moorfield wrote:Interestingly, had I been reinvesting HYP1 dividends
a la Gengulphus it would now be producing nearly the income I would have extrapolated from the start 20 years ago.
I've only just seen this (the discussion dropped off my reading list for reasons I understand but won't describe here), but now that I have seen it, I have to say that I feel that the wording of that link somewhat distorts what I said in it. I don't for a moment think the distortion was intentional, but do feel a bit of clarification is needed...
The problem is that the natural reading of "reinvesting ... a la Gengulphus" is "reinvesting ... as Gengulphus would do it". But if you look at the link, it contains a table which is the same as one in an
earlier post of mine, and I started that post with:
Gengulphus wrote:It is of course impossible to answer the question of how HYP1 would have grown with dividend reinvestment without knowing which shares it would have reinvested the income in, and that raises the hindsight issue - how on earth can we fairly decide which shares it would have picked now that we know so much about which shares did well and which didn't? That issue is IMHO essentially unsolvable.
And the question of how it might have grown with dividend reinvestment has a large variety of answers, depending on the reinvestment method one chooses - and most methods involve getting hold of a large amount of past data and exercising some human judgement about it (which inevitably raises the hindsight issue again). But there is one reinvestment method whose results can be worked out with only limited data about the portfolio as a whole, which I'll call the "more of the same" method: just buy all of the shares already in the portfolio in proportion to the existing holdings. It's not by any means a HYP reinvestment method I would recommend: it's liable to reinvest parts of the dividend income in non-high-yielding shares (either because they've cut their dividends or because their share price growth has outstripped their dividend growth), it's liable to make purchases of the HYP's smaller holdings that are too small to be cost-effective, and it does nothing to restore lost diversification. But it does have the advantage that it can be worked out for a non-reinvesting HYP like HYP1 long after the event and with no risk of using hindsight knowledge.
I.e. it's
not reinvestment as I would do it! Instead, it was just a basis on which one could calculate a ballpark figure for what HYP1's income might have grown to with reinvestment, without the danger of the calculation being influenced by hindsight.
Gengulphus
