Beginners HYP Next Purchase

[88V8]

So, in attempting to judge the merits of buying Shell and/or IMB, are we being strategic or tactical?

And how might this help an HYP newbie in making selections?

V8 (holds both, buying neither)

[Dod101]

So, in attempting to judge the merits of buying Shell and/or IMB, are we being strategic or tactical?

And how might this help an HYP newbie in making selections?

V8 (holds both, buying neither)

Exactly like me then. Whether strategic or tactical I think depends on a lot of things, the main one being whether you are trading (which is tactical) or intending to be LTBH (which is surely strategic.)

A HYP newbie has got to decide as always how he sees the outlook for dividend progression. That after all is what the HYP is all about. The history of the share is not much help I think. I may of course just sound perverse bearing in mind my comments about strategic ignorance but investing is about putting one's faith in the future and how a share has behaved in the past is not always a good guide.

The newbie after all is unlikely to have much experience of a particular share. For instance if he is looking at both shares mentioned he will not have enjoyed the 75 years or so of more or less increasing dividends from Shell nor enjoyed the 10% dividend increases in recent years from Imperial. Long term holders cannot help but be influenced by the fall from grace of both of these shares but does that really help in assessing the likely progress of the dividend from now?

Dod

[kempiejon]

So, in attempting to judge the merits of buying Shell and/or IMB, are we being strategic or tactical?

And how might this help an HYP newbie in making selections?

V8 (holds both, buying neither)

IMB cut from to 206.57p to 137.71p.
RDSB Quarterly dividend cut from $0.47 to $0.16

Both have double digit yields at new levels. Times are different and pickings are slim if you remove cutters but for a newbie and my own HYP there are other suggestions too like Admiral, Schroders, Glaxo or Clarkson.

[idpickering]

The newbie after all is unlikely to have much experience of a particular share. For instance if he is looking at both shares mentioned he will not have enjoyed the 75 years or so of more or less increasing dividends from Shell nor enjoyed the 10% dividend increases in recent years from Imperial. Long term holders cannot help but be influenced by the fall from grace of both of these shares but does that really help in assessing the likely progress of the dividend from now?

Dod

Imho, that might be a good thing for a HYP newbie. At least they'd have a less cluttered and open mind with regards to investigating their potential new buys.

In some ways, I'm a bit envious of their newbie position.

Ian.

[Dod101]

The newbie after all is unlikely to have much experience of a particular share. For instance if he is looking at both shares mentioned he will not have enjoyed the 75 years or so of more or less increasing dividends from Shell nor enjoyed the 10% dividend increases in recent years from Imperial. Long term holders cannot help but be influenced by the fall from grace of both of these shares but does that really help in assessing the likely progress of the dividend from now?

Dod

Imho, that might be a good thing for a HYP newbie. At least they'd have a less cluttered and open mind with regards to investigating their potential new buys.

In some ways, I'm a bit envious of their newbie position.

Ian.

Quite. That is my point. A newbie almost by definition is looking at any share without the baggage of history that many of us more experienced but not necessarily wiser investors will inevitably have.

Dod

[Dod101]

IMB cut from to 206.57p to 137.71p.
RDSB Quarterly dividend cut from $0.47 to $0.16

Both have double digit yields at new levels. Times are different and pickings are slim if you remove cutters but for a newbie and my own HYP there are other suggestions too like Admiral, Schroders, Glaxo or Clarkson.

I wonder if they will actually have double digit yields? For instance when Imps announced at the time of their Interim Results a cut in the Interim Dividend to 41.70p, they said the cut by one third 'implied a full year dividend of £1.377' which is a strange thing to say because we can all do the sums. That leaves room for the new CEO in his strategic review to decide that the cut was not enough. The market does not seem convinced and a yield of around 10% would imply that the market is not convinced. In the current dividend starved climate investors should be clamouring to buy. So a newbie might be advised to be careful.

I have not looked at Shell but I expect that a similar calculation could be done there.

Dod

[Arborbridge]

I agree with all that both Arb and IAAG have said but SI is often promoted as 'We do not know and cannot know the future; ergo let us not even bother to try.' This of course leads to leaving an investment in the likes of Carillion for far too long and hanging on not appreciating the risk of a dividend cut or worse. (I talk here of more normal times than we are currently living through)

Investing is an art and we all need to use whatever means available to try to avoid disasters. As we all know these are much more important than finding the odd bit of gold. SI as I understand the expression certainly does not help in these endeavours.

Dod

This of course leads to leaving an investment in the likes of Carillion for far too long and hanging on not appreciating the risk of a dividend cut or worse.

You've repeated that, but I remember at the time there were no indications of foul play or problems. The desparate (and probably illegal) measures taken by the management to conceal what was happening did not surface until after the company blew up. Until then, the only indication of major problems was the sinking share price: no one here would have taken a blind bit of notice if I had said the chart looked awfuyl! There was no way you could have known what those risks were since no one else knew either. This is re-writing history, Dod, to support your argument.

Arb.

[Gengulphus]

I agree with all that both Arb and IAAG have said but SI is often promoted as 'We do not know and cannot know the future; ergo let us not even bother to try.' This of course leads to leaving an investment in the likes of Carillion for far too long and hanging on not appreciating the risk of a dividend cut or worse. ...

Are you saying that you have frequently seen SI promoted with the exact words "We do not know and cannot know the future; ergo let us not even bother to try"? Or (as seems much more likely to me) is that just the summary that your own mind has formed of the arguments you've seen?

The reason I ask is that it is close to being (*) a summary of the arguments I've seen, but with two key qualifications omitted - with those qualifications highlighted, it should be 'We do not know and cannot know the long-term future of a company; ergo let us not even bother to try'. We can make reasonable assessments of the short-term futures of companies - not ones that will be exactly correct every single time, but ones that will only very occasionally be badly wrong, so omitting "long-term" is an oversimplification. And similarly, we can make reasonable assessments of the long-term futures of some things that are not companies, such as industries. For instance, it is pretty clear that in the UK, the renewable energy supply industry is growing at the expense of the fossil-fuel energy supply industry and that this trend can be expected to continue for a long time to come - but what that means for the long-term futures of specific energy-supply companies is very unclear. So omitting "of a company" is also an oversimplification.

The oversimplification of omitting "long-term" is highly relevant to your example of Carillion. Yes, there was a risk of it cutting its dividend and more generally, of the company being in some trouble, and the existence of those risks was pretty clear - but the important question in determining whether SI applied to the signs of those risks was whether the signs were clearly visible sufficiently long in advance to be long-term indications of those risks. One piece of evidence about when they were clearly visible is when Carillion's share price took a decisive turn downwards, and a look at a long-term share price chart (still available from some sources, e.g. the London Stock Exchange - select the "Max" time period) suggests that to me that the drop only became clearly unusual about 1-2 years before the dividend was cut in the summer of 2017. One can certainly argue about when it happened in that time period, and maybe a bit outside it, but not by any means as far outside it as the 5+ years in advance I would want to count it as clearly long-term.

That doesn't preclude there having been signs of Carillion's dividend being unsustainable much earlier, possibly even so early that they would count as clearly long-term. But it does preclude any such signs from having been clear, because the market would have responded to clear signs, and it didn't. At best, those signs would have been ones on which investors' opinions varied widely.

Anyway, in short, I don't dispute that there were clear signs of the unsustainability of Carillion's dividend, just that they weren't clearly visible anything like long enough before the dividend cut eventually came for anyone with a correct understanding of SI to have concluded that SI said to ignore them. Certainly I never ignored the risks they indicated on the basis of SI - on the contrary, I assessed those risks on quite a few occasions. My hanging on to the Carillion shares wasn't due to me ignoring those risks, but to me mis-assessing them, most particularly by making my downside assessment on "the company cancels its dividend and doesn't restart payments for several years" assumptions rather than on the "company has undisclosed accounting skeletons in the cupboard that drive it out of business, completely destroying any hope of either dividends or capital returns" assumptions that turned out to be the actual situation...

(*) I say "is close to being" rather than just "is" because "know" isn't really the right word - it's rather inaccurate shorthand for something like "assess sufficiently accurately to be useful". But that's relatively unimportant compared with the omissions I've highlighted, because one can reasonably expect readers to understand that since working crystal balls don't exist, the summary is not talking about precise and certain knowledge and so some such shorthand must be in use.

... SI as I understand the expression certainly does not help in these endeavours.

That I can believe - but your oversimplified summary of SI, your resulting belief that it said not to pay attention to the short-term warning signs about Carillion, and various other statements you have made in the past about SI all suggest strongly to me that the problem lies with your understanding of SI rather than with SI itself!

Gengulphus

[Dod101]

I agree with all that both Arb and IAAG have said but SI is often promoted as 'We do not know and cannot know the future; ergo let us not even bother to try.' This of course leads to leaving an investment in the likes of Carillion for far too long and hanging on not appreciating the risk of a dividend cut or worse. (I talk here of more normal times than we are currently living through)

Investing is an art and we all need to use whatever means available to try to avoid disasters. As we all know these are much more important than finding the odd bit of gold. SI as I understand the expression certainly does not help in these endeavours.

Dod

This of course leads to leaving an investment in the likes of Carillion for far too long and hanging on not appreciating the risk of a dividend cut or worse.

You've repeated that, but I remember at the time there were no indications of foul play or problems. The desparate (and probably illegal) measures taken by the management to conceal what was happening did not surface until after the company blew up. Until then, the only indication of major problems was the sinking share price: no one here would have taken a blind bit of notice if I had said the chart looked awfuyl! There was no way you could have known what those risks were since no one else knew either. This is re-writing history, Dod, to support your argument.

Arb.

I suspect that if you look back at the contemporary posts you may well find that I warned about Carillion and its very poor culture. I probably also said that I would never touch it or fellow contractors with a barge pole. Never mind, maybe this Covid business is just getting to me.

Dod

[Dod101]

To answer Genguplphus, my quoted words are simply my summary of SI which I suspect he be probably guessed.

Even on what, from where I am writing this, is a horrible wet Monday morning, I will not repeat all my views but however defined in its more accurate definition (if there is such a thing) SI is taken generally I think to mean do not attempt to see into the future of a share or its dividend; you cannot know. Fundamentally, I heartily disagree because we have to try if only to attempt to protect our income.

Dod

[CryptoPlankton]

To answer Genguplphus, my quoted words are simply my summary of SI which I suspect he be probably guessed.

Even on what, from where I am writing this, is a horrible wet Monday morning, I will not repeat all my views but however defined in its more accurate definition (if there is such a thing) SI is taken generally I think to mean do not attempt to see into the future of a share or its dividend; you cannot know. Fundamentally, I heartily disagree because we have to try if only to attempt to protect our income.

Dod

Surely criticising something for what you assume it means, without taking the trouble to investigate its "more accurate definition", is in itself (as you would say) intellectual laziness?

Having said that, I'm not sure it's a concept really worth the airtime. We all make investment decisions based to some extent on our own assessment of the future prospects (whether short, medium or long term) of the candidates we research. Personally, I'd be glad to never see the term used again - whether positively or negatively.

[Gengulphus]

... however defined in its more accurate definition (if there is such a thing) SI ...

There is - pyad coined the term and in the process told us what it meant. But you've been told what he said about it many times in the past, and still seem completely determined to post as though you're unaware of it, so there's clearly no point in giving you the links and quotes yet again...

Gengulphus

[Dod101]

I am very grateful for the two most recent posts and I think that CryptoPlankton has probably got it right. Let's all try to avoid using the term again.

Dod

[Charlottesquare]

Charlottesquare's comments are very interesting and confirm what I have felt for a while and hold only Segro and PHP in property shares.

As I have said before, Strategic Ignorance is just intellectual laziness. Think what it means, ignorance as a strategy.

We cannot foretell the future of course but we can take an intelligent guess, for instance, as to what an office portfolio is going to look like in the next year or so, and retail looks a disaster zone.

Dod

Agreed- markets also seem to agree. If one say compares the charts for British Land and Aberdeen Standard Urban Logistics, whilst the March dive is similar the difference since then is pretty apparent; markets are viewing one as the Brave New World and the other as yesterday and I can find little from my immediate experiences to suggest the markets are wrong.

[Arborbridge]

I suspect that if you look back at the contemporary posts you may well find that I warned about Carillion and its very poor culture. I probably also said that I would never touch it or fellow contractors with a barge pole. Never mind, maybe this Covid business is just getting to me.

Dod

I expect you did, but what does that prove, since many other institutions took the opposite view? At any time there is a range of opinions expressed, some of which turn out to be true others not. I also remember you being very positive about HSBC and SSE - then later, not so - and yet again, buying into SSE. I acknowledge you are often correct, but this is a long way from concluding that Strategic Ignorance was the fault.

If we always acted on the opinions of others, we would forever be chasing our tails.

Arb.

[Arborbridge]

I'll just note, with reference to what Charlottesquare and Gengulphus saying regarding the share price: they are both correct in saying that much trouble is flagged by the way the price moves. I'd say particularly in a long term falling price, but the problem here is that this does not always show a terminal result is probable. IMB is a possible candidate at the moment using this idea of a longterm sinking price, but there are few HYPers selling out on this account, I would guess. So it was with several other shares, incluing IRV and CLLN.

And to bring this back firmly to the HYP technique, it is those very shares which tend to attract a HYPer's attention (where the price has bombed, hopefully to stabilise and not go bust or be taken over)- which is one reason I have always regarded HYP as a high risk strategy, but with the risk mitigated by its safety factors.

Arb.

[Dod101]

I suspect that if you look back at the contemporary posts you may well find that I warned about Carillion and its very poor culture. I probably also said that I would never touch it or fellow contractors with a barge pole. Never mind, maybe this Covid business is just getting to me.

Dod

I expect you did, but what does that prove, since many other institutions took the opposite view? At any time there is a range of opinions expressed, some of which turn out to be true others not. I also remember you being very positive about HSBC and SSE - then later, not so - and yet again, buying into SSE. I acknowledge you are often correct, but this is a long way from concluding that Strategic Ignorance was the fault.

If we always acted on the opinions of others, we would forever be chasing our tails.

Arb.

Had HSBC not been hammered by the PRA at the end of March, together with the other banks we would have had a better idea of its merits. I am not suggesting anyone should follow what I do because I claim no special skills with or without a crystal ball.

Dod

[Gengulphus]

I'll just note, with reference to what Charlottesquare and Gengulphus saying regarding the share price: they are both correct in saying that much trouble is flagged by the way the price moves. I'd say particularly in a long term falling price, but the problem here is that this does not always show a terminal result is probable. ...

Indeed, but just to be clear, I wasn't trying to suggest that a big drop in a company's share price indicates that the company is in serious trouble (i.e. trouble leading to at least a prolonged absence of dividends and possibly much worse) - the company being in serious trouble is just one of a number of possible reasons for a big drop in the share price. A couple of those other possible reasons are major uncertainty about the future of the company (e.g. the 'Corbyn effect' on utilities), and simple market over-reaction to a piece of prominent-but-not-major bad news.

Rather, I was suggesting that the absence of a big drop in a company's share price indicates that the company isn't clearly in serious trouble - but that can be due either to it not being in serious trouble or to it being in serious trouble in a way that isn't clear. If with hindsight I know that the company was in serious trouble, as is the case for Carillion, the timing of a serious price drop can tell me when the fact that it was in serious trouble became reasonably clear. That's potentially useful for "what lessons can I learn?" retrospective analysis, which is essentially how I used it for Carillion, but not at all useful for forward-looking HYP investment decisions.

On those investment decisions, the last two paragraphs combine to say that regardless of whether a big share price drop is present or absent, the company might or might not be in serious trouble... Which is why its presence or absence isn't especially useful for making HYP investment decisions. I would only treat the presence of a big price drop (which of course there often is for HYP candidates) as a cue to try to work out why the market has behaved that way (without any guarantee that I'll succeed in working it out - the market often moves in mysterious ways), and the absence of one as providing very little reassurance.

Gengulphus

[TUK020]

That's potentially useful for "what lessons can I learn?" retrospective analysis, which is essentially how I used it for Carillion, but not at all useful for forward-looking HYP investment decisions.

The lesson that I drew from Carillion was that one pointer that is easily observable is the short selling activity.
https://shorttracker.co.uk/companies/?sort=2&d=desc
Not claiming this is infallible, but I use it as a warning flag to alert me when to get worried.

Neither RDSB or IMB figure in this at any meaningful level.
Cineworld is climbing the ranks rather fast!

The sort of share that figures in many HYPs on page 2 is Vodafone, with 4.4% of the stock shorted.
Getting close to my arbitrary 5% bail out threshold.

[Arborbridge]

That's potentially useful for "what lessons can I learn?" retrospective analysis, which is essentially how I used it for Carillion, but not at all useful for forward-looking HYP investment decisions.

The lesson that I drew from Carillion was that one pointer that is easily observable is the short selling activity.
https://shorttracker.co.uk/companies/?sort=2&d=desc
Not claiming this is infallible, but I use it as a warning flag to alert me when to get worried.

Neither RDSB or IMB figure in this at any meaningful level.
Cineworld is climbing the ranks rather fast!

The sort of share that figures in many HYPs on page 2 is Vodafone, with 4.4% of the stock shorted.
Getting close to my arbitrary 5% bail out threshold.

We've been here before, and I am not convinced that shorting by itself is a bailout sign - certainly not at 5%. Companies do go well above this, then return to normal. One example was Greene King which at various times had been up to around 14% (speaking from memory). It doesn't mean very much in many cases except that the shorters are piling in to make a bob or two. It isn't in their interest, nor in the interest of a lending shareholder, to see the stock collapse - they just want a nice cycle which they can exploit. By piling in together, they can make a self fulfilling prophecy.

One could say there is no smoke without fire, but the question for us is whether the fire is terminal or a temporary situation which can be used to advantage.

Having said all that - yes, I keep a wary eye on shorting too

Arb.