HYP1 is 20

[IanTHughes]

I've computed the overall XIRR of HYP1 to be 8.0%. Framed against the backdrop of a 64 (yes sixty four) point increase in the FTSE100 over the same period that's not too bad. I don't think one would need to be apologising for that.

My calculation is 8.03%, but then again I always calculate to the Nth degree

But yes, an XIRR calculation that beats many professional fund managers, yet the bleating goes on about "Income Variability" and the risk associated with an "Unbalanced Portfolio". It is almost as if no-one around here understands the risks associated with Equity Investment


Ian

[OldPlodder]

All I can say is that I am glad that only 15% of my portfolio vaguely resembles HYP(my holding in MRCH, the rest basically ignores the UK market). If I only had around £148k for every £75k invested twenty years ago, I would certainly not be proud of myself, but would be apologising to my family for mismanaging our affairs.

The Merchants Trust Plc (MRCH) is another one of those Investment Trusts that I have compared with HYP! The results of my investigation are as follows:

Income

According to my records, MRCH would have produced a total income of £86,782.89, as opposed to the £101,057.44 provided by HYP1 - a reduction of 16.45%

Capital Value

According to my records, MRCH would now have a Capital Value of £118,000.00, as opposed to the £148,627.00 provided by HYP1 - a reduction of 25.96%

So, MRCH has been historically better than The City of London Investment Trust plc (CTY), but still very inferior to HYP1.


As happens every year, this thread descends into a bleating about the variability of Equity Income, but anyone with even a smidgeon of understanding of the risks associated with such an investment would not have been surprised at all. The portfolio has produced a better result, both Income and Capital, than many professional investment managers can produce. What on earth is the problem?

If you cannot cope with the income variability, or do not want the risk associated with Equity Investment, then don't do it. But be prepared to accept a much inferior Income result, and probably an inferior capital value as well


Ian

Who cares.

As usual, as a typical HYP purist, you are missing the whole point. I am fine about holding MRCH as a small part of my strategy. Take a look at my first post and you will see it’s clear purpose in my portfolio, it only needs to hold its divi in the max 20% cut to stay there to satisfy my requirement, HYP1 has failed massively on this aim more than once, so has your own demo. (In fact I might also add my XIRR on MRCH is absolutely fine, because “the time to buy is always now” is certainly not in my repertoire.). I am massively better diversified than your typical HYP, my volatility is way lower too.

Regards

Plodder

PS In comparing HYP1 with mine, I was careful to use income units to make it fair, since his is a fixed original pot, income taken.

[moorfield]

Well to "frame" it properly you would need to include the dividends in the FTSE100 too!

You're quite right, see https://www.ig.com/uk/trading-strategie ... 00--200529

Over the last 25 years the total return for the FTSE 100 was +380.52% with dividends reinvested, or a 6.47% annualised return. This is despite annual returns being mixed, with a range from a low of -28.33% to a high of +28.68%.

That's the closest comparison I can find over a similar time period but note it is with dividends reinvested and still lower than HYP1's XIRR. I still think it's fair to comment the OldPlodder's family must have high, and perhaps unrealistic, expectations of the return on their equity investments.

[moorfield]

My calculation is 8.03%, but then again I always calculate to the Nth degree

I'm not going to argue the toss with you over 0.03%...

[MDW1954]

Well to "frame" it properly you would need to include the dividends in the FTSE100 too!

You're quite right, see https://www.ig.com/uk/trading-strategie ... 00--200529

Over the last 25 years the total return for the FTSE 100 was +380.52% [b]with dividends reinvested, or a 6.47% annualised return. This is despite annual returns being mixed, with a range from a low of -28.33% to a high of +28.68%.[/b]

That's the closest comparison I can find over a similar time period but note it is with dividends reinvested and still lower than HYP1. I still think it's fair to comment the OldPlodder's family must have high, and perhaps unrealistic, expectations of the return on the equity investments.

And this is of course what is wrong with pyad's post on the other "HYP is 20" thread -- he is comparing a total return outcome (HYP) with a non-total return outcome, ie, the 64 points that the FTSE has moved in 20 years.

MDW1954

[IanTHughes]

All I can say is that I am glad that only 15% of my portfolio vaguely resembles HYP(my holding in MRCH, the rest basically ignores the UK market). If I only had around £148k for every £75k invested twenty years ago, I would certainly not be proud of myself, but would be apologising to my family for mismanaging our affairs.

So, MRCH has been historically better than The City of London Investment Trust plc (CTY), but still very inferior to HYP1.

Who cares.

An Income Investor?


Ian

[moorfield]

Even so I cannot imagine anyone in the real world, relying on this HYP for income, to have allowed it to be become so unbalanced.

...and I'm sure the irony isn't lost Dod that a third of that income is now coming from the tobacco industry!

I have commented here before that the real purpose of HYP was to take an old idea, give it a twist (as the tv chefs and bakers are fond of doing), and then sell the book letter (remember £159/year anyone?). Cynical and unfair to pyad perhaps, but a journalist's trade is to provide content after all. But to be fair to pyad for balance, no one in this community has run a HYP as he originally intended. Have they?

[IanTHughes]

And this is of course what is wrong with pyad's post on the other "HYP is 20" thread -- he is comparing a total return outcome (HYP) with a non-total return outcome, ie, the 64 points that the FTSE has moved in 20 years.

I am not sure that I can agree with that.

As I understand it, pyad is comparing the value of HYP1, after dividends are removed and spent of foreign holidays or whatever , with the FTSE 100, which I believe also assumes dividends are removed.

Am I missing something here?


Ian

[Dod101]

All the talk about comparing the outcome with the FTSE100 or anything else is I think irrelevant. That depends of course on the original purpose of tracking a non tinkering HYP over 20 years. The overriding outcome to me is that it is now so unbalanced as to be absurd as I have already said and no one would allow it to get into such a position in real life. As moorfield has said, it also seems to have more or less proved that tobacco is one of the more enduring industries.

It has proved beyond any further need that a non tinkering HYP is just not realistic. That is not to question the principal of a HYP in general but that is another question, apparently inappropriate for this Board.

Dod

[IanTHughes]

All the talk about comparing the outcome with the FTSE100 or anything else is I think irrelevant. That depends of course on the original purpose of tracking a non tinkering HYP over 20 years. The overriding outcome to me is that it is now so unbalanced as to be absurd as I have already said and no one would allow it to get into such a position in real life. As moorfield has said, it also seems to have more or less proved that tobacco is one of the more enduring industries.

It has proved beyond any further need that a non tinkering HYP is just not realistic. That is not to question the principal of a HYP in general but that is another question, apparently inappropriate for this Board.

So, what you are suggesting is that an investor would have been better off voluntarily giving up maybe a third of the income otherwise possible over 19 years, and also accepting a lower capital value, in order to end up with a more balanced portfolio?

An interesting conclusion I must say!


Ian

[Itsallaguess]

yet the bleating goes on about "Income Variability" and the risk associated with an "Unbalanced Portfolio".

It is almost as if no-one around here understands the risks associated with Equity Investment

Anyone with an interest in HYP as a concept should absolutely understand the risks associated with Equity Investment.

I say that, because Pyad was quite clear about those risks in his early writing on the subject -

"Whatever the money available, even very large sums, no more than about 15 shares are necessary to strip out the excessive risk of too few shares."

https://web.archive.org/web/20140219210446/http://news.fool.co.uk/news/foolseyeview/2000/fev001106c.htm

So Pyad was quite clear that relying on 'too few shares' was 'excessively risky'...

And here we are watching poor old Doris having to rely on just three HYP1 holdings to deliver nearly 68% of her overall HYP1 dividend income...

https://i.imgur.com/VWSz50l.png

So even under Pyad's own definition of 'excessive risk', as seen above, HYP1 is currently constructed in a way that *is* excessively risky...

Cheers,

Itsallaguess

[IanTHughes]

But yes, an XIRR calculation that beats many professional fund managers, yet the bleating goes on about "Income Variability" and the risk associated with an "Unbalanced Portfolio".

It is almost as if no-one around here understands the risks associated with Equity Investment

Anyone with an interest in HYP as a concept should absolutely understand the risks associated with Equity Investment.

I say that, because Pyad was quite clear about those risks in his early writing on the subject -

"Whatever the money available, even very large sums, no more than about 15 shares are necessary to strip out the excessive risk of too few shares."

https://web.archive.org/web/20140219210446/http://news.fool.co.uk/news/foolseyeview/2000/fev001106c.htm

So Pyad was quite clear that relying on 'too few shares' was 'excessively risky'...

And here we are watching poor old Doris having to rely on just three HYP1 holdings to deliver nearly 68% of her overall HYP1 dividend income...

https://i.imgur.com/VWSz50l.png

So even under Pyad's own definition of 'excessive risk', as seen above, HYP1 is currently constructed in a way that *is* excessively risky...

But that is what happens with equity investments! They never grow, whether capital or income, in a even balanced way! Anyone who thought that they would, 20 years ago when HYP1 was first put together, obviously knew nothing about Equity Investment,

And yes, anyone managing HYP1 could have "smoothed out" the uneven capital and income results over the years, but only at the expense of both income and capital value. The best performers would have been cut back, only to be replaced by the plodders!

So sure, if mediocrity is what you want to achieve, then go for it! Personally I prefer the significantly better result of HYP1 as is.

As I said before:

If you cannot cope with the income variability, or do not want the risk associated with Equity Investment, then don't do it. But be prepared to accept a much inferior Income result, and probably an inferior capital value as well

Seriously, if you cannot live with the risks associated with Equity Investment, and HYP is obviously a direct investment in Equities, then DONT DO IT. But, do not knock the results of taking those risks that you wish to avoid, simply as being too risky!


Ian

[MrFoolish]

Seriously, if you cannot live with the risks associated with Equity Investment, and HYP is obviously a direct investment in Equities, then DONT DO IT. But, do not knock the results of taking those risks that you wish to avoid, simply as being too risky!
Ian

This is very much a strawman point and, I expect, rather insulting. I'm sure those posting here are well aware and accepting of the risks of equity investments. However they don't necessarily believe HYPs are delivering the right combination of risk vs. reward.

[IanTHughes]

Seriously, if you cannot live with the risks associated with Equity Investment, and HYP is obviously a direct investment in Equities, then DONT DO IT. But, do not knock the results of taking those risks that you wish to avoid, simply as being too risky!

This is very much a strawman point and, I expect, rather insulting. I'm sure those posting here are well aware and accepting of the risks of equity investments. However they don't necessarily believe HYPs are delivering the right combination of risk vs. reward.

In which case, why has no-one made any comments directly comparing the risk-reward of HYP1 with that of other strategies? Why has no-one fully mentioned how a "smoothing out" portfolio would have involved selling winners and buying losers? No, all that is done is a complain that HYP1, a direct investment in single equity holdings, is risky. Something that is bleeding obvious!

I am sorry but I cannot agree with you. Anyone showing concern that HYP1 is "unbalanced", whether by capital or income, is simply showing a lack of understanding of the HYP Strategy - buy and hold - and what would normally happen with such an investment strategy, investing as it does in single equity holdings.

I was merely pointing out that, when people were claiming that the HYP strategy, and HYP1 in particular, were risky, we already knew that 20 years ago!

Well I did anyway!


Ian

[MrFoolish]

In which case, why has no-one made any comments directly comparing the risk-reward of HYP1 with that of other strategies? Why has no-one fully mentioned how a "smoothing out" portfolio would have involved selling winners and buying losers? No, all that is done is a complain that HYP1, a direct investment in single equity holdings, is risky. Something that is bleeding obvious!
Ian

Talk of "other strategies" is likely to lead to swift post deletion. Don't be surprised if nobody wants to go there.

But I will point out that the poster, tjh, seems to have mastered the art of smoothing out his portfolio. I would probably recommend his approach as being a better variant of the HYP idea.

[IanTHughes]

In which case, why has no-one made any comments directly comparing the risk-reward of HYP1 with that of other strategies? Why has no-one fully mentioned how a "smoothing out" portfolio would have involved selling winners and buying losers? No, all that is done is a complain that HYP1, a direct investment in single equity holdings, is risky. Something that is bleeding obvious!

Talk of "other strategies" is likely to lead to swift post deletion. Don't be surprised if nobody wants to go there.

You may be correct but at the very least posters here could mention risk/reward, as you did. Well done.

But I will point out that the poster, tjh, seems to have mastered the art of smoothing out his portfolio. I would probably recommend his approach as being a better variant of the HYP idea.

Then please present the evidence.

Look, nobody is claiming that the HYP Strategy, as demonstrated by HYP1, is the only way one should invest, nor is it claimed that it will always be the best way. All that is being shown here is that HYP1 has generated more income over 19 years than most professional fund managers could achieve, not all I am sure, as well as generating a superior capital appreciation over those 19 years than most professional fund managers again, not all I am sure. Is that not a good result?

Obviously not because, all everyone wishes to do is point out that the portfolio is unbalanced and the income is variable. It is almost as if some around here thought HYP1 was an annuity, or else an Investment Trust Posters here seem to want the inferior returns achieved by those "Professional Fund Managers". I don't!

It is of course neither an Annuity nor an Investment Trust, and the sooner people posting here realised that, the better in my opinion


Ian

[Bagger46]

I am sure that OldPlodder has not forgotten anything in his comparison, as an experienced investor, (with a well organised and well thought out portfolio and retirement funding plans. He might be a new poster but looks well versed in his approach to me, and fully unitised for a long time too), he will have looked, as I did, in all aspects of this in any comparison he has made, and one would have to be seriously thick anyway to ignore an odd £100k of HYP1 income taken and forget to take it into consideration. My conclusions are similar, if my wife and I just merely matched HYP1 over the last twenty years, with enough of it in bull phases, and ended up with a seriously ill balanced set of investments(HYP1 is basically a punt on five individual Co holdings, absolute madness, massive yoyo action on dividend stream), we would be seriously unhappy.

[Deletion.]

Shame we can't have a real go at 'pure' HYP on this board, if only to attempt to protect young pot builders interests. A sad state of affairs.

Money is fungible, in these days of your average investor with essentially tax sheltered portfolios, there are way better ways, massively less risky than HYP1 or HYP in general, of skinning that 'income requirement cat' by a hybrid approach. Fact, not conjecture. The costs arguments put forward against this are absolute rubbish in relation to typical portfolio values and market noise, and such costs are infrequent anyway if one is organised. Fact, not conjecture. It will be, imho, even more true in years to come is my best guess, yes, conjecture.

Bagger

PS I have shared over the past couple of months, with a few posters whose opinion and approach I value, our own portfolios income and value profiles. They will know that I feel I have a good basis from which to reach such conclusions. Now back to my afternoon snooze.

Moderator Message:
Unnecessarily offensive comment removed. - Chris

[tjh290633]

Shame we can't have a real go at 'pure' HYP on this board, if only to attempt to protect young pot builders interests. A sad state of affairs.

First define a "Pure HYP".

I currently have 36 holdings and have sold 41 over the years since 1987. Of those 18 have been taken over, delisted, or failed. The rest were sold because of low dividend yield. It is not practical to have a portfolio which you leave strictly alone. There was a freudian slip there, I wrote a Portfoolio, which is perhaps an appropriate term.

It is essential to do some portfolio management from time to time.

TJH

[Lootman]

Shame we can't have a real go at 'pure' HYP on this board, if only to attempt to protect young pot builders interests. A sad state of affairs.

First define a "Pure HYP".

I currently have 36 holdings and have sold 41 over the years since 1987. Of those 18 have been taken over, delisted, or failed. The rest were sold because of low dividend yield. It is not practical to have a portfolio which you leave strictly alone. There was a freudian slip there, I wrote a Portfoolio, which is perhaps an appropriate term.

It is essential to do some portfolio management from time to time.

I totally agree. Somebody earlier quoted 8% as the annualised total return of HYP1. Assuming that is correct then it seems like an average type of return for that time period. Indeed the very long term (100 years or so) return on shares is generally reckoned to be between 8% and 10% annualised, so it is in the ballpark. Call that a doubling every 7 to 9 years, assuming reinvestment of gains and income.

I know you keep impeccable records for your "tinkered" version of HYP. Do you happen to know what your annualised total return was over the same 20 year time period as HYP1?

[ReformedCharacter]

Well to "frame" it properly you would need to include the dividends in the FTSE100 too!

Yes, not quite comparing apples with apples but close enough perhaps:

Looking at all the possible five-year holding periods since the FTSE 100’s inception shows an average annual return of +8.92%.

Between 1984 and 2019, the FTSE 100 rose by 654% in price, and 1377% on a total return basis. On an annualised basis, this amounts to an annual price return of 5.8% and an annual total return of 7.8%.

https://www.ig.com/uk/trading-strategie ... 00--200529

RC