change to HYP-P guidelines

[csearle]

Might be better opened as a separate section (MDW-HYP), for all that'd be worth.

May I remind you that we expect posters to be respectful of each other.

The addition was agreed amongst the moderators of this board.

Also, the addition to the guidelines does not force anyone to top-slice a share if they don't want to for whatever reason. If that is not your thing then simply ignore the clarification.

It simply reminds us that here, on this board, tinkering may be preferred by some. The addition probably wouldn't have been conceived were it not for those making a sport of disingenuously misinterpreting the guidelines.

Chris

[moorfield]

Moderator Message:
In a post above, I stupidly typed "lower" when I meant "higher". Apologies. I hope most folks got what I meant. Sorry! -- MDW1954

I think we got what you meant, Brucie

[Bubblesofearth]

One of the issues when this discussion regularly crops up seems to be the desire to apply the guidance of 'Don't sell your winners' to a process that's not actually selling all of a winner, because of course 'top-slicing' isn't so much 'selling your winners' as it is 'taking some profit on the way up and leaving the bulk of the 'winning' holding to run'...

I'm not sure that previously-linked document criticising 'selling your winners' is nuanced enough to be taking that very important difference into account with regards to this particular top-slicing discussion...

Cheers,

Itsallaguess

If selling winners is a mistake then selling part of a winner is simply less of a mistake than selling all of it. Still a mistake though. Also selling part means the dealing costs will be a higher fraction of the trade than if the whole share were sold.

boE

[moorfield]

If selling winners is a mistake then selling part of a winner is simply less of a mistake than selling all of it. Still a mistake though. Also selling part means the dealing costs will be a higher fraction of the trade than if the whole share were sold.

That's an interesting way of putting it. Are you suggesting then that TJHs strategy, for example, is a long collection of small mistakes?

[IanTHughes]

If selling winners is a mistake then selling part of a winner is simply less of a mistake than selling all of it. Still a mistake though. Also selling part means the dealing costs will be a higher fraction of the trade than if the whole share were sold.

That's an interesting way of putting it. Are you suggesting then that TJHs strategy, for example, is a long collection of small mistakes?

That rather depends on what tjh290633 is trying to achieve.

If the aim is to achieve and maintain a balanced portfolio, then he is going the right way about it. If, on the other hand, the aim is to maximise Capital and Income returns then yes, tjh290633 is indeed making a series of "small mistakes".

Sure, some of those "mistakes" will pan out well. However, the evidence from multiple studies clearly demonstrates that such constant "cutting back of winners" will likely damage returns in the long run.

Enjoy!


Ian

[ReformedCharacter]

That's an interesting way of putting it. Are you suggesting then that TJHs strategy, for example, is a long collection of small mistakes?

That rather depends on what tjh290633 is trying to achieve.

If the aim is to achieve and maintain a balanced portfolio, then he is going the right way about it. If, on the other hand, the aim is to maximise Capital and Income returns then yes, tjh290633 is indeed making a series of "small mistakes".

Sure, some of those "mistakes" will pan out well. However, the evidence from multiple studies clearly demonstrates that such constant "cutting back of winners" will likely damage returns in the long run.

Enjoy!

Ian

Please could you post links to those 'multiple studies' showing that a similar portfolio of high yielding UK equities held without 'cutting back winners' has outperformed tjh's method. My impression - and it is only that - is that tjh's method has outperformed similar HYP portfolios in terms of capital and income returns as published here and on TMF, which are likely as close to fair comparisons that one might expect from 'multiple studies'.

Thanks!

RC

[IanTHughes]

That rather depends on what tjh290633 is trying to achieve.

If the aim is to achieve and maintain a balanced portfolio, then he is going the right way about it. If, on the other hand, the aim is to maximise Capital and Income returns then yes, tjh290633 is indeed making a series of "small mistakes".

Sure, some of those "mistakes" will pan out well. However, the evidence from multiple studies clearly demonstrates that such constant "cutting back of winners" will likely damage returns in the long run.

Please could you post links to those 'multiple studies' showing that a similar portfolio of high yielding UK equities held without 'cutting back winners' has outperformed tjh's method. My impression - and it is only that - is that tjh's method has outperformed similar HYP portfolios in terms of capital and income returns as published here and on TMF, which are likely as close to fair comparisons that one might expect from 'multiple studies'.

Oh sure, it is may be that tjh290633's High Yield Portfolio (HYP) outperforms other HYPs that are reported here, although it must be noted that no-one has provided any evidence of either success or failure in this regard. There is also no evidence that tjh290633's method is the best one for achieving HYP aims. The only thing that can be said for sure is that tjh290633's method suits tjh290633, which I might add is no bad thing!

However, I was not comparing tjh290633's method to other HYPs. Rather I was simply pointing out that …..

the evidence from multiple studies clearly demonstrates that such constant "cutting back of winners" will likely damage returns in the long run.

The multiple studies that I am referring to are those that I have been detailed to read over the years, during a long career in Banking and Finance, including working for Investment Managers. I was also keen to learn what I could about being one’s own investment manager, something that I did before embarking upon it. For anyone else, also interested in learning about being one’s own investment manager, such studies, and much other useful information besides, can be found all over the internet. Sites like http://www.investopedia.com are a good place to start, but personally, I recommend using Google Search.

Sorry, but I am not a research donkey!

Enjoy!


Ian

[ReformedCharacter]

Please could you post links to those 'multiple studies' showing that a similar portfolio of high yielding UK equities held without 'cutting back winners' has outperformed tjh's method. My impression - and it is only that - is that tjh's method has outperformed similar HYP portfolios in terms of capital and income returns as published here and on TMF, which are likely as close to fair comparisons that one might expect from 'multiple studies'.

Oh sure, it is may be that tjh290633's High Yield Portfolio (HYP) outperforms other HYPs that are reported here, although it must be noted that no-one has provided any evidence of either success or failure in this regard. There is also no evidence that tjh290633's method is the best one for achieving HYP aims. The only thing that can be said for sure is that tjh290633's method suits tjh290633, which I might add is no bad thing!

However, I was not comparing tjh290633's method to other HYPs. Rather I was simply pointing out that …..

the evidence from multiple studies clearly demonstrates that such constant "cutting back of winners" will likely damage returns in the long run.

The multiple studies that I am referring to are those that I have been detailed to read over the years, during a long career in Banking and Finance, including working for Investment Managers. I was also keen to learn what I could about being one’s own investment manager, something that I did before embarking upon it. For anyone else, also interested in learning about being one’s own investment manager, such studies, and much other useful information besides, can be found all over the internet. Sites like http://www.investopedia.com are a good place to start, but personally, I recommend using Google Search.

Sorry, but I am not a research donkey!

Enjoy!


Ian

OK, I take it that you cannot provide evidence for your assertions.

Thanks!

RC

Moderator Message:
Edited slightly to remove a few words with a potentially pejorative implication. --MDW1954

Moderator Message:
This post is being repeatedly reported.

The way I see it the poster can "take it" which ever way he/she feels, and express that sentiment, without contravening any rules/guidelines.

It is also possible that Ian can provide evidence but, for whatever reason, doesn't care to.

Therefore I see no reason to delete this post. It has however been brought to the attention of the site owners for their consideration. - Chris

[tjh290633]

That's an interesting way of putting it. Are you suggesting then that TJHs strategy, for example, is a long collection of small mistakes?

That rather depends on what tjh290633 is trying to achieve.

If the aim is to achieve and maintain a balanced portfolio, then he is going the right way about it. If, on the other hand, the aim is to maximise Capital and Income returns then yes, tjh290633 is indeed making a series of "small mistakes".

My objective is to obtain a high and increasing flow of dividends. I think that my records show that that has been achieved. A secondary objective is to ensure that the capital value, as indicated by the theoretical income unit price, matches or exceeds that of the FTSE100 index, that being where most of my investments are.

I try to ensure that the portfolio does not get seriously unbalanced. I set a limit on individual holding values of 1.5 times the median holding weight. If that is exceeded, then the holding concerned is reduced by 25% and the proceeds reinvested in holdings with a lower than median value and usually a higher yield. The method used to select shares for topping up is embodied in the HYPTUSS facility. I also set a limit of 5% on the share of dividend income or of portfolio cost, to ensure that dividend income is not over dependent on any one share. I realised that there is a danger of putting too much capital in a single holding, particularly if it has a high yield, and so imposed the cost limit.

To those who say, run your winners, I should add that some shares have been top sliced several times. The same shares may later have fallen in value and so become eligible for topping up. The lower value shares often experience a renaissance and in turn become candidates for top slicing.

My limits apply to a 35 strong portfolio. They have been different in the past with smaller numbers. As to frequency of top slicing, that is very dependent on market movements. A year may go by without the need, and another year might call for 5 or more. I can provide numerical details when I am at my PC.

TJH

[Lootman]

The change to HYP guidelines refers to top-slicing, i.e. selling down winners. No mention of losers which therefore presumably fall into the LTBH category.

In other words it's exactly the strategy referred to in the link provided by IanTHughes as being the biggest mistake investors make.

Many years ago, an Investment Banker colleague of mine used to call the practice of trimming winners the “Amateur Hour” strategy.

Investment bankers also say that "you never go broke taking a profit". So I guess it maybe depends which investment bank you are at?

But investment bankers tend to think short term. They are traders and not investors, and so different rules apply. What works for day traders is hardly relevant to a long-term income investor, and vice versa.

Personally I think the biggest mistake investors make is buying more as a share declines in price. That "amateur hour" strategy is satirised by the phrase "losers average losers".

[tjh290633]

My objective is to obtain a high and increasing flow of dividends. I think that my records show that that has been achieved. A secondary objective is to ensure that the capital value, as indicated by the theoretical income unit price, matches or exceeds that of the FTSE100 index, that being where most of my investments are.

As to frequency of top slicing, that is very dependent on market movements. A year may go by without the need, and another year might call for 5 or more. I can provide numerical details when I am at my PC.

TJH

Now at my PC. The numbers of trimmings since PEP and ISA were combined has been:

Year      Trimmed
FY08-09        18
FY09-10         5
FY10-11         4
FY11-12         3
FY12-13         1
FY13-14         2
FY14-15         1
FY15-16         5
FY16-17         3
FY17-18         2
FY18-19         1
FY19-20         8
FY20-21         5
FY21-22         2
FY22-23         3

My first trimming was in 1996-7 when two shares (LLOY ZEN) were trimmed. Next in 1999-2000 when 3 were trimmed (BT.A, PRU, MONI) and after that 1, 2 or 3 a year. until PEP and ISA were combined. There were more in the original ISA, from 1999-2007, but quite a few were down to corporate actions, rather than shares being overweight.

Regarding the dividend income per income unit:

.            Inc Units          
         .   Ordinary    RPI    
Year to      Divs/unit   Rebased
05-Apr-88         2.83    100.00
05-Apr-89         2.25    112.28
05-Apr-90         3.40    122.89
05-Apr-91         4.67    130.75
05-Apr-92         5.94    136.35
05-Apr-93         5.52    138.11
05-Apr-94         5.31    141.65
05-Apr-95         6.45    146.37
05-Apr-96         6.27    149.90
05-Apr-97         7.13    153.54
05-Apr-98         7.55    159.72
05-Apr-99         7.92    162.28
05-Apr-00        10.79    167.09
05-Apr-01        11.39    170.04
05-Apr-02        12.46    172.59
05-Apr-03        11.68    178.00
05-Apr-04        11.13    182.42
05-Apr-05        13.03    188.21
05-Apr-06        14.21    193.03
05-Apr-07        15.18    201.77
05-Apr-08        18.73    210.22
05-Apr-09        21.60    207.76
05-Apr-10        11.91    218.86
05-Apr-11        15.12    230.26
05-Apr-12        17.78    238.21
05-Apr-13        19.93    245.09
05-Apr-14        20.34    250.29
05-Apr-15        21.35    253.44
05-Apr-16        21.68    256.78
05-Apr-17        25.40    265.82
05-Apr-18        27.02    274.75
05-Apr-19        26.36    283.10
05-Apr-20        29.71    284.38
05-Apr-21        19.24    295.78
05-Apr-22        25.81    328.68
05-Apr-23        32.40    358.94

From which you can see that the dividend has risen over 10-fold, while the RPI has merely tripled.

The capital value data can be seen at viewtopic.php?p=120975#p120975 up to 2018. The data covering later years is here:

Yr to    HYP    FTSE   Difference   Ratio
Dec-99   1.00   1.00         0.0%    1.00
Dec-00   0.94   0.89         5.5%    1.06
Dec-01   0.87   0.75        15.3%    1.15
Dec-02   0.68   0.57        19.5%    1.19
Dec-03   0.78   0.65        21.1%    1.21
Dec-04   0.89   0.69        28.2%    1.28
Dec-05   1.08   0.81        33.4%    1.33
Dec-06   1.31   0.90        45.5%    1.46
Dec-07   1.22   0.93        31.1%    1.31
Dec-08   0.71   0.64        10.3%    1.10
Dec-09   0.94   0.78        20.2%    1.20
Dec-10   1.03   0.85        20.6%    1.21
Dec-11   1.09   0.80        35.4%    1.35
Dec-12   1.20   0.85        40.6%    1.41
Dec-13   1.42   0.97        45.7%    1.46
Dec-14   1.40   0.95        48.2%    1.48
Dec-15   1.42   0.90        57.7%    1.58
Dec-16   1.55   1.03        50.2%    1.50
Dec-17   1.61   1.11        45.3%    1.45
Dec-18   1.38   0.97        42.6%    1.43
Dec-19   1.57   1.09        44.3%    1.44
Dec-20   1.41   0.93        51.2%    1.51
Dec-21   1.63   1.07        52.9%    1.53
Dec-22   1.56   1.08        44.9%    1.45
Aug-23   1.52   1.11        37.1%    1.37

The "Ratio" shows how far I am ahead of the FTSE100.

TJH

[Alaric]

[
Personally I think the biggest mistake investors make is buying more as a share declines in price.

If the dividend hasn't been cut isn't buying or buying more as top-ups against a background of declining prices intrinsic to the HYP selection method? The dividend yield increases with a decline in the share price and thus the shares float towards the top of a sort by dividend yield.

[Lootman]

Personally I think the biggest mistake investors make is buying more as a share declines in price.

If the dividend hasn't been cut isn't buying or buying more as top-ups against a background of declining prices intrinsic to the HYP selection method? The dividend yield increases with a decline in the share price and thus the shares float towards the top of a sort by dividend yield.

Perhaps but there have also been a number of UK HY shares that have declined to zero or close to. Averaging into those is throwing good money after bad, as expressed by phrases like "catching a falling knife" and "value traps".

So if you can tell which declining shares are good recovery situations and which are going to zero then you will do well. The doubt is more about rigid rules that force you to automatically buy more "losers".

[IanTHughes]

Personally I think the biggest mistake investors make is buying more as a share declines in price.

If the dividend hasn't been cut isn't buying or buying more as top-ups against a background of declining prices intrinsic to the HYP selection method? The dividend yield increases with a decline in the share price and thus the shares float towards the top of a sort by dividend yield.

Wrong ... again!

Alas!

As has been pointed out to you on countless occasions, the HYP Selection criteria very clearly include a requirement to ascertain, as best one can, the "sustainability" of the dividend, whatever the yield.

Will you ever understand this rather straight-forward requirement, or does it need to be expressed in simpler wording?

Enjoy!


Ian

[Alaric]

As has been pointed out to you on countless occasions, the HYP Selection criteria very clearly include a requirement to ascertain, as best one can, the "sustainability" of the dividend, whatever the yield.

Suppose the dividend is "sustained" at the expense of capital value. So the share price continues to decline and the dividend yield increases.

[IanTHughes]

As has been pointed out to you on countless occasions, the HYP Selection criteria very clearly include a requirement to ascertain, as best one can, the "sustainability" of the dividend, whatever the yield.

Suppose the dividend is "sustained" at the expense of capital value. So the share price continues to decline and the dividend yield increases.

Then the dividend is not sustainable!

[text removed]

Enjoy!


Ian

Moderator Message:
Edited to remove ad-hominem comments (chas49)

[Alaric]

Then the dividend is not sustainable!

How do you tell whenther a share is a recovery stock or a basket case? It's not unknown for shares to get a clean audit bill of health along with continuing to pay a dovidend and then for the Company to collapse within a year? Isn't it better to look whether the expected total return is sustainable whether that consists mostly of dividend payments or otherwise.

[IanTHughes]

Then the dividend is not sustainable!

How do you tell whenther a share is a recovery stock or a basket case? It's not unknown for shares to get a clean audit bill of health along with continuing to pay a dovidend and then for the Company to collapse within a year? Isn't it better to look whether the expected total return is sustainable whether that consists mostly of dividend payments or otherwise.

I have already told you - on several occasions - what I do is look for what I consider to be a sustainable dividend.

Seriously, how often must you be told this rather simple explanation?

Enjoy!


Ian

[Alaric]

[ - what I do is look for what I consider to be a sustainable dividend.

Over what time period do you define that and would it bother you if the share price collapsed over the same period. Do you interpret sustainable to mean maintained or increased? What if profits looked sustainable but the directors decided to cut the dividend?

[IanTHughes]

[ - what I do is look for what I consider to be a sustainable dividend.

Over what time period do you define that and would it bother you if the share price collapsed over the same period. Do you interpret sustainable to mean maintained or increased? What if profits looked sustainable but the directors decided to cut the dividend?

I have already told you - on several occasions - what I do is look for what I consider to be a sustainable dividend.

If you are unsure as to what "sustainable" means, I can only suggest that you try an online dictionary. There are I believe many to choose from!

Enjoy!


Ian