Portfolio Churn - How much do you do?

[moorfield]

That is to say we are attempting to meet - and generally do meet, the longevity holding test which makes HYPers different to other investors who are trading.

What do you mean by the "longevity holding test" here Arb? Forever?

I refer you to the board guidelines about long term holding.

Sorry I meant - did you have some average holding period or churn rate in mind when you wrote "longevity holding test" ?

There is no specific time period or churn rate written in the guidelines. So if one infers forever or zero, then I disagree with you that "we generally do meet, the longevity holding test which makes HYPers different to other investors who are trading."

Other than daveh, Breelander, biffinsbridge - who can be excused their homework of rereading their old HYP text books over the long weekend. ("Retirement Pays Dividends", Bland, 2000).

[kempiejon]

Like a couple of other posters I sell unsheltered holdings to add to cash accumulated for the new ISA allowance, I usually undertake this over a period of months at the turn of the calendar year. I like to cash any gains up the annual allowance too and will buy the best available new HYP companies within my ISA rarely replacing those sold. A couple of years back I used sales to help fund my SIPP (non HYP) but no longer that just comes from earned income now.
looking back here's my number of sales outwith my ISA
2015 - 3
2016 - 3
2017 - 4
2018 - 4
2019 - 3
2020 - 6
2021 - 4

It looks like corporate actions influenced 7 sales in that period.
Inside the ISA over the same time frame I made 10 sales, 7 influence or forced by corporate actions. I really prefer not to sell, as a consequence I'm holding a smattering of trivial valued dogs like Premier Foods, Dixons, Natwest as was Royal Bank of Scotland and De La Rue. I expect they'll get tidied away when I've run out of gains in the unsheltered holding and don't have enough spare earned income to add to my allowances or when I stop work and sell down unsheltered no income shares before my HYP goes into drawdown.

[moorfield]

Thanks kempiejon.

A reminder that to make your own numbers more comparable with others, you can use Step 4 here.

Step 4
Divide the lesser of purchases and sales by the average portfolio value. In this example, you bought more than you sold, so divide the sold amount, $1,400, by the average value, $22,450. The result, 6.24 percent, is your monthly portfolio turnover. You can figure weekly or annual portfolio turnover in a similar way.

[Arborbridge]

Sorry I meant - did you have some average holding period or churn rate in mind when you wrote "longevity holding test" ?

There is no specific time period or churn rate written in the guidelines. So if one infers forever or zero, then I disagree with you that "we generally do meet, the longevity holding test which makes HYPers different to other investors who are trading."

I had no particular measure in mind and if there is nothing in the guidelines, then I can't help I had assumed there would be some mention of longevity somewhere, otherwise, I'm not sure why it's even an issue.
I can only say somewhere between as long as possible and as short as necessary - in which case we are all compliant, depending on who does the judging.

I'm not sure where all this is leading, but it could be to somewhere quite unpleaseant.

[Arborbridge]

Thanks kempiejon.

A reminder that to make your own numbers more comparable with others, you can use Step 4 here.

Step 4
Divide the lesser of purchases and sales by the average portfolio value. In this example, you bought more than you sold, so divide the sold amount, $1,400, by the average value, $22,450. The result, 6.24 percent, is your monthly portfolio turnover. You can figure weekly or annual portfolio turnover in a similar way.

$ ...? Defo nonHYPable

[tjh290633]

I present my own numbers below, and invite others to do the same on this thread for comparison. How well do you follow the faith?

Here are my results for the Financial Years, not Calendar years:

Year      Sales   Purchases   Churn 
2008-09      24          24   23.73%
2009-10      10          17   22.38%
2010-11      11          16   24.67%
2011-12       4           8    5.12%
2012-13       3           9    1.77%
2013-14       5          14    8.54%
2014-15       4           8    1.79%
2015-16       6          19    5.32%
2016-17       5          19    8.78%
2017-18       4          16    2.55%
2018-19       3          12    2.39%
2019-20       8          23    8.39%
2020-21       6          21    7.97%

There was a lot of portfolio rebuilding in the years after 2008's crash. These figures include some corporate actions, take-overs, etc.

TJH

[moorfield]

I'm not sure where all this is leading, but it could be to somewhere quite unpleaseant.

I think you are reading too much into that. For my part, I am attempting to qualify/quantify what has always been a very contentious and nebulous problem here. As I wrote of TJH, I do hope IDP is minded to contribute here, or anonymously on the poll if he prefers. He may well surprise himself, and I can't think of a better metric (yet) that would put IanTHughes back in his box! Can you?

And then we can all get on with the happy business of living off or reinvesting our dividends.

[moorfield]

There was a lot of portfolio rebuilding in the years after 2008's crash. These figures include some corporate actions, take-overs, etc.

That's fantastic, thank you TJH. Perhaps I'm in the right ball park with 10% then. A little less maybe.

[tjh290633]

There was a lot of portfolio rebuilding in the years after 2008's crash. These figures include some corporate actions, take-overs, etc.

That's fantastic, thank you TJH. Perhaps I'm in the right ball park with 10% then. A little less, maybe.

Sorry that it took some time, but I had to extract the data into a new sheet, then check dodgy looking figures, but that is near enough correct. In amongst it are things like BHP splitting off S32, returns of capital/special dividends and consolidations, and the odd total disposal in recent years, like INDV after demerging from RB./RKT. Also selling Vodafone and rebuying to avoid getting Verizon.

TJH

[moorfield]

That means that I would think of churn rates in >20% = not LTB&H, 10-20% = arguably LTB&H, <10% = definitely LTB&H terms.

Replying to your post here Gengulphus. I think that is a quite reasonable categorization. Thank you.

[kempiejon]

Thanks kempiejon.

A reminder that to make your own numbers more comparable with others, you can use Step 4 here.

Step 4
Divide the lesser of purchases and sales by the average portfolio value. In this example, you bought more than you sold, so divide the sold amount, $1,400, by the average value, $22,450. The result, 6.24 percent, is your monthly portfolio turnover. You can figure weekly or annual portfolio turnover in a similar way.

numbers to financial year end
2017 - 4 sales 2.5%
2018 - 4 sales 2.4%
2019 - 3 sales 3.2%
2020 - 6 sales 3.8%
2021 - 4 sales 2.7%

[Arborbridge]

I'm not sure where all this is leading, but it could be to somewhere quite unpleaseant.

I think you are reading too much into that. For my part, I am attempting to qualify/quantify what has always been a very contentious and nebulous problem here. As I wrote of TJH, I do hope IDP is minded to contribute here, or anonymously on the poll if he prefers. He may well surprise himself, and I can't think of a better metric (yet) that would put IanTHughes back in his box! Can you?

And then we can all get on with the happy business of living off or reinvesting our dividends.

It starts off nicely enough until the lynch mob gets ideas, then they come to get you.

Arb.

[Arborbridge]

My only measure of adherence to the system is my unforced sales. Anything else is part of the system or forced on me.



Arb.

[Itsallaguess]

It starts off nicely enough until the lynch mob gets ideas, then they come to get you.

"Vee zeem to have zpotted zom anomolies in your online trading tranzactions...."

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

Cheers,

Itsallaguess

[moorfield]

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

I know who would have those avatars if we had them ....

Anyway back O/T, how does your churn look IAAG ?

[Itsallaguess]

Anyway back on-topic, how does your churn look IAAG?

The only single-share sales I make nowadays are really quite infrequent, and fall into one of the following categories -

1. Capital rotations from non-tax-sheltered accounts to ISA accounts (these sales account for almost all my non-forced selling...)

2. Complete sales where single-share yields drop below 2.5% (ish...), with capital rotated into higher-yielding investments, and especially so where such drops in yield has largely been driven by share-price appreciation decoupling from dividend amounts...

3. Forced sales (the up-coming RSA takeover being one relatively rare example..)

Even with the above options, the frequency of 'actual selling activity' is extremely rare for me nowadays, and the vast majority of things I'll actively get involved with on my accounts will be some fairly regular top-ups or new purchases, which will probably account for 6 or 8 trades per year, on average.

And even then, given that they're almost exclusively buying collective income-investments nowadays (with the odd 'growth-related' side-hustle going on now and then..), then it's obviously not too relevant to a poll of this type specifically related to HYP portfolios..

With that said though - I really do feel that, apart from largely holding the 'wrong' type of underlying income-investments for this board, I think I follow almost all of the broad-diversification and underlying LTBH-philosophies that the HYP guidelines cover, and I'm a great believer that we're often better just standing back and letting time itself do most of the heavy lifting for us once things are generally up and running, and we should just get out of the way and largely let that happen....

Cheers,

Itsallaguess

[Arborbridge]

It starts off nicely enough until the lynch mob gets ideas, then they come to get you.

"Vee zeem to have zpotted zom anomolies in your online trading tranzactions...."

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

Cheers,

Itsallaguess

So under interrogation, I'll admit the following as regards 2019 (the poll year in question)

Two unforced sales, CNA and Morrison totally 2.9%.
One trim (Greene King) adding 1.6% - though ironically that was nicked off me completely when the company was taken over. Probably a good thing, as it turned out.

Hopefully, I won't get the knock on the door in the middle of the night just yet, nor the whole 9 grams

PS they always advise giving your interrogators a little information, otherwise they may as well dispose of you.

[Wizard]

...Then there are those who can demonstrate very long term holdings, but have a mechanical approach which dictates churn. I refer, of course, to TJH's method (which I also mimic) where one could have exceptional periods of high turnover dictated by the market, but which is essentially a very long term holding method. But here, it is the method rather than emotion which is driving the changes, and the results show that many companies achieve great longevity in the portfolio, whereas some do but only be being trimmed and re-bought.


Arb.

I may be in a minority of one, but I still think that beyomd the quatitive metric of churn there are more subjective, qualitive considerations. To be honest, I am not even sure I agree that top slicing and recycling the proceeds into a top up of an existing holding is churn. But I am certain that if such rebalancing of a portfolio resulted in 20% churn over a given period I would definitely consider that different to a decision to sell out of 20% of holdings in full and reinvest into completely new holdings. The latter feels more 'churny' than the former to me.

[Arborbridge]

...Then there are those who can demonstrate very long term holdings, but have a mechanical approach which dictates churn. I refer, of course, to TJH's method (which I also mimic) where one could have exceptional periods of high turnover dictated by the market, but which is essentially a very long term holding method. But here, it is the method rather than emotion which is driving the changes, and the results show that many companies achieve great longevity in the portfolio, whereas some do but only be being trimmed and re-bought.


Arb.

I may be in a minority of one, but I still think that beyomd the quatitive metric of churn there are more subjective, qualitive considerations. To be honest, I am not even sure I agree that top slicing and recycling the proceeds into a top up of an existing holding is churn. But I am certain that if such rebalancing of a portfolio resulted in 20% churn over a given period I would definitely consider that different to a decision to sell out of 20% of holdings in full and reinvest into completely new holdings. The latter feels more 'churny' than the former to me.

I agree. The idea of trimming and recycling into new holdings thus "refreshing" the portfolio is definitely a little "non-H" - but how black a sin is it? That depends on whether one is talking pure original HYP, or the more relaxed form the majority use. If tempted into too much of that sort of thing, one would soon have a portfolio which drifts away from the basic principles into being not a HYP.

All a matter of degree and how rigid the views of the commentator.

"I adjust: you trade"

Arb.

[moorfield]

If tempted into too much of that sort of thing, one would soon have a portfolio which drifts away from the basic principles into being not a HYP.

Quite so. Everyone here churns (*), the question is how much is too much, and beyond the remit of what is meant by:

It is stressed, however, that HYP investing was always intended to be a LTBH strategy.

I think the churn metric can partially answer that and TJH's figures are useful in helping do so. During 2008-11 his average annual churn was 23.6%, was that "HYP" ? - well since he's written that was "rebuilding" almost certainly not. During 2011-21 however his average annual churn fell to 5.3% which I think is an acceptable level of trading under a LTBH strategy.

There are two aspects to HYP investing, which shares one holds, and how one manages them collectively. I'd say most of the regular discussion here is of the former, and not enough of the latter.


(*) As an aside, I wonder if HYP1 has ever churned? Perhaps pyad has deliberately sold something too. I don't think so, but may be wrong.