Holdings per hundredK

[gbalin]

Hi all
A long term lurker here, with a hyp-ish portfolio who is recently retired.
15 holdings with 100K portfolio was manageable; I take people's points about too many holdings, but if the portfolio value should rise to 500K or even 1mill due to pension lump sums, inheritance or lottery win, presumably diversification means that the number of holdings should go up, or else too much money is concentrated in too few companies.
Does anyone think there should be a guideline, like no more than 3% of portfolio total in any one company? Is that feasible?
GB

[idpickering]

Hi all
A long term lurker here, with a hyp-ish portfolio who is recently retired.
15 holdings with 100K portfolio was manageable; I take people's points about too many holdings, but if the portfolio value should rise to 500K or even 1mill due to pension lump sums, inheritance or lottery win, presumably diversification means that the number of holdings should go up, or else too much money is concentrated in too few companies.
Does anyone think there should be a guideline, like no more than 3% of portfolio total in any one company? Is that feasible?
GB

Tbh, I think it’s a matter of each to their own. It doesn’t really matter how many shares you hold if you’re ok with it.

I hold 26 shares currently, soon to be 27.i prefer more diversification, but others don’t. I like to try to not exceed 5% in any given holding, and 10% maximum in a sector. Those are not strict rules though.

I hope that helps.

Ian.

[dealtn]

Hi all
A long term lurker here, with a hyp-ish portfolio who is recently retired.
15 holdings with 100K portfolio was manageable; I take people's points about too many holdings, but if the portfolio value should rise to 500K or even 1mill due to pension lump sums, inheritance or lottery win, presumably diversification means that the number of holdings should go up, or else too much money is concentrated in too few companies.
Does anyone think there should be a guideline, like no more than 3% of portfolio total in any one company? Is that feasible?
GB

[Deletion.]

From what I know of such an investment strategy they reason for having 15(ish) holdings is diversification. Adding more, mathematically speaking, doesn't incrementally add much more diversification protection (especially in quite a small niche pool relative to the wider market anyway). HYP is buy/forget/don't worry - or Dorisian if you rather.

So HYP doesn't require more holdings regardless of the portfolio size being £100k or £100m. If size matters to you, or others, and it is the absolute size of any holding that gives you sufficient concerns such that you can't be a Doris, then it's not really a HYP problem. I would suggest you need to consider what your portfolio means to you in addition to (presumably) income. If diversification, or worrying less, is of value (sufficient that you are prepared to pay someone to deal with such issues), then that's the kind of thing fund(s) can provide.

[Deletion.]

Moderator Message:
Off-topic bits removed. - Chris

[ReformedCharacter]

I take people's points about too many holdings, but if the portfolio value should rise to 500K or even 1mill due to pension lump sums, inheritance or lottery win, presumably diversification means that the number of holdings should go up, or else too much money is concentrated in too few companies.
Does anyone think there should be a guideline, like no more than 3% of portfolio total in any one company? Is that feasible?
GB

If that scenario should arise then personally I would diversify further (I do anyway), but tax would then be an issue because you would not be able to transfer that sort of sum into a SIPP or ISA for a very long time and then the HYP strategy might not be optimal and it might be better to harvest capital gains from a selection of lower yielding investments that focus on capital growth.

RC

[Spet0789]

If you are adopting a HYP strategy (ie fully invested in U.K. large cap dividend payers), you’ve kind of given up on the idea of diversification already!

In reality the difference between holding 25 of these stocks and holding 15 is probably minimal.

Of course if you are concerned about diversification you wouldn’t pursue a HYP strategy, or it would be a small component (say 20% max) of your overall portfolio.

[88V8]

Does anyone think there should be a guideline, like no more than 3% of portfolio total in any one company?

5% per company or holding.... I have HYP and ITs and FI and don't distinguish between those three 'pots' in terms of max concentration... 5% per holding as a limit is quite typical for an HYP practitioner.
Many people also watch their sector concentration, again 10% is typical.
That should ideally be in terms of income. A bit more work to keep an eye on than value, but still......

My max holding is around 3% of value but more by accident than design.
I have about four holdings per £100k value which is probably too many for a large portfolio, but arguably too few for a small one.
I don't monitor sectors, but if I were totally dependent on HYP then I should.

V8

[daveh]

Does anyone think there should be a guideline, like no more than 3% of portfolio total in any one company?

5% per company or holding.... I have HYP and ITs and FI and don't distinguish between those three 'pots' in terms of max concentration... 5% per holding as a limit is quite typical for an HYP practitioner.
Many people also watch their sector concentration, again 10% is typical.
That should ideally be in terms of income. A bit more work to keep an eye on than value, but still......

My max holding is around 3% of value but more by accident than design.
I have about four holdings per £100k value which is probably too many for a large portfolio, but arguably too few for a small one.
I don't monitor sectors, but if I were totally dependent on HYP then I should.

V8

Same here, I have an IP, made up of HYP shares, high yield ETFs and ITs plus VWRL (chosen over VHYL as the dividend of both is not that high and VWRL had a much better TR performance than VHYL). I set a soft capital limit of 5% of median size for any one share, 10% for sectors and 20%for super sectors (eg financials). VWRL is allowed a bit more leeway. Once they get to 5% no more top ups, significantly above 5% then I'll consider a top slice. I don't worry about the actual cash amount. When I started I was investing 1k per holding, now it's about 10k per holding, and it will keep rising if my portfolio keeps growing.

[csearle]

If you are adopting a HYP strategy (ie fully invested in U.K. large cap dividend payers), you’ve kind of given up on the idea of diversification already!

In reality the difference between holding 25 of these stocks and holding 15 is probably minimal.

Of course if you are concerned about diversification you wouldn’t pursue a HYP strategy, or it would be a small component (say 20% max) of your overall portfolio.

If geographic diversification had been meant then I'd have agreed with you. But in practice diversification across sectors is all part of HYP as used here.

Chris

[tjh290633]

I think that you need different rules for ITs and individual shares. I have no idea how you would differentiate, but let's say that you had £500k in individual shares, then you might feel uncomfortable if an individual holding got above £50k or even less. With a collection of ITs, maybe £100k would be a feel-safe limit.

The inherent diversification in an IT has to have an advantage in risk control. This might not apply to a REIT or any other company not investing in other companies.

My personal limit for a 100% share portfolio is 1.5 times the median value, with 36 holdings. When I had only 20 it was twice the median and before that 10% of portfolio value.

You have to decide based on the feeling in your water, or bowels, or whatever.

TJH

[gbalin]

Thanks all. You've rumbled me - I'm not entirely HYP, have some ITs as well, and happier to have larger sums in that 'pot'. I suppose I'm a bit paranoid due to losing nearly 90% of my initial stake in CPI, back in the day when it was worth something, shortly before it wasn't!!
I'm grateful for the answers. I suppose 3-5% makes sense.

[Itsallaguess]

I think that you need different rules for ITs and individual shares. I have no idea how you would differentiate, but let's say that you had £500k in individual shares, then you might feel uncomfortable if an individual holding got above £50k or even less. With a collection of ITs, maybe £100k would be a feel-safe limit.

The inherent diversification in an IT has to have an advantage in risk control. This might not apply to a REIT or any other company not investing in other companies.

Invested capital diversification, as an income-investor myself, would ideally comprise of the following -

1. Company
2. Number of sub-holdings where investments are collective-based
3. Sector
4. Global Market / Geography

Beyond that, things have become slightly more complicated in recent years, as collective income-investments previously consisted primarily of underlying holdings that themselves paid out dividends, but there's collective income-related options available now that are able to use underlying 'growth' to some degree, often in conjunction with some level of underlying dividend-paying holdings, to enable delivery of income to holders via an often more varied 'growthier' set of investments, so there's also now a further level of diversification that I'm interested in pursuing, to take advantage of these new types of investment-market options -

5. Method (Collective 'dividend' income / Collective 'growth' income)

I also have some non-income related holdings, and am happy to use something like Vanguard LifeStrategy 80/20 as a not-insignificant side-investment, running alongside my primary income-based strategy.

As the size of my invested-capital has grown, I've been very satisfied with the options available via the above routes to diversity...

You have to decide based on the feeling in your water, or bowels, or whatever.

I absolutely agree.

I don't think there's a 'correct' level of diversification.

Only, perhaps, 'correct' for each of us as individuals...

Cheers,

Itsallaguess