, that's true literally, but not true in practice. The yield isn't defined, but it is determined - determined not by the investor, by the procedure which Kempiejon succinctly outlined:

Absolutely, pick a selection of shares, highest yield in any sector that meets safety factors and diversification, that's the jist of how we pick HYP shares isn't it?

So it's determined by the highest yielders: I do not agree with Lootman's suggestion, or that buying a UK tracker would fulfill the HYP brief.

However, this is NOT the strategy board, so would should continue any resultant nit-picking on the HYSS board. I thought it important on this board to point out that Lootman is being disingenuous concerning HYP yield.

Arb.

[Dod1010]

I personally think chasing yield is absolutely something that should be done on the HYP board.

Its only by chasing yield that you find out that the market is too pessimistic about a lot of beaten down shares that it truly needn't be pessimistic about. The market is also too optimistic by half about a great many highly fancied shares.

My worst losses have been from picking the highly admired companies on a low yield. My best performers by far have been from bottom fishing in the danger zone among the damaged goods.

Of course there is a simple answer to your final comment and I assume by 'losses' you mean capital losses. Had you bought Imperial Brands recently at £40 or Unilever at £36 you would have a couple of highly admired companies on low(ish) yields but with capital losses of around 10%. If you do not want that then of course watch the development of the share price before buying. Buying a HYP is a long term enterprise and by not chasing yield I do not mean buy Unilever at 2.5% or whatever it currently yields. I always go for a yield better than the current market average, but I am not chasing the highest yielders unless I am fairly confident that there is good reason for that high yield, for example with say HSBC and Shell. Of course you must decide for yourself if it is worth taking the risk that these shares (and others) can at least maintain their dividends. Capital values are very secondary, although of course they matter.

As anyone who reads my posts knows, I have a number of sectors I do not like (so do not even look at them) and have only about 20 shares or so in my HYP. Mostly I have held them for upwards of 10 years, some for 20, and am unlikely ever to sell.

In summary though chasing yield will lead you to some shares which should be nowhere near a HYP, and you need to throw Strategic Ignorance to one side to be very good at recognising 'safety factors'. More difficult than you think, in many cases. The best 'Safety Factor' is the experience of the investor.

Dod

[Wizard]

I've followed this thread with interest as somebody new to HYP who has just started building a portfolio of appropriate shares.

I have to say I am confused with one aspect of the practical application of share selection, either new shares or topping up and to my mind it is something that seems ignored in this thread. When I started to filter the universe of shares to get to a preferred portfolio of target HYP shares it became apparent that there were actually very few shares that came even close to satisfying HYP criteria, even though my criteria were considerably relaxed versus those originally put forward in a number of Old Fool articles.

I have not rechecked in the last week or so but when I carried out my filtering exercise it was simple impossible to build a diversified portfolio of shares with markedly higher yield than the FTSE100 as a whole. This thread, and others I have seen on here already, seems to ignore this fact and just assume that it is a matter of choice as to which of a whole raft of shares one should decide to add or top up.

In short, HYP as originally put forward seemed to be an exercise in the application of absolute standards, but the practical application of it today appears to be a matter of relativism. Am I missing something?

Terry.

[Raptor]

I've followed this thread with interest as somebody new to HYP who has just started building a portfolio of appropriate shares.

I have to say I am confused with one aspect of the practical application of share selection, either new shares or topping up and to my mind it is something that seems ignored in this thread. When I started to filter the universe of shares to get to a preferred portfolio of target HYP shares it became apparent that there were actually very few shares that came even close to satisfying HYP criteria, even though my criteria were considerably relaxed versus those originally put forward in a number of Old Fool articles.

I have not rechecked in the last week or so but when I carried out my filtering exercise it was simple impossible to build a diversified portfolio of shares with markedly higher yield than the FTSE100 as a whole. This thread, and others I have seen on here already, seems to ignore this fact and just assume that it is a matter of choice as to which of a whole raft of shares one should decide to add or top up.

In short, HYP as originally put forward seemed to be an exercise in the application of absolute standards, but the practical application of it today appears to be a matter of relativism. Am I missing something?

Terry.

Good question. Last time I went through stepone spreadsheet with the basic criteria of beating FTSE 100 yield, bigger than £100M and rising or stable yield for 5 years, the list did not give me 15 shares? I think that as we move through the ebbs and flows of the stock market this will happen. Also, remember that a lot of people have different criteria when selecting shares. I am no longer in the building phase but at the end I was entering, companies bigger than half that and yield equal to or bigger than FTSE 250.

What you have to remember is that at any one snapshot that list can change, also I do not think it was intended to buy the 15 shares all in one go (I did but that was 12 years ago).

Raptor.

[77ss]

When I started to filter the universe of shares to get to a preferred portfolio of target HYP shares it became apparent that there were actually very few shares that came even close to satisfying HYP criteria, even though my criteria were considerably relaxed versus those originally put forward in a number of Old Fool articles.

I don't seem to have any problem.

Filtering can give deceptive results. How does one deal with a company that reports in a foreign currency? The dividend may be held or raised, but the sterling payout may fall due to exchange rate variation.

Corporate activity also really muddies the waters.

I suspect that one has to dig a bit deeper.

[grimer]

This has been an interesting read.

I've been suffering a snow capital bleed since August. My HYP portfolio had been out performing the FTSE by quite a margin over the previous 12 months. It briefly dipped under the FTSE immediately after Brexit. I took advantage of the buying opportunity and my HYP soared in July. Since then, I've experienced a perfect storm of HYP shares losing capital value - SKY, ULVR, IMB, RMG, NG.

This has been challenging from a psychological predictive. I've realized that I can take market gyrations in my stride and don't unduly worry about the odd share tanking. Seeing my portfolio seriously under preform the FTSE is much harder. I'm hoping that things reverse just as quickly as they've developed. I don't want to fall into the trap of panic selling.

[StepOne]

re. underperforming. Since June, the capital value of my HYP is up 6.3% and I make the FTSE up 10.7%.

This does feel a bit unusual - normally the two are very close. For the year ending May 2016, my HYP fell 10.3% vs. 10.2% in the FTSE 100. In the previous year, my HYP rose 3.4%, a bit more than the FTSE at 2.0%.

Looking at the Digitallook 6 month performance table ;

http://www.digitallook.com/index/FTSE_1 ... hange/desc

it's clear that miners have been performing really strongly since June - and probably they are weighted higher in the FTSE than in the average HYP.

Not sure what this tells us apart from the fact that share prices go up and down. I'm not selling anything anyway.

Cheers,
StepOne

[Arborbridge]

re. underperforming. Since June, the capital value of my HYP is up 6.3% and I make the FTSE up 10.7%.

I assume that is purely capital with no new investments or dividends added?

My unit price at the end of May was 137.7p - it is now 136.61p. So it's well down against both youes and the FTSE in that case.

Interestingly, only last week - on the 6th Dec. my unit price qA 133.38p, wshich as Step One commented, just proves share prices go up and down!

Arb.

[Wizard]

...also I do not think it was intended to buy the 15 shares all in one go (I did but that was 12 years ago)...

Actually (having just been back and checked the original 2000 articles) that is exactly what was proposed initially in PYAD's HYP proposal. The HYP portfolio was to be in stead of a single purchase of an annuity.

Also having reread the 2005 article that Bree kindly linked to in the Intro thread (surely that should be on a 'sticky'?) on selecting an HYP it states:

"Bearing the above things in mind, the selection process is then fairly simple. Rank the FTSE100 or maybe the 350 shares by descending yield then work your way down, picking a share from each sector. Then do a quick check on the share to make sure that at least in the very near future the yield appears sustainable, preferably rising. If so, then go for it. Ideally you want very low borrowings, high cover and so on but almost certainly you will have to give up on a lot of that for the sake of essential sector diversification. This process of using the index ranked by descending yield automatically finds the largest cap highest yielders at that time."

So to be fair my original assertion that the original concept was absolutist was incorrect, picking HYP shares has always (or at least since 2005) a relative process. The one absolute point though is diversification. So to address my own question when faced with a number of choices which do not meet my own limits on debt and cover the PYADic way is to abandon those limits in order to secure diversification.

When you are already well into the HYP build process I guess diversification is already built into the portfolio, but for those of us nearer the start of the journey it suggests that PYAD's view is that we focus on diversification. So if you are starting an HYP (as I am) and have nothing from Telecoms you would buy presumably buy VOD as it has the highest yield (unless you think the TALK dividend sustainable) and abandon any view on the cover as there is no reason at this point in time to assume a dividend cut in the near future.

Is that broadly as others see the practical process of share selection?

Terry.

[kempiejon]

Perhaps, Wizard you could post the list you came up with? A second or third eye could spot omissions.
In fact for anyone thinking of putting together a 15ish HYP - posting here could be a useful sense check.
Over on TMF luniversal was regularly churning out a list of possible picks, as was JohnnyCyclopse, he also detailed his method of creating a list for further investigation. Here's an old thread http://boards.fool.co.uk/simple-hyp-scr ... e#13260356 might be worth starting at the top.

[Arborbridge]

Is that broadly as others see the practical process of share selection?

With the emphasis on "broadly" yes.

But one should not collect sectors or diversify like a stamp collector. In the case you mention of VOD, one might say that the cover isn't sufficient to sustain the dividend, which might cut it out of the running despite the desire for diversification.

In my view, diversification does not trump other considerations which is what you may be suggesting.
If there are no suitable shares in a given sector, judging by safety and yield considerations, then walk on to the next sector.

Arb.