Ever want to shout AAAARGGGHHH ?

[Itsallaguess]

IGG follows a long line of HYP shares, reasonably widely held and tipped by some, not all, with poor, putting it mildly, recent performance.

IGG, Lloyds, Morrisons, Cobham, Tesco, Centrica, Pearson, Sainsburys, Carillion, Amec Foster, BLT - many cutting dividends or look likely in the future, all reducing capital (I know that does not matter in HYP) but it is normally reflective of a concern over an ability to generate future profits, similar or rising dividends. Many of those companies were pretty widely tipped to hold as part of a broad HYP portfolio.

I'd be interested to know a little bit more regarding the purchase history of the HYP shares you've listed above, if you've got it to hand or are able to do some work to compile it.

I only ask because early on when I first began constructing my HYP, I seemed to find myself in similar circumstances, with a tendency to look back at a number of purchases and think that I really couldn't have bought some of my HYP shares at a worst time.

When I looked back at my purchase history, and looked at some of my notes that led to those purchases, I found a relatively similar pattern in quite a lot of my HYP purchases that resulted in the sorts of situation you've highlighted with your HYP shares above.

Those particular purchases tended to have followed along this route -

1. Run my filters to find suitable candidates for buying into my HYP.

2. Spot an abnormally high yield in a sector that I didn't own.

3. Take a look at the figures and recent news regarding the share, and whilst noting that there were some concerns going forward in some areas, they were generally regarded as 'solid' FTSE shares and so looked like a short-term anomaly in terms of yield, that should be taken advantage of.

4. Buy the 'short-term yield anomaly'

5. Notice the share price of my new HYP share gradually decline over time since purchase.

6. After a period of time, usually at the next set of results, notice that the company has announced a cut to it's dividend, and thus what was going to be my 'abnormally high yield' has now become an 'abnormally low yield' when compared to my purchase price...

7. Notice that following the dividend-cut news, the share price of the company would continue to drift down for some time. Notice that also, quite often, the new level of dividend along with the new much-lower share price actually made the company look like a good prospect now, with regards to potential yield at that point....

8. Carry the share in my HYP for some time, with it's lower share price and lower 'yield on cost', as a gentle reminder never to chase 'short-term yield anomalies' ever again....

9. Spot what looks like a 'short-term yield anomaly' in my filters.....

10. etc.....

To help avoid the above process, I simply stopped chasing 'yield-anomalies'.

I obviously don't know if the above process will ring any bells with you, but I'd be interested in feed-back from people for whom it does, as I think it's a fairly common trap to fall into for income-investors just starting out.

In reality, looking back from here, I really didn't lose a massive amount of money whilst learning this valuable lesson, and will of course put that down to part of the cost of my investment-education.

Call it yield 'danger zones' if you like, although I think that whole process was an over-complication of a very simple concept. Run your filters and compare potential candidate-yields with other related-sector yields and general FTSE-returns. If there's a big difference, it's usually there for a good reason....

As an aside to the above, I also now balance my HYP share-purchases with some income-oriented Investment Trusts as well. I've noticed that these are much less volatile than individual HYP share-purchases and yet still give me a return that's satisfactory to my particular situation. There might be very little harm done if you were to look at using a similar approach to help balance out the individual-company side of your HYP, and of course simply having such IT''s in your HYP means that you're much more aware of their potential over the years as you can compare more directly with your other holdings. I'd suggest perhaps looking into this for at least part of your HYP approach.

Cheers,

Itsallaguess

[GeoffF100]

Geoff, I have 3i and iii but I don't think they are like IGG, have they been similarly hit by the recent announcement?

I considered both of them as non-bank financials. 3i both owns private equity, and manages it for others. All financials are subject to regulatory risk. I have got some spread of risk with 3i, since it is part private equity IT.

I bought Rentokil a very long time ago, back in the Pyad days. It did badly for a very long time, but is now nicely in profit.

[Dod1010]

Congratulations, fair play and, in fact, if you have had a HYP for more than 20 years then maybe Bland owes you some of the royalties.

The other thing I reflect upon is that a HYP can be tax-efficient, given that basic-rate taxpayers pay only 7.5% on dividends and 10% on capital gains. Most other forms of income attract rather higher levels of tax.

I daresay I did not have a proper segregated HYP 20 odd years ago but after the technology bubble in 2000 (where I lost at least £30,000 on Cable & Wireless, for instance) I concluded that I should concentrate on shares which paid a decent dividend and had a fair chance of continuing to do so. I felt that that would give me a fair chance of avoiding too big a loss of income In the next downturn. I had never heard of TMF or Stephen Bland at that time but had produced my own form of HYP which I continue to employ today.

As to tax I have put the maximum into ISAs and their predecessors, since I have been able to that is the financial year, 1991/2. Nowadays I simply transfer certificated shares into an ISA. I have reached the stage where I am having to say to charities please do not gift aid this donation because I do not pay enough tax! I pay very little tax because of course the current government has been in my view too generous to folk like me with the big increase in annual ISA subs and the personal allowance.

Dod

[Ivyrobert]

Itsallaguess has highlighted a process that fits me exactlyish!
I have even been restraining myself from rushing in and buying IG after my serial repeats of the process with other dividend darlings mentioned above. Usually I have bought in on a major drop, eg Capita recently, only to find the price dropping several times afterwards.
In reality, the future is uncertain, some of previously blue chips are recovering slowly and I am glad that I have diversified over the last 4 years. It doesn't give me peace of mind, but does remind me that all of my eggs are not in the one basket.
I struggle to start investing in ITs even though I can see it makes sense. Funny old game.....

[Dod1010]

I know I can get it wrong just as much as anyone else, but I quoted Peter Lynch in an earlier post, and incidentally have just been trying to remember why my HSBC dividends are so high this year compared to last. I have uncovered the reason. With the proceeds of that excellent share Amlin in September 2015, I put about 60% into HSBC at £5.11 (now £6.27) and 40% into Murray International at £8.22 (now £11.12) I held both of those shares already but as Peter Lynch has said, the best top ups might be shares you already own. They both at the time looked good value to me and I felt I knew something of them. Of course they may both drop off a cliff tomorrow for some reason and I do not dwell on it but capital does not matter? You bet it does! They can and probably will reverse of course but currently it is a nice feeling.

Reading the story of Intsallaguess, I daresay I was not much different for a while and these are expensive lessons for your future investing career. I guess we all go through them. The real lesson is not to be too ambitious, get to know your shares, including the culture and try to buy what you know something of. I never used filters as they throw up all sorts of anomalies and you need to be able to throw out what is no good. Investing is never mechanical. It is as much art as science.

[Raptor]

After taking a few years to gradually rejig my 'closed' ISA from a mish-mash, I now have an HYP of 30 shares, with no new money being added. It settled down into its current form around 2011.

Occasional trimming (maybe once, possibly twice a year) plus the odd capital return and reinvestment of dividends allow maybe 3, possibly 4, top-ups a year.

But here's the thing...

While capital values for some shares (usually more recently bought shares or topped up shares) may be in the red or not have gone anywhere, for the past 3 years, my dividend income by November has been greater than the total in the whole previous year. Every year I'm getting a month's worth of "free" money to reinvest.

That excel chart has a much more powerful effect than my unitization efforts or %return calculations.

I don't know how much is just luck (e.g. favourable exchange rates this year), but it feels like I'm on the cusp of a virtuous circle - long may it continue.

torata

Good sentiment. Seeing that income rise every year by an amount greater than RPI is a boost. As my HYP has changed dramatically in the last few years, I am heartened to see that % wise it has risen too. Next few years with no or very little being added should show how well (or lucky) I have been.

therbarns keep at it am sure that you will start to see the wood for the trees. We are all here if you need to bounce ideas around.

Raptor.

[thebarns]

Itsallaguess,

Thank you for your detailed reply.

I know I am probably the exception to the norm here in that I don't bother with keeping records of purchase dates and IRRs and all that stuff..... I should do and when I am retired and have more time, I probably will ! Most have been bought at different points on a fairly regular basis over the last 5 years or so.

DYOR - I don't really and I suppose I have to admit that and more fool me some might say, but I live and learn. Also, I really don't have the expertise.

Can I admit that many of the shares I have bought have been from looking at portfolios of many posters on this predecessor Board !

I do not do it in any particularly scientific way, nor would I just chase the highest yield - my logic, if at all, was to get into my portfolio most of the commonly held HYP shares.

As I said before, I know I have no chance of spotting which is a good or bad share for the future.

I do have some income investment trusts and they have been steadier and I can only think that the reason I have the HYP shares is that I thought they would generate more of an income than the investment trusts, though I now really do appreciate that they appear to be more volatile in terms of both income and capital values (I know, capital does not matter, except it does have a psychological impact on me !)

I think one poster mentioned or I have seen it mentioned in other threads that if you can't stand the heat, get out of the HYP kitchen and move into cash. Unfortunately that is not an option when I and many others need to generate an income to live in retirement.

But I will carry on with HYP as I don't have an awful lot of choice, other than tipping the lot into investment trusts.

I have read with interest how some have stuck with it, despite taking a hammering on a number of individual purchases and that is what I will do.

Thanks again

[dspp]

thebarns,

Can I ask a question please.

Very brave of you to say you are 'just' picking up the often-mentioned shares on this TLF board or its TMF predecessor. Not necessarily anything wrong with that but ......... when you do so are you using any of the tools or methods that are discussed (ranking yields, dividend cover, sector allocation, etc) or are you just saying "gosh I've got a spare bit of dosh, haven't got any XYZ, let's buy some right now" ?

If you are doing the latter then you may accidentally be buying a fairly decent share at a fairly poor time in the natural fluctuations of its trajectory. If you are doing the former then you may be over-cooking the short-term-yield-anomaly as iag so clearly explains.

I am asking partly because we have very little idea how many lurkers are out there making quite serious financial decisions based on what they read in places like this. Having real war stories such as yours with the odd bit of "been there, got hurt, learn't this" is quite helpful.

Personally I think things steady out when you have more shares. Too many and you end up pushing into poorer yields. Too few and you over-concentrate risk. You may also be sufficiently early in your portfolio building process that you are slightly over-concentrated which will/may improve as you build out.

regards, dspp

[toofast2live]

If you feel AAAAAARGGGHHH! when this happens to your portfolio you sould instead try a basket of Income and Growth Investment Trusts. Running costs of under 1% make them very competitive with a self administered HYP.

Because she has no interest in shares I have always invested Mrs Tf2L's money in ITs and mine in HYPish shares -after 20 years her portfolio is 10% moe valuable than mine although yields slightly less income.

[thebarns]

Toofast2live,

I take your point and yes I do have a number of investment trusts as well..... I used to collect these football stickers many years ago !

I'm not into stamps, but yes I'm guilty of collecting HYP shares and similar ITs ! Once again, most of them are taken from listings provided from another predecessor Board.

And yes, I have lurked over the years on HYP as am no expert, in fact a novice and I suspect like a huge majority in this country will have to become so over future years. The posters on here are, I think, way above the average financial competence of others I know who also have to fend for their retirement income - they even think I know a bit !

DSPP - Nope, I don't use any of the tools, does that make me one ? I suppose the only tool I sort of look at is whether the price has risen steeply or fallen steeply in a recent period. I would tend not to buy a commonly mentioned HYP share if it had risen sharply recently and I'd also be slightly wary of one that had fallen sharply. Other than that I collect most of the ones that are mentioned often on here.

Anyway I see IGG has bounced over 2% today so all is well and it's a warm sunny day outside !

Thanks again

[dspp]

thebarns -
That is very honest of you. If you don't use any of the tools/processes then at least you can't be accused of over-thinking things Truly a Dorisean approach. Not my way but I am often accused of that error so perhaps your way is better. I think the best solution is to pop your results up each year as many of us do, and we can all learn from each other as we go. There are many paths to heaven.
regards, dspp

[Raptor]

thebarns

Have a look at HYP top up sheet here http://lemonfoolfinancialsoftware.weebly.com/

It doesn't matter when you brought the shares, just the number for this spreadsheet. This may or should give you an idea of the "shape" of your portfolio. I have also got a version of this for my IT's, admittedly both of them have additional functionality added to make my life a lot easier.

Once you have entered your shares, you may feel that it is worth posting the results here. If so kiloran and itsallaguess have produced a couple of tools to help format for lemon fool under "Miscellaneous".

I would say keep at it and as mentioned it really is very useful to hear from previous "lurkers" on what they have achieved or not with the "words of wisdom" entered on the forums.

Raptor.

[tjh290633]

To those who worry about share price fluctuations and price movement, my advice has always been ignore them, just watch the income flow.

Drops in income flow do happen, see 2009-10, but in normal times (do they exist?) they are usually small and more related to currency effects than corporate actions. Dividends are much less variable than share prices.

My other advice is to look at holdings relative to your other holdings, which is why I rank them and look at their percentage of the median holding value. If the median falls and all the rest fall, their relative positions do not change very much. Having said that, with a relatively narrow spread between most of the holdings, there is a lot of relative movement in the present conditions, with miners rising, oils falling, insurers jumping about, anything can happen.

TJH

[funduffer]

thebarns,

As a relatively new HYPer (my portfolio is about 3 years old), I can understand you wanting to shout!

I am lucky, in that I have a final salary pension which is enough to live on, and my HYP supplements this. Thus, I can take a bit more risk with much higher yielding shares.

However, I have had 4 cutters in my 20 share HYP - 20% of them - CNA, BLT, AMFW & SBRY, in just 3 years.

If my lifestyle depended on my HYP, I think I would like to shout as well.

However, my income per unit is up 4.5% this year, despite these cutters, so I can't complain.

I think we are both lucky to have this board, & its predecessor on TMF, to air our thoughts. There is nothing like a bit of support, advice and encouragement to get you through spells such as this. I know you don't have time, but keeping records and analysing performance does mean you can engage better on this board.

Keep going, have faith, and I suspect you will do OK.

FD

[Lootman]

To those who worry about share price fluctuations and price movement, my advice has always been ignore them, just watch the income flow.

That's absolutely the best situation to be in, where the amount of dividends coming in is something you can merely watch. If you have other income, as I do, then the rate of dividends is more an interesting curiosity and something I have to tot up at tax time. My ability to eat doesn't depend on them.

Where I do think capital matters is where the dividends are your sole source of income and where your living expenses may increase whilst the dividends may not oblige by rising in step. In that case you may need to start drawing down capital and that is where it can get ugly if the capital sum is not healthy and moreover is declining.

How relaxed and insouciant one can be about dividends or capital gains really depends on how close to the edge you are. Luniversal would always claim he has lived off dividends alone for over 30 years and used that to claim capital need never be touched. But then he started with a lot of money and appeared to have a frugal lifestyle with no dependants.

So I agree that ignoring capital is the best attitude to take, but not that everyone can or should do that. And if you have a very rigid rule that you will never touch the capital, then you probably need to work a few more years to build a bigger pot. I suspect some people would rather prepare for capital drawdown one day than work a few more years, even assuming that the latter is possible for them. Put another way, not everyone has the luxury of a net worth large enough to enable dividends alone to support a long retirement.

Which takes me all the way back to the working principle I cited earlier - target the lowest yield that meets your goal, with the idea that will be good for the capital base as well.

[thebarns]

Lots of good advice and support here.

Even Mr Market wanted to cheer me up today !

I am in the position that Loot outlines, in that I will have no other sources of income when I retire, as will be the position for a number on here, apart from the state pension whatever that will be when the time comes.

So I will continue to agonise of getting a high enough yield to meet income needs, whilst fearful of the drawdown on capital that may happen if I take out too much, particularly in a bad couple of years for Mr Market.

I also had children comparatively late in life and although bundles of joy.... they will also be a financial drain !

My latest purchase was Kier, so make sure you all sell that as that is bound to be the next one that bombs !

[Markblox]

I would respectfully suggest the poster considers if he he/she has the right temperament for investing in single shares. Most shares are bought after they have gone up in value and sold after they have gone down. That is the way to lose money. A 20% change in value in a short time frame is just the vicissitudes of the market and is not unusual and should often be seen as an opportunity. The problem is that a negative change in values is seen as a loss but it isn't, it is just a change in value. A loss or gain is only made when it is crystallised by a sale and until that time is just a change in the valuation of your portfolio. Obvious, but worth remembering when the market does strange things. Look at today for instance with the sudden change of sentiment.
It will probably only as we leave a bear market you will find out if your balls are big enough (If you have them that is!) I found out mine were in the great recession which is nice to know but there is no shame in admitting this type of thing is not for you, as a panic exit near the bottom of a long bear market could be very expensive. Good luck with it and remember that the income won't be as volatile.

[tjh290633]

Most shares are bought after they have gone up in value and sold after they have gone down. That is the way to lose money. A 20% change in value in a short time frame is just the vicissitudes of the market and is not unusual and should often be seen as an opportunity. The problem is that a negative change in values is seen as a loss but it isn't, it is just a change in value. A loss or gain is only made when it is crystallised by a sale and until that time is just a change in the valuation of your portfolio. Obvious, but worth remembering when the market does strange things. Look at today for instance with the sudden change of sentiment.

It will probably only as we leave a bear market you will find out if your balls are big enough (If you have them that is!) I found out mine were in the great recession which is nice to know but there is no shame in admitting this type of thing is not for you, as a panic exit near the bottom of a long bear market could be very expensive. Good luck with it and remember that the income won't be as volatile.

Your first sentence is a vindication of LTBH as a tactic. Having been through a bear market or four (or more), I've always found that staying fully invested has worked well. The market can turn round quicker than you can react, expecially if you have liquidated on a falling market.

Many years ago (1957) an old friend (who was about 60) told me his father's advice was "Never buy on a rising market, nor sell on a falling market". Not always possible, but the principle is sound.

TJH

[YeeWo]

.... On a similar subject, I've held HSBC for yonks. My holding has been up, down, a cutter, a rights issuer and been absolutely murdered in 2008 and had huge setbacks (too many to mention) ........And yet here it is today showing a big profit and 10 years plus of divs.....

HSBC really is an excellent example of how LTBH and doing as little as possible Works. HSBC's Quarterly Dividend undoubtedly helps but the actual SP hasn't really gone anywhere for 10+ years. I've held since preGFC and computing dividends Still means that a business that pays out regularly can be an aggregate Good Investment even if the SP does not much better than Not Fall.

[Dod1010]

Although I have held HSBC since 1991 and am not displeased with the result, a better example is probably the tobaccos. The overall lesson though is to find good shares and just keep them, ignoring market noise.