Pearson Trading Statement

[grimer]

Liberium were not the only people who called it.

Grimer and Raptor both warned me off Pearson in early November when I first posted about candidates for a new HYP. Hat tip to those two!

Terry.

Thanks for the hat tip, but it was pure luck on my part.

I'd also avoid Pearson, but that is more of a gut feeling and casual view from the sidelines.

I had held Pearson in my HYP. I sold them to move money into my HYP and would have probably still held them, if I hadn't needed to liquidate some cash - I don't tend to sell unless there is something visible on the horizon. The mood music had darkened a bit between my original purchase and needing to sell some shares, so Pearson were one of the shares I culled.

I was also overweight in oil, so I decided to sell RDSB and didn't repurchase in the HYP. That has been a more costly mistake in terms of lost capital growth and income than my hypothetical 'avoidance of loss' on Pearson. But if I'd bought RDSB in the SIPP and the oil price had stayed down, I might now be bemoaning a loss there.

I have no idea which way the market, sectors or individual shares are going to go. I use stock screeners to throw up suggestions based upon safety criteria. I then use my knowledge (?) of current affairs to try and make educated guesses with regards to the sector outlook and then search the web for comment on individual companies - and If all else fails, I just copy TJH

With regards to HYPTUS:

Using the HYPTUSS, hit the "ALL CHARTS" macro button for the shares in your HYP portfolio. Then superimpose the FTSE100 chart and view over say a 5 year window.

I was expecting more of a 1:1 correlation between each individual share and the FTSE. There may be some general trends...occasionally but each share more or less seems to operate independently of the FTSE100. (possible exception being Greene King in my portfolio where it did seem to follow the ups and downs).

The conclusion I came to was "little correlation with the FTSE100" and thus all you can do is to invest in good companies such as might form the constituants of a reasonable HYP portfolio.

Moderator Message:
Graphs removed as copyright infringement. Raptor.

Not a happy sight.

[Arborbridge]

I don't think worrying about individual shares is very revelant - comparing the whole HYP is better, and here is one reason to unitise. Then compare with a basket of ITs and see how you compare.

Over and above that, you really need to get a handle on the income returned bt the HYP.


Arb.

[Arborbridge]

I do need to worry about individual shares and their weighting,

Yes, you certainly need to think about individual shares*, especially the weighting. I think I was just reminding ourselves that it's the whole HYP which is the final arbitor rather than over analysing shares.
*because the strength of the whole is built on the strength of the parts.

[Dod1010]

I have not read this entire thread as I do not hold Pearson but the FT this morning has a most interesting comment on Pearson.

In summary, when the Pearson family held a significant stake in Pearson and had Board representation, its assets were a collection of great companies, Chateau Latour, Lazards, Penguin, Longman, Madame Tussauds, The FT and the Economist. The professional investors in the business (the 'market') said they did not like conglomerates and so the managers sold most of these assets to focus on making a real success of one area.
Just like HYPers, they had a collection of great assets (a portfolio, we might call it) and so if one part hit a sticky patch the others would cover for it, instead of which Pearson is facing an existential threat.

As the commentator says, the managers running Pearson would have been better taking their salaries and lying on a beach all day. That is why I follow the culture of a company so much and rather like companies where a family has a significant stake. Pearson has been like a slow re run of GEC/Marconi.

Dod

[tjh290633]

As the commentator says, the managers running Pearson would have been better taking their salaries and lying on a beach all day. That is why I follow the culture of a company so much and rather like companies where a family has a significant stake. Pearson has been like a slow re run of GEC/Marconi.

Dod

Not quite yet. Marconi went soaring upwards, to the extent that I trimmed them back twice, in December 1999 at 979p and in September 2000 at 1183p. Then I made the mistake of topping them up as the price fell while the dividend rose. I would have been better selling out completely at the peak, when the yield was down below 1% from a dividend of 5.2p. I have learnt since then.

TJH

[Dod1010]

I know about Marconi. I actually bought the old GEC after Lord Weinstock retired in the (correct) expectation that someone would take over and use the cash pile more imaginatively. I did not though expect George Simpson. I was as it happens a forced seller in January 2000 and made a lot of money by chance, just before they fell to earth. Unfortunately I kept a rump of them and lost out although my net gain was still very significant.

What I meant in my comparison was that here was a well and conservatively run company and then, like Marconi, when new management came in they managed to ruin it. As I said a slow re run of GEC/Marconi and without the spectacular initial rise as far as I know.

Dod

[Arborbridge]

I actually bought the old GEC after Lord Weinstock retired

I knew you were loaded, Dod, but that's a surprise revelation

Arb.

[Arborbridge]

As a general thought: I find reading the boards so depressing and unsettling at times like this.

If one were trying to be Doris, of course, none of this would matter. One would just sit back and let the market work its magic over a period of decades, but as Luni used to say, we always feel we need to do something with our investments. He claimed he never sold anything, but just accumulated shares as cash was available. Not for him the worry about doing a little better.

This constant desire to fret and fiddle does rather undermine the objective of leave well alone. Do we really ever improve things by worrying; selling this to buy that? I'm not so sure, which is why I do it as little as possible. I permit myself the occasional sell to satisfy this nervous energy, but perhaps not reading any opinion, ever, is the best policy. After all, when all said and done, no one can say what will play out in the next few years.

Arb.

[Dod1010]

I actually bought the old GEC after Lord Weinstock retired

I knew you were loaded, Dod, but that's a surprise revelation

Arb.

That was, shall we say, a slight exaggeration Sorry I did not mean quite that.

Dod

[Dod1010]

As a general thought: I find reading the boards so depressing and unsettling at times like this.

If one were trying to be Doris, of course, none of this would matter. One would just sit back and let the market work its magic over a period of decades, but as Luni used to say, we always feel we need to do something with our investments. He claimed he never sold anything, but just accumulated shares as cash was available. Not for him the worry about doing a little better.

This constant desire to fret and fiddle does rather undermine the objective of leave well alone. Do we really ever improve things by worrying; selling this to buy that? I'm not so sure, which is why I do it as little as possible. I permit myself the occasional sell to satisfy this nervous energy, but perhaps not reading any opinion, ever, is the best policy. After all, when all said and done, no one can say what will play out in the next few years.

Arb.

That is all very true Arb and I think that on the whole we are better just to let the market get on with it, but nevertheless I at least cannot help making changes when I think it is right to do so. I have made very few changes to my HYP for over a year now except sell Cobham to buy Primary Health Properties, and even it, whilst not doing much, has fallen back a bit since I bought, but that I think is just market noise.

Dod

[Itsallaguess]

This constant desire to fret and fiddle does rather undermine the objective of leave well alone.

Do we really ever improve things by worrying; selling this to buy that?

I'm not so sure, which is why I do it as little as possible. I permit myself the occasional sell to satisfy this nervous energy, but perhaps not reading any opinion, ever, is the best policy. After all, when all said and done, no one can say what will play out in the next few years.

Arb.

I've no figures to back my position up Arb, but across what we might think to be a 'Generalist' HYP then I'd imagine the frequency of 'full-on-cutters' is relatively low over the years, so I'd personally not have much of a problem with any sort of 'sell on a full-cut' policy (although I always tend to agree with Terry's view that any share that's seen a huge price-drop reaction recently might be better sold after a period of time, just to let the dead-cat bounce a little on the capital front), and I really don't think it would happen frequently enough to call it 'fretting and fiddling' to be honest.

I also do think there's something in the 'emotional cost' of holding such shares, if one were to be 'programmed' that particular way. Even if there's to be no real financial benefit in the long run to taking such action, then I think simply taking the fact that we might 'feel better' about such a procedure should be given some merit in it's own right. We've got to sleep at night, after all...

As you say, you permit yourself some sales to satisfy the 'urges', and I can think of a lot 'worse' reasons to sell and buy something else than these particular 'full-on-cut' situations...

Cheers,

Itsallaguess

[Arborbridge]

'fretting and fiddling'

Perhaps fretting and potentially fiddling? is more accurate. I think Luni did not allow himself to even think of fiddling, and thought of it as a failing in others.

[idpickering]

As a general thought: I find reading the boards so depressing and unsettling at times like this.

If one were trying to be Doris, of course, none of this would matter. One would just sit back and let the market work its magic over a period of decades, but as Luni used to say, we always feel we need to do something with our investments. He claimed he never sold anything, but just accumulated shares as cash was available. Not for him the worry about doing a little better.

This constant desire to fret and fiddle does rather undermine the objective of leave well alone. Do we really ever improve things by worrying; selling this to buy that? I'm not so sure, which is why I do it as little as possible. I permit myself the occasional sell to satisfy this nervous energy, but perhaps not reading any opinion, ever, is the best policy. After all, when all said and done, no one can say what will play out in the next few years.

Arb.

Hello Arb,

I've mentioned on this board before, I've taken a more 'hands off' stance to my HYPing. Nowadays I just keep adding my monthly dollop of new cash, topped up with the dividends received that month which are held in the account, and make my monthly purchase. My last sale was on 9 Feb 16. This is a policy I intend to continue going forward, ie being hands off. For one it saves in fees, but the main thing is that I feel better HYPing like this. My opinion is that having taken so much time and effort buying any given share, why be in a rush to sell it?

I do not hold PSON.

Ian.

[tjh290633]

I've no figures to back my position up Arb, but across what we might think to be a 'Generalist' HYP then I'd imagine the frequency of 'full-on-cutters' is relatively low over the years, so I'd personally not have much of a problem with any sort of 'sell on a full-cut' policy (although I always tend to agree with Terry's view that any share that's seen a huge price-drop reaction recently might be better sold after a period of time, just to let the dead-cat bounce a little on the capital front), and I really don't think it would happen frequently enough to call it 'fretting and fiddling' to be honest.

I can tell you how many I have experienced of recent years; I record the data by the year in which the company year ends.

2015: TSCO
2013: RSA
2010: BP.
2009: ITV
2008: LLOY, TW., HBOS, MAY, PFD, AAL, DSGI, TNI, YULC, RTO, CTT
2002: MONI, BAY

And that is it, out of a total of 76 shares held since 1987. Currently I hold 37.

TJH

[Itsallaguess]

I've no figures to back my position up Arb, but across what we might think to be a 'Generalist' HYP then I'd imagine the frequency of 'full-on-cutters' is relatively low over the years, so I'd personally not have much of a problem with any sort of 'sell on a full-cut' policy (although I always tend to agree with Terry's view that any share that's seen a huge price-drop reaction recently might be better sold after a period of time, just to let the dead-cat bounce a little on the capital front), and I really don't think it would happen frequently enough to call it 'fretting and fiddling' to be honest.

I can tell you how many I have experienced of recent years; I record the data by the year in which the company year ends.

2015: TSCO
2013: RSA
2010: BP.
2009: ITV
2008: LLOY, TW., HBOS, MAY, PFD, AAL, DSGI, TNI, YULC, RTO, CTT
2002: MONI, BAY

And that is it, out of a total of 76 shares held since 1987. Currently I hold 37.

TJH

Thanks Terry, that's some great information.

So, over about 14.5 years, you've had 17 shares cut their dividend completely. I don't think you've got anything other than what most of us would describe as a 'Generalist HYP', so hopefully that's a fair reflection of what many of us could have seen over that period.

To me, that backs up my personal feeling that anyone having a policy of dumping full-on-cutters at an appropriate time (I agree with your idea of waiting a little while if there's been a dramatic drop in share-price, to see if a natural bounce can be taken advantage of a little later on...), and moving such capital either into other more appropriate HYP shares (ie. ones actually paying a dividend...), or moving such capital into income-oriented Investment Trusts, to help avoid any sort of 'out of the frying-pan, and into the fire' type situation. I personally prefer the second of those options, simply to try to avoid compounding issues if I were unlucky enough to choose another single share that then went on to find problems of it's own....

I certainly wouldn't call 17 such procedures over a 14.5 year period over-trading, or over-fretting. Whilst it's of course difficult to quantify how someone would have done with the above cutters, without knowing where any such capital would have gone and how any future-performance might have been from any particular point in time, I think there's some merit in being able to say your capital would be working again for you at that point, without having the worry of not knowing if/when/how-much any dividend-reinstatement policy from those companies might have occurred if they were kept.

Just to be clear, I don't have such heavy convictions where companies just cut-back their dividends. I think there's a lot of merit in the HYP 'heal-thyself' philosophy, where companies hitting little bumps can often quite quickly ride them out and get back on track, but I think a HYP share that cuts it's dividend completely needs special attention.

Given that it would often be seen as the 'Nuclear Option' from the company point-of-view, I think it's fair to say that what they are usually going through when they get to that point is well beyond the 'bump' stage, and as such should be treated differently from a HYP-owner's point of view.

Thanks for digging out the above data Terry.

Cheers,

Itsallaguess

[Gengulphus]

Thanks Terry, that's some great information.

So, over about 14.5 years, you've had 17 shares cut their dividend completely. I don't think you've got anything other than what most of us would describe as a 'Generalist HYP', so hopefully that's a fair reflection of what many of us could have seen over that period.

It can't really be that, because all else being equal, someone who held a 30-share HYP over that period could expect about twice as many full-on cutters as someone who held a 15-share HYP over that period. So Terry's experience can be a fair reflection of one or the other, or neither, but not of both...

Or in other words, the measure needs to be normalised to the size of the HYP. There are various ways of doing that - one that I would suggest is the percentage of income lost to full-on cuts, averaged over the years. I.e. each year, add up the previous year's income of all shares that cut their income (the income lost to full-on cuts), and divide by the total previous year's income for all shares (to turn it into a percentage). Then take the average of those percentages over all the years in the period.

That incidentally needs a bit more definition work, basically to define just what counts as a full-on cut. E.g. looking at BP's dividend record, it missed three quarterly dividends in 2010/11, but paid the fourth (at about half the previous rate). So if a full-on cut is defined to be paying nothing for a full company financial year, it didn't have one - but if it is defined to be not paying a dividend that it did pay the previous year, it did have one. And those aren't the only possibilities by any means - one could do it by calendar years rather than company financial years, or on a 'rolling basis', i.e. for a half-yearly payer, it's a full-on cut if two consecutive dividends are missed (which could be an interim and a final in either order); for a quarterly payer, if four consecutive quarterlies are missed.

Not saying I expect that definition work to crucially affect the answer obtained, by the way - just giving fair warning that I haven't given full instructions and so a little bit of extra work is needed before one can come up with a numerical answer!

A similar measure for income lost to all varieties of cut (rather than just full-on cuts) could also be of interest - after all, two of one's HYP's holdings suffering 50% cuts has a similar overall effect to one holding suffering a full-on cut.

Gengulphus

[77ss]

This constant desire to fret and fiddle does rather undermine the objective of leave well alone.

No, leaving well alone is one of the means by which we hope to achieve our objectives. By and large it may well work, but it should not cause you to lose sight of your real objectives.

I make few wholesale changes to my HYP, nor do I fret unduly. If I thought I were fretting, I would move to ITs etc. I do 'fiddle', but this is mostly at the edges of exiting holdings - making opportunistic top-slices and top-ups as share prices rise and fall. Seems to work on the whole, and I guess it scratches my itch.

In the current and previous tax years, I have completely sold just 3 holdings:

RB - when the yield fell to 2% - surely a respectable HYP action?
RSA - exiting a cutter - another 'normal' HYP action?
KCOM - taking my profit, once the dividend policy changed. The only full-blown, non-HYP, 'tinker'.

Have these sales helped meet my objectives? So far, yes. I am getting a better yield and an improved capital performance.

[tjh290633]

That incidentally needs a bit more definition work, basically to define just what counts as a full-on cut. E.g. looking at BP's dividend record, it missed three quarterly dividends in 2010/11, but paid the fourth (at about half the previous rate). So if a full-on cut is defined to be paying nothing for a full company financial year, it didn't have one - but if it is defined to be not paying a dividend that it did pay the previous year, it did have one. And those aren't the only possibilities by any means - one could do it by calendar years rather than company financial years, or on a 'rolling basis', i.e. for a half-yearly payer, it's a full-on cut if two consecutive dividends are missed (which could be an interim and a final in either order); for a quarterly payer, if four consecutive quarterlies are missed.

I included BP. because it stopped for a period, even though it did resume after 3 quarters missed. There were many others where dividends were reduced for one reason or other, and I omitted WMH and REX, who both missed a single dividend when they had a rights issue. I also omitted Indivior, which paid two dividends and then stopped this year.

I should point out that it covers 30 years, rather than 15 years, although the number of holdings rose from initially 3 to about 20 and then to the current 37. Prior to 2002 there were no dividends missed, although plenty were reduced. There were some which were sold because the PEP manager did not include them in his range of shares which could be held, for example Centrica when demerged from British Gas, because it did not plan to pay dividends. Likewise, US Industries and Millennium Corporation, demerged from Hanson, were not retained because non-UK shares could not be held at that time. Another which I retained was THUS, spun out of Scottish Power in 2002, which never paid a dividend. It was eventually taken over by Carphone Warehouse in 2008.

I have a feeling that BP. paid that final reduced dividend to maintain its record of always paying a dividend. Is that still a requirement to maintain "Trustee Status", or has that now been abolished?

TJH

[Deev8]

... exiting a cutter - another 'normal' HYP action?

While some HYPers will automatically sell the shares of any company that cuts its dividend, and some others will occasionally sell one cutter while retaining others. However there are plenty of HYPers who have decided to keep the shares of cutters in their portfolio.

So the action of "exiting a cutter" may be far from unusual but I don't think that it is universal enough to be considered the norm.

Dave

[Gengulphus]

I have a feeling that BP. paid that final reduced dividend to maintain its record of always paying a dividend.

I have the same feeling, but only to the extent of it being a "tie-breaker" in a decision about exactly when they resumed payments at half the previous rate. That's because if they were seriously reluctant to let cash leave the company as dividends, but regarded the record of always paying a dividend as something it was important to maintain - important enough to override the reluctance - then they could quite easily have paid out less than they did for 2011. For instance, following the single payment of 7p for 2010 with four quarterlies of 2p each for 2011 would still have given them the record of always paying a dividend and have enabled them to claim 14% dividend growth over 2010.

So to me, the fact that they paid three quarterlies of 7p and one of 8p for 2011 says that they were basically ready to resume payment at that sort of rate. But I can easily believe that wanting to maintain the record of always paying a dividend influenced the timing decision, to resume it earlier rather than later...

Gengulphus