My HYP.

[Dod1010]

Arb

I have never claimed no duds in the last ten years although not that many that I can think of. Avoidance of problems is much more important than finding good shares. Avoid the problems and the good shares will find themselves as somebody didn't say.

Dod

[idpickering]

Arb

Avoidance of problems is much more important than finding good shares.

Dod

Well said Arb,

Much in line with Warren Buffets' rule no.1," don't lose money".

Ian.

[pendas]

Regarding the number of shares in a HYP portfolio, I think we need to take into consideration the period of construction.

As a lump sum purchase, there may only be 15 suitable candidates at any one time, but many on here seem to be constructing portfolios decades before eventual retirement and before drawing the income. If we follow the rule of choosing the highest yielder in a sector that satisfies our safety rules, it's unlikely that the same share will remain at the top of that list over such an extended period.

Do we then not go for the current highest yielder in the sector simply to ease the admin burden and continue to add to an existing share whose price may well have recovered?

[staffordian]

Regarding the number of shares in a HYP portfolio, I think we need to take into consideration the period of construction.

As a lump sum purchase, there may only be 15 suitable candidates at any one time, but many on here seem to be constructing portfolios decades before eventual retirement and before drawing the income. If we follow the rule of choosing the highest yielder in a sector that satisfies our safety rules, it's unlikely that the same share will remain at the top of that list over such an extended period.

Do we then not go for the current highest yielder in the sector simply to ease the admin burden and continue to add to an existing share whose price may well have recovered?

You make a good point, and essentially it was the thinking behind my first reply to Ian.

Most posters on here seem to be constructing a portfolio over time rather than in one shot so it's inevitable that over time different shares will rise and fall price and yield wise.

Restricting a portfolio to the fifteen (or even twenty-odd) shares first bought, limiting future purchases to those rather than picking the best at the time seems odd.

Having said that, in Ian's case, having mid twenties different shares, then for the short to medium term, its quite likely that several of those will represent good options for top ups.

Staffordian

[Arborbridge]

Well said Arb,

Actually, Ian the quote was from Dod if you look carefully.

But unfortunately, like Buffett, he is only stating the blooming obvious. The real question is how to create that desirous situation, and unless one happens to be a Buffett (in which case one would not be writing comments on Lemon Fool) that is not so easy. There is no known way of describing foolproof stock picking so that one does not lose money - people like Buffett may write much about what they do, but in essence it is a flair. And like me, note that he chose Tesco

The fact that it isn't easy, is partly the motivation for investing in the HYP system and one of the reasons for its origin.
The system is to help the average semi-literate investor achieve a modicum of success, and that it does.

Arb.

[tjh290633]

When shares were taken over, the proceeds were invested in a single replacement share for the one being lost, which accounts for some of the imbalance.

Yes - in particular, the Gallaher and Associated British Ports takeovers were both for quite large sums relative to the portfolio size, and were completely re-invested in BATS and BT respectively. And as those are the two biggest holdings now, reinvestment of only 1/15th of the portfolio value in them and the rest elsewhere would have made HYP1 considerably less unbalanced. Precise figures are impossible to give without knowing where "elsewhere" would have been, and it's impossible to work that out now without excessive risk of hindsight bias, but a few thought experiments say that something in line with TJH's figures would be plausible - i.e. a bit over half of the portfolio being in the top 1/3rd of holdings, rather than around 2/3rds of it.

The point of which is that I regard the case that trimming is essential to prevent a HYP becoming unbalanced as unproven: it's possible that a reinvestment policy that aims to restore balance (rather than one that recklessly perpetuates it) is enough.

Gengulphus

I was surprised when I looked at the distribution of portfolio weight, to find that the 50% mark seems to lie consistently about the 40% mark in terms of number of holdings, i.e. at about 16/37 at the moment, whereas I expected it to follow your 1/3rd suggestion.

Code: Select all

Value                                             
Rank    EPIC   Weight   % Median   Cum Wt % shares     
    1   ADM     3.22%     113.4%     3.2%     2.7%
    2   CPG     3.21%     113.1%     6.4%     5.4%
    3   AV.     3.21%     113.0%     9.6%     8.1%
    4   NG.     3.16%     111.3%    12.8%    10.8%
    5   AZN     3.14%     110.4%    15.9%    13.5%
    6   IMI     3.11%     109.4%    19.1%    16.2%
    7   RIO     3.03%     106.5%    22.1%    18.9%
    8   BP.     3.02%     106.3%    25.1%    21.6%
    9   MARS    3.01%     106.1%    28.1%    24.3%
   10   TW.     3.00%     105.5%    31.1%    27.0%
   11   BA.     2.99%     105.3%    34.1%    29.7%
   12   LGEN    2.90%     102.2%    37.0%    32.4%
   13   GSK     2.90%     102.0%    39.9%    35.1%
   14   SSE     2.90%     101.9%    42.8%    37.8%
   15   VOD     2.88%     101.4%    45.7%    40.5%
   16   RDSB    2.87%     100.9%    48.5%    43.2%
   17   RB.     2.85%     100.4%    51.4%    45.9%
   18   TATE    2.84%     100.1%    54.2%    48.6%
   19   UU.     2.84%     100.0%    57.1%    51.4%
   20   BLND    2.81%      99.0%    59.9%    54.1%
   21   KGF     2.81%      98.9%    62.7%    56.8%
   22   SMDS    2.77%      97.6%    65.5%    59.5%
   23   PSON    2.77%      97.5%    68.2%    62.2%
   24   BATS    2.77%      97.3%    71.0%    64.9%
   25   CLLN    2.64%      93.0%    73.7%    67.6%
   26   MKS     2.64%      92.7%    76.3%    70.3%
   27   IMB     2.63%      92.7%    78.9%    73.0%
   28   BT.A    2.61%      92.0%    81.5%    75.7%
   29   SGRO    2.61%      91.9%    84.2%    78.4%
   30   DGE     2.57%      90.6%    86.7%    81.1%
   31   WMH     2.44%      85.9%    89.2%    83.8%
   32   LLOY    2.35%      82.8%    91.5%    86.5%
   33   ULVR    2.31%      81.3%    93.8%    89.2%
   34   BLT     2.12%      74.7%    96.0%    91.9%
   35   TSCO    1.73%      60.7%    97.7%    94.6%
   36   S32     1.18%      41.7%    98.9%    97.3%
   37   INDV    1.14%      40.0%   100.0%   100.0%


You might say that this is down to trimming but, because I usually trim by 20-25%, the trimmed share is still above median weight and the topped-up shares often remain below the median weight. With my recent spell of trimming, the portfolio has a much flatter profile, i.e has become much more balanced than it has been in the past. I have looked back a few years, and the 50% mark always seems to lie a few places above the median weight point.

TJH

[Dod1010]

Thanks Arb. I am having difficulty in getting posts to 'stick' I think I have posted them and then they disappear.

Ian is right also about Buffett's Rule No 1, and of course his Rule No 2 is 'See Rule No 1'

No I do not think it is that difficult to avoid disasters. The first thing is to restrict your number of shares held. That way you can more or less stick to tried and trusted shares (and no I never saw Mitie as a tried and trusted share despite its long history of rising dividends and so never considered it) I have had my share of problems, although in recent years few disasters (Famous last words)

As I have said many times, I doubt if Buffett would have chosen Tesco if he had lived here and seen how it was behaving, and at least after he realised his mistake he got out promptly. Like anyone running a portfolio you need to be on guard all the time. Even Unilever does it with their portfolio of brands. They don't buy a brand and keep it forever come what may.

Were I in the building phase (to answer pendas) and had new money to put in I would I hope have an idea of the maximum number of shares I wanted to hold (say 20/25) and if I were getting above that I would be looking at a share to cull if I found an irresistible new one. But we are all looking for long established shares with a big market cap, and a good record on paying dividends, higher than average yield and a good culture. Not that easy to find and we have mentioned most here at one time or another. Even in the FTSE250 I reckon we would be pushed to find more than 20/25 so a new one had better be good. I grade my shares at least once a year from most attractive to least and the least attractive one will need to have some decent features or it might well be chopped. It will usually be a smaller holding anyway.

Dod

[idpickering]

No I do not think it is that difficult to avoid disasters. The first thing is to restrict your number of shares held. That way you can more or less stick to tried and trusted shares (and no I never saw Mitie as a tried and trusted share despite its long history of rising dividends and so never considered it) I have had my share of problems, although in recent years few disasters (Famous last words)


Dod

Yours' is very much in line with my thinking Dod. I am seriously considering bringing United Utilities on board, but do I have to? Of course not. If I did, and brought that share up to individual average value weighting, I'd be over exposed to all things utility wise. I do like your "stick to the tried and trusted shares" comment above especially.

Regards,

Ian.

[Arborbridge]

I do like your "stick to the tried and trusted shares" comment above especially.

But I suspect your tried and trusted shares may be different to Dod's or mine.

Dod is apparently good at this sort of thing and find's it easy*, I'd suggest we all just buy the shares he does, and then there would be nothing to worry about

Arb.

*though we have never yet seen any measure of his success. I'm not suggesting that this is because he isn't successful, but it's just a known unknown. He doesn't measure his success, so we can't know how well his income per unit has risen, let alone his capital growth per unit - and neither can he, by the way.

[Dod1010]

Ian

Why would you want to bring UU on board if you have enough in utilities anyway? I know very little of it and have never really thought about UU but have no interest as I am happy enough with what I have. What is the psychology? Fear of missing out?

To me it would be adding risk to my portfolio, I am not afraid of risk in the sense of if I lose 10% of capital that would be bad but not a lfe changing disaster and probably ditto if applied to income but at the same time I want to avoid adding risk if I can. Risk will find me soon enough; I do not need to go looking for it.

[toofast2live]

Quite simply UU does not have a rock solid dividend history and it is a mystery why anyone would bring it on board when they already hold relatively reliable utility dividend shares. This really is a case of diworsification.

FWIW my favourite Ute is National Grid. I would rather over weight them than to dip my toes into the unpredictable waters of UU.

[idpickering]

Quite simply UU does not have a rock solid dividend history and it is a mystery why anyone would bring it on board when they already hold relatively reliable utility dividend shares. This really is a case of diworsification.

FWIW my favourite Ute is National Grid. I would rather over weight them than to dip my toes into the unpredictable waters of UU.

Thank you Arb, Dod and toofast2live for your input. I really am overthinking this regarding UU.. Right, I've had a little "pickering" moment there but it has passed. No UU. for me.

Regards,

Ian.

[Arborbridge]

As Darcy would say "The boys are right, though" the dividends haven't been rock solid, though they have been solid enough in recent years.

I'm sure Ian's thinking, like mine, is to add a water company, not just any ute. This conversation has slightly forgotten one of the tenets of HYP which is diversification -not at all costs, of course - but several HYPers have included a water company so it is hardly revolutionary. In fact, TJH has shares in UU, as do I. My experience is that the total return varies around 7-10% so not bad, not great.

Since I do value your opinions, Dod, which utes would you suggest? NG and SSE. I think you've mentioned previously, both of which I have, but both of which also have naysayers. But any others, particularly in the water area?
The problem with all these types of companies (even more with transport) is political interference. It's the elephant in the room.

Arb.

[tjh290633]

Arb wrote:

In fact, TJH has shares in UU, as do I. My experience is that the total return varies around 7-10% so not bad, not great.

Yes, I have held UU. since 2001 when it replaced Blue Circle after the take-over by Lafarge.

My IRR has been 10.3%, and a single share held unchanged would have had an IRR of 9.3%. The dividend was "rebased" in 2008, reduced from 46.27p to 32.67p, sunbsequently rising gradually to the current 38.45p with a brief lapse in 2010 when they reduced it to 30p. They report interims on Wednesday.

So, there have been gradually increasing dividends for the last 6 years. At the moment it is my median weight share (19/37) and its yield is also the median at 4.26%. It is also one place above the median in terms of contribution to divdends at 2.68%.

As Arb also said it is subject to regulation and political pressures, but with a judicious topping up in 2009 at 442p the income has kept pace with inflation.

TJH

[idpickering]

I'm sure Ian's thinking, like mine, is to add a water company, not just any ute.

Arb.

You're absolutely correct there Arb. I remember a conversation on the other HYP practical board whereby posters were literally talking, water, electricity, gas and infrastructure utilities like they were different beasts, and holding one of each wasn't taboo. I don't have to have one of each though of course. No, in keeping with my keep it simple motto, I'm going to do just that. ie, no UU..

Regards,

Ian.

[88V8]

Other than avoiding BT because of its pensions legacy, nothing to fret over there.

You have moved with impressive speed from 'that looks complicated' to actually posting a table, so was it? :}

V8

[idpickering]

Other than avoiding BT because of its pensions legacy, nothing to fret over there.

You have moved with impressive speed from 'that looks complicated' to actually posting a table, so was it? :}

V8

Hi 88V8,

To be honest, no. I found it a little awkward. Either way, it's the content of the board rather than how nice it looks that's important.

Regards,

Ian.

[mike]

If you are considering a water utility, Terry has already mentioned UU are reporting this week. In fact, we have the hat trick !

Weds - UU
Thur - Severn Trent
Fri - Pennon

Pennon are my favoured choice
- stated dividend increases RPI + 4% until 2020, the others are just RPI
- They have the Viridor energy from waste subsiduary which is now beginning to bear fruit -> extra diversification

Mike

(ex-TMF BCBantam - first post over here. Probably about par for the course, I only managed 200 or so in 14 years on TMF !
Thanks to Clariman & Stooz for making the transition so painless)

[kempiejon]

If you are considering a water utility, Terry has already mentioned UU are reporting this week. In fact, we have the hat trick !

Weds - UU
Thur - Severn Trent
Fri - Pennon

Pennon are my favoured choice
- stated dividend increases RPI + 4% until 2020, the others are just RPI
- They have the Viridor energy from waste subsiduary which is now beginning to bear fruit -> extra diversification

Mike

I have UU and Pennon, I bought UU way back in 2004 and again in 2008 but I've not topped up since. TJH showed their income history and although I still hold I've preferred PNN for a couple of years, precisely because of the above RPI dividend commitment, waste business and more pristine dividend history. In fact tomorrow PNN and SSE are scheduled buys.

[Dod1010]

Arb

I was not ignoring you but I only hold SSE and NG of the utilities. That is not because I dislike the others but simply because I have enough there. In fact there may even be other utilities (in say water) that I should hold but I am not interested. I have enough HYP shares and they are performing fine for me.

Incidentally, do you know my best HYP share of the last year? Arbuthnot Banking Group. Its yield has been 24.7% and the share price is higher than at the start of the year. Sadly it is a member of AIM, it is a tiddler, and it usually yields about 3% but this year it has thrown off cash at a prodigious rate. Of course it is not a HYP share but it certainly has been a good investment.