Portfolio Churn - How much do you do?

[moorfield]

IanTHughes' quote on IDP's HYP thread is well worth discussing separately I think.

viewtopic.php?p=415248#p415248

Last May six holdings were sold off in one fell swoop! The annual "churn" on this portfolio as usually reported here indicates to me that the strategy being employed is certainly nothing like "hold for eternity"? This , if it can be called a strategy, is barely a "hold for next year"!

Portfolio Churn (or Turnover) is relatively simple to test, the method I use is described here (with my own adjustments bolded):

https://www.sapling.com/5885771/calcula ... o-turnover

Step 1
Calculate your average portfolio size. For a given period, add the beginning and ending value of your portfolio (excluding cash), then divide the number by two. For example, suppose you want to calculate a monthly turnover in which the value is $22,000 on April 1 and $22,900 on April 30. The average portfolio size is $22,000 plus $22,900 divided by 2, or $22,450.

Step 2
Figure your purchases for the period. Add together the amounts you spent during the period to buy securities (including dealing cost and stamp duty for ease of calculation). Say, for this example, that you spent $2,000.

Step 3
Add up the total value of securities you sold during the period (including dealing cost for ease of calculation). For example, you might have sold $1,400 of securities in April.

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.

This can be applied to HYP "builders" and "drawers" alike, ie. one would expect both a LTBH HYP "drawer" and a "builder" who is topping up only to have zero turnover. Note that a LTBH "drawer" who is deaccumulating by regularly selling down holdings, whilst not strictly HYP, would also have zero turnover. And all the tinkerers would have somewhere between 0-100%.

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?

[daveh]

What about forced sales? I sold WMH because of a takeover for cash (and an ETF because it was about to cease to exist). Do they count, i only sold them because I had to?

[moorfield]

What about forced sales? I sold WMH because of a takeover for cash (and an ETF because it was about to cease to exist). Do they count, i only sold them because I had to?

Yes I would count that. I don't know the ins and outs of the WMH takeover, was it really a forced sale? What was the "do nothing" option?

Edit: In any case, that would register as a very small turnover percentage had you done nothing else. It's the "six holdings per month" kind of tinkerers this can weed out, and perhaps what is an average/acceptable turnover within the remit of the HYP guidelines.

[daveh]

What about forced sales? I sold WMH because of a takeover for cash (and an ETF because it was about to cease to exist). Do they count, i only sold them because I had to?

Yes I would count that. I don't know the ins and outs of the WMH takeover, was it really a forced sale? What was the "do nothing" option?

Receive cash, I sold in advance of the deal as it was taking ages to go unconditional and had stopped paying a dividend. I'll have a look at my deals and post later, but I think most of my sales (bar two top slices of SEGRO) have either been forced or bed and ISA sales/buys.

[moorfield]

What about forced sales? I sold WMH because of a takeover for cash (and an ETF because it was about to cease to exist). Do they count, i only sold them because I had to?

Yes I would count that. I don't know the ins and outs of the WMH takeover, was it really a forced sale? What was the "do nothing" option?

Receive cash, I sold in advance of the deal as it was taking ages to go unconditional and had stopped paying a dividend.

Then you've unnecessarily tinkered. Yes, it counts.

[torata]

Yes I would count that. I don't know the ins and outs of the WMH takeover, was it really a forced sale? What was the "do nothing" option?

Receive cash, I sold in advance of the deal as it was taking ages to go unconditional and had stopped paying a dividend.

Then you've unnecessarily tinkered. Yes, it counts.

I think "Then you've tinkered. Yes, it counts." is less contentious

torata

[Arborbridge]

Interesting idea, but just at the moment, I have neither to time or inclination to go into such details.

However, I can see that in the past two years, starting May 2019, i have four voluntary complete sales: MRW, BT, CNA and Informa. Together they amount to 5.4% of the average value of the HYP. Informa was sold following a take over, and in addition Greene King was taken away from me and I trimmed PNN which could be considered unnecessary. There was also a routine trim of AZN when it reached too large a size which is part of the usual operating mechanism I employ.

Whether that 2-3% a year makes me a good boy or not, I'll leave to the assembled multitude.


Arb.

[idpickering]

Interesting idea, but just at the moment, I have neither to time or inclination to go into such details.

However, I can see that in the past two years, starting May 2019, i have four voluntary complete sales: MRW, BT, CNA and Informa. Together they amount to 5.4% of the average value of the HYP. Informa was sold following a take over, and in addition Greene King was taken away from me and I trimmed PNN which could be considered unnecessary. There was also a routine trim of AZN when it reached too large a size which is part of the usual operating mechanism I employ.

Whether that 2-3% a year makes me a good boy or not, I'll leave to the assembled multitude.


Arb.

Glad to see I'm in good company Arb. For me, OK maybe I over-churned as described above, but tbh, I'd rather just leave my HYP alone to do its' thing. Going forward, that is my mantra. I'm a HYPer, but I'm also only human, and humans make errors. I don't profess to be perfect.

Ian.

[moorfield]

For me, OK maybe I over-churned as described above, but tbh, I'd rather just leave my HYP alone to do its' thing. Going forward, that is my mantra.

If I may Ian one of my observations is you've written similar things here before, several times, iirc. Which presents a credibility problem for your long standing readers, and leaves them wondering what your "edge" might be, hence Wizard's question I think. Why not prove your detractors wrong once and for all and post some numbers up on this thread? I hope we get a few people doing so actually so we can put some of this are-they/aren't-they doing LTBH debate to rest, and get on with the happy business of living off or reinvesting our dividends.

[scrumpyjack]

I am not HYP, so perhaps disqualified from commenting here, though this issue applies whether HYP or not. My ‘churn’ is miniscule. I let my winners run and hardly ever bring myself to sell the losers, perhaps in the deluded hope that they will turn round or taking the view that ‘the market’ knows best so what’s the point in selling when the current price always reflects ‘fair value’ whatever that is? I do of course always sell each year to use the CGT allowance but that is trivial. The result of this approach is that one ends up with a number of multi-baggers and then the dross, but never mind!

Having seen portfolios over the years which have been 'churned' by the brokers managing them, and always having found that they would have been far better to leave the initial investments and do nothing, I'm sure the old mantra 'if in doubt, do nowt' is correct!

[Wasron]

I’m certainly not a non-tinkering HYPer, and my figures are clouded by a handful of holdings that can sit in my HYP for a week or several years, depending on my inclination to do some trading for fun.

Percentage of HYP value sold in the investment year

2018-2019 - 36%
2019-2020 - 29%
2020-2021 - 14%

It’s clear I’m churning far less, and selling and re-buying full-size holdings of DS Smith (twice) and Lancashire (once) over the last year masks what has been an even more significant slow down.

In 2018 and 2019 I was regularly buying in and out EasyJet and Petrofac, responding to market movements, but happily picking up the dividends along the way (hence why they’re in my trade information for the HYP).

I know many will read this and conclude I simply don’t run a HYP, but at least half my holdings have been held for 6+ years (I started the HYP 8 years ago)

Wasron

[ReformedCharacter]

Just sold a holding today, the first for over a year. That's probably about average for me (30 holdings). The share in question was TCAP which gave me an IRR of -3.1%

RC

[daveh]

So here is my Churn data:



I've listed Buys by year, Voluntary sales by year (Ie where I chose to sell) and forced sales per year (where companies were taken over for cash) and expressed the churn as forced sales as a % of portfolio value at end of year and total sales as a % of portfolio value at end of year. I don't have portfolio value before 2003, which is when I started keeping records other than sales and buys, but the only forced sale in that time was Thus for £19.80 so that is insignificant. The one voluntary sale in 2002 is likely to be round 10% of the portfolio value at the time, but that is just a guess from the number of shares purchased by then and the purchase size at that time.

The reason for the very large number of purchases early in the portfolio history is 1) I was using sharebuilder to make monthly purchases and 2) I had automatic dividend reinvestment set up on the sharebuilder account.

[moorfield]

The reason for the very large number of purchases early in the portfolio history is 1) I was using sharebuilder to make monthly purchases and 2) I had automatic dividend reinvestment set up on the sharebuilder account.

Interesting thanks Dave, you are a Zen Master! There's nothing wrong with the large number of purchases, provided you are not selling and rebuying too, the beauty of this churn metric its that it recognizes that.

[Breelander]

Portfolio Churn (or Turnover) is relatively simple to test, the method I use is described here ... one would expect both a LTBH HYP "drawer" and a "builder" who is topping up only to have zero turnover... How well do you follow the faith?

Those who know me well will be unsurprised by my results.

2016 - 0%
2017 - 0%
2018 - 0.17% (sold CLLN the day before it got delisted)
2019 - 2.75% (one of my 'once in a blue moon' top-slices)
2020 - 0%

[biffinsbridge]

Gooday All, Have never churned in 15 years. Stay safe Regards Dickie.

[Arborbridge]

There are some impressive posts here, and though I still regard myself as a slow tinkerer, so of you put me to shame - with three or fours particularly Zen entries.
However, from what I've seen from those who have come forward so far - and some who haven't, but whose history we know - most of us are genuinely trying to stay with the spirit of finding companies we can stay with for a relatively long time. 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.

I believe most of us have core companies which we have held for years - maybe the problem comes with some of the peripheral companies which we believe will remain core, but which hit boulders on the way which cause us to re-think whether they really ought to be in a HYP. Hopefully, these experiences might lead to a sort of distillation effect leaving the remaining choices as more stable components. On the other hand, perhaps we never learn, but take on replacement companies which eventually fail too. This is, I would say, continual diworsification, but I am not sure how one would prevent it, since hope springs eternal.

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.

[funduffer]

My data from HYP started in 2013:



My sales have mainly been due to cancelled or cut dividends, or whilst doing Bed & ISA. As you always have to sell in Bed & ISA, I always review the share I am moving to the ISA and replace it if there is a better alternative. HYP now 100% ISA, so this won't happen again.

FD

[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?

On the other hand, perhaps we never learn, but take on replacement companies which eventually fail too. This is, I would say, continual diworsification, but I am not sure how one would prevent it, since hope springs eternal.

By going back to basics, perhaps. Buying and holding forever; not being tempted to meddle, or letting press or other posters' comment on our companies influence us, or worrying about the fluctuations in the underlying capital value of our shares that are certain to occur? Remember that, from the mists of time?

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.

I do hope we see some numbers from TJH if he's minded to contribute. If it is generally accepted his method is essentially a very long term holding method (I do), then his churn rate will be very informative, and perhaps accepted as what is within the remit of the guidelines.

Meanwhile, based on the poll results so far, we can see perhaps that an average annual churn rate of over 10% is de facto beyond the remit of what the guidelines mean by:

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

[Arborbridge]

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.