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Musings on Cash Buffers

General discussions about equity high-yield income strategies
Arborbridge
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Re: Musings on Cash Buffers

#321989

Postby Arborbridge » June 27th, 2020, 10:22 am

Aminatidi wrote:
But this seems to be where I don't understand HYP as it always appears to focus on stuff that whipsaws all over the place so it's not like it's as clear cut as "just sell some units" as Terry Smith might advocate with his total return approach.


Just to go back to this sentence - maybe it is as simple. With HY you just watch the income come in as in HYP1, for example (plus an income reserve) with TR you sell some units but have to keep an income reserve to ride over the dips in share price to avoid forced selling.

I doubt there is really much difference. The difference in the example you have chosen is a little artificial - in one case, you are managing a group of shares yourself, in the other you are paying a manager to worry about the details for you - so it is bound to look simpler.

Arb.

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Re: Musings on Cash Buffers

#321990

Postby Aminatidi » June 27th, 2020, 10:24 am

Arborbridge wrote:
Aminatidi wrote:But this seems to be where I don't understand HYP as it always appears to focus on stuff that whipsaws all over the place so it's not like it's as clear cut as "just sell some units" as Terry Smith might advocate with his total return approach.


Whether it's true that HYP shares "whipsaw all over the place" compared with growth shares, one would need to prove. I'm not convinced that's true, but it's up to you to back up the statement. Not all growth investors can invest as successfully as Terry Smith. The growth shares I used to have I would say, anecdotally, were just as prone to whipsawing -which is one reason I decided to go with large companies which rarely go bust but which provide an income.

I could equally assert that a growth share's price depends on continuing growth and when that disappoints the price suffers badly - thus putting an end to one's hope of asset harvesting to pay one's pension.

Some people have the knack, but I don't - which I why I found more success in HY investing generally.
If I had put my trust in one fund i.e. Terry Smith and depended on that, the outcome would have been good. However, I could never bring myself to depend on one fund, and I could not have known beforehand that he would be as successful as he has been.

So, I went down the HY route, and so far haven't regretted it. It's provided my pension for ten years so I'm happy enough. For those with the skill to do otherwise, well done - you are better than I am in that respect and I take my hat off to you.

Arb.


Whipsawing was uncalled for perhaps. My point was that personally I'm too much of a worrier to even try to manage individual shares and the associated ups and downs.

I tried it once for a very short period of time and if I had to think about a good time to buy and sell units learned enough to know that it just wasn't for me.

I only mention Terry as he's been very outspoken about investing for income v investing for total return and "take what you need".

I think Fundsmith even has a regular withdrawal option which I believe is pretty unique in funds so presumably there's sufficient of a demand there.

I don't hold anything in Fundsmith as I prefer investment trusts so I've not got a dog in the fight.

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Re: Musings on Cash Buffers

#321991

Postby Aminatidi » June 27th, 2020, 10:27 am

Arborbridge wrote:I doubt there is really much difference. The difference in the example you have chosen is a little artificial - in one case, you are managing a group of shares yourself, in the other you are paying a manager to worry about the details for you - so it is bound to look simpler.

Arb.


Perhaps.

I'll hold my hands up that when you're depending on an income from investments perhaps it totally changes your mindset so it's quite possible that as I'm not I simply don't get it and won't until I'm in a position where I am.

You're right it looks simpler using funds or trusts but I guess for me doing it fully DIY always seems like taking the hard way when there appear to be much easier ways.

Though of course all you've got to do is back the right fund managers all the time :D

Dod101
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Re: Musings on Cash Buffers

#321999

Postby Dod101 » June 27th, 2020, 10:58 am

MrFoolish wrote:
Dod101 wrote:I have so far lost only HSBC but have had cuts in Shell, Admiral and Imperial Brands. I will probably be short by 10/15% over the year. I can live with that.
Dod


Interesting. Would you say there's something in your selection procedure that has given you this relatively benign outcome?


My response seems to have disappeared into the ether unless a mod did not like my reply(?)
Moderator Message:
There are no deleted posts between there and here, so you obviously lost your response.

TJH


I depend on my investment income to live off having no pension other than the State pension. The result is I have developed some care and selection in my choice of holdings. The bulk of my income derives from 21 shares of which 6 are ITs and only one of these, Edinburgh, is a UK income trust. I probably hold too many financials for some and do not hold and am unlikely ever to hold support services, contractors or supermarkets. I hold only one bank, HSBC and was genuinely shocked when the PRA forced it and others to abandon their dividends for the year. Two of the three cuts were hardly unexpected and I think Admiral cut its special in a form of corporate virtue signalling.

Much too early to predict the outcome over the year but I think maybe 15% would cover it, although who knows what the half year results will bring?

Dod

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Re: Musings on Cash Buffers

#322023

Postby dealtn » June 27th, 2020, 12:13 pm

Arborbridge wrote: However, I could never bring myself to depend on one fund...


I find this interesting and ask you to expand a little please. It is possible I have got your context or meaning wrong.

I am not sure I understand why some people seem to be put off investing in a "single" fund or collective, yet are happy to run a strategy that itself is equivalent to a "single" fund or collective, indeed might in fact be less diversified.

Now I know you run additional strategies to your HYP, so are diversifying in practice. But I get the sense that some won't invest in a single IT or collective as that is a "single" exposure to that fund, or fund manager, which is "risky". Yet will as an alternative run their own fund/strategy investing in 15-25 individual equities, believing that as this is up to 25 investments, rather than the single one in an IT alternative, and "therefore" it is "safer".

I invest in a "strategy" and select my own portfolio. Firstly, I enjoy it, so why outsource that to someone else? Secondly I don't pay fees which are a drag on performance. Thirdly I (arguably!) outperform the average fund manager, or tracker, so why wouldn't I?

For others that don't enjoy it, aren't as successful as the average fund manager/tracker, are happy to pay fees in exchange for "less stress and sleeping better at night not having to make investment decisions" I can see why the fund/collective approach is justifiable.

What I struggle to understand is those that appear to be arguing that a single collective is a less diversified position than a self-selected portfolio. I have seen some portfolios and strategies with (many) multiples of IT/collectives, as much as say 15-25, in line with some interpretations of a well diversified portfolio of individual shares. Having 15-25 collectives might give you exposure to over 1,000 individual shares, but I suspect also gives you multiple exposures to the same shares.

I'm not saying that is you, but am open to hearing your, and others, views on this "risk avoidance".

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Re: Musings on Cash Buffers

#322028

Postby 1nvest » June 27th, 2020, 12:31 pm

TUK020 wrote:Issue

The increased income available from directly held higher yield stocks comes at a price of increased volatility which is probably not welcome where the HYP forms a significant portion of the retirement income.

But obviously less so if your income sources are more widely diversified (where HYP might be a relatively small proportion of the retirement 'portfolio'). One investor may prefer to be fully liquid and rent for instance, another might own their own home and not have to find/pay rent (imputed rent benefit). Another might have a decent/high pension stream, yet another may not. If as seems to be the case some (many ?) HYP investors are also maintaining 'reserves' and/or reinvesting a proportion of dividends then that becomes just a personal preference to invest in one particular type of stock set. 90% allocation to a HYP paying 4% dividend yield, 10% reserves, and where a quarter of dividends were being reinvested rather than spent, versus 75% in a broader stock set that was yielding 3.6% and all of dividends being spent ... has both providing 2.7% as disposable dividend income (spent dividends).

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Re: Musings on Cash Buffers

#322030

Postby ReallyVeryFoolish » June 27th, 2020, 12:37 pm

dealtn wrote:
Arborbridge wrote: However, I could never bring myself to depend on one fund...


I find this interesting and ask you to expand a little please. It is possible I have got your context or meaning wrong.

I am not sure I understand why some people seem to be put off investing in a "single" fund or collective, yet are happy to run a strategy that itself is equivalent to a "single" fund or collective, indeed might in fact be less diversified.

Now I know you run additional strategies to your HYP, so are diversifying in practice. But I get the sense that some won't invest in a single IT or collective as that is a "single" exposure to that fund, or fund manager, which is "risky". Yet will as an alternative run their own fund/strategy investing in 15-25 individual equities, believing that as this is up to 25 investments, rather than the single one in an IT alternative, and "therefore" it is "safer".

I invest in a "strategy" and select my own portfolio. Firstly, I enjoy it, so why outsource that to someone else? Secondly I don't pay fees which are a drag on performance. Thirdly I (arguably!) outperform the average fund manager, or tracker, so why wouldn't I?

For others that don't enjoy it, aren't as successful as the average fund manager/tracker, are happy to pay fees in exchange for "less stress and sleeping better at night not having to make investment decisions" I can see why the fund/collective approach is justifiable.

What I struggle to understand is those that appear to be arguing that a single collective is a less diversified position than a self-selected portfolio. I have seen some portfolios and strategies with (many) multiples of IT/collectives, as much as say 15-25, in line with some interpretations of a well diversified portfolio of individual shares. Having 15-25 collectives might give you exposure to over 1,000 individual shares, but I suspect also gives you multiple exposures to the same shares.

I'm not saying that is you, but am open to hearing your, and others, views on this "risk avoidance".

You make great observations and they certainly chime with me. In the past I have asked questions like "when does a (say) 30 share portfolio of income shares become a fund"? Or when reflecting on the more redicuolus aspects of things sometimes posted here like "never sell anythnig", "always buy the highest yield", "the time to buy is always now" and so on (praraphrasing, obviously). Can anyone think of a single, successful, professional fund manager running an income or income/growth fund who has even remotely come close to managing his fund like that? In the final analysis, at what point does a self selection of stocks become so fund-like that it would actually be sensible to buy a fund or investment trust?

RVF

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Re: Musings on Cash Buffers

#322040

Postby 1nvest » June 27th, 2020, 12:55 pm

What like a Woodford Equity Income fund?

100% all-in on a single fund = 100% single counter party risk. 10/whatever directly held shares in around equal weightings = 10% single counter party risk. Diversification is the only free lunch mantra.

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Re: Musings on Cash Buffers

#322042

Postby Alaric » June 27th, 2020, 1:03 pm

dealtn wrote:I am not sure I understand why some people seem to be put off investing in a "single" fund or collective,


It would be the risk of exposure to a single manager or management, recent examples being the Woodford funds.

It wasn't only the management at Woodford who have suspended redemptions and withdrawals from the OEIC, open ended property funds have done the same.

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Re: Musings on Cash Buffers

#322043

Postby Dod101 » June 27th, 2020, 1:03 pm

To answer dealtn, I run an income portfolio of around 21 shares of which 6 are ITs. Only one of those 6 Its though is a UK income fund, the others are mostly overseas but I would never replace my 21 shares with a single IT because for instance you are the relying on one fund manager's style and judgement. Take Mark Barnett or for that matter Alastair Mundy. Until recently they ran Edinburgh IT and Temple Bar respectively. They have in recent years not been very successful Trusts. That is one reason for not using only one IT or fund.

I am not prepared to comment on the merits or otherwise of a HYP, but I do not run one. I need income to live off and it suits me to have an income portfolio as I say of around 20/21 shares at any one time. I also run a growth portfolio and the idea is that I will top slice some of the growth and turn it over to the income portfolio. On the whole I am looking for a well diversified portfolio but not really on account of trying to avoid some disaster but because not all shares move around in tandem. I want to get a decent blend I suppose. Over diversification is of course dangerous because I think it simply increases the chance of finding a dud share.

What has all this got to do with a cash buffer>

Dod

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Re: Musings on Cash Buffers

#322045

Postby ReallyVeryFoolish » June 27th, 2020, 1:07 pm

Dod101 wrote:What has all this got to do with a cash buffer>

Dod

Nothing. Hope that helps.

RVF.

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Re: Musings on Cash Buffers

#322057

Postby dealtn » June 27th, 2020, 1:59 pm

Alaric wrote:
dealtn wrote:I am not sure I understand why some people seem to be put off investing in a "single" fund or collective,


It would be the risk of exposure to a single manager or management, recent examples being the Woodford funds.

It wasn't only the management at Woodford who have suspended redemptions and withdrawals from the OEIC, open ended property funds have done the same.


Yes. I get the "counter party" risk. But firstly I would assume that anyone investing in a fund, would be aware of the investments within that fund, or at least the style of the manager/sponsor.

I am really talking about the market risk. Maybe I wasn't clear. I can only assume that to be the case because you have selectively only quoted the first half of my sentence. I think the "yet" and what followed at least tried to make that clear.

So, to clarify, I can see why some people who choose to invest in "niche" collectives, might wish to also diversify either into other alternative "niche" collectives, or alongside more general ones, to diversify away from an overly concentrated portfolio of "tech stocks", "small companies" "geography" etc.

I can also see why people who have no interest or care in what is in a fund will also buy a number of such funds such that diversification protects from the ignorance of knowing what the investor might be exposed to with a single fund.

What I don't get (hence the "yet... in the original query) is that those that have an interest in finance/investing, at least to the extent they post on an investment forum, and demonstrate the fact that they actively buy shares themselves, appear to be uncomfortable with the market risk of a single collective (that might have 100+ individual shares in a diversified portfolio), but feel comfortable rejecting that and replacing with a less diversified self-selected share portfolio of say 15-25 components. (Or buying multiple funds which add to the number of individual shares, and "multi" expose to many).

Yes, this isn't the right way to have posed the question, it deserved its own thread rather than continuing the to/fro of the discussion on an alternative thread, I apologise. But in (partial) justification it came as a direct result of something someone said on this thread.

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Re: Musings on Cash Buffers

#322066

Postby 1nvest » June 27th, 2020, 2:29 pm

ReallyVeryFoolish wrote:Or when reflecting on the more ridiculous aspects of things sometimes posted here like "never sell anything", "always buy the highest yield", "the time to buy is always now" and so on (paraphrasing, obviously). Can anyone think of a single, successful, professional fund manager running an income or income/growth fund who has even remotely come close to managing his fund like that?

"Never sell anything" in the context of doing so to provide income is HYP policy (to the extent its even suggested to ignore capital value). Which bears the risk that at times the dividend income may be inadequate, such that in practice either holdings have to be sold, or some other alternative measures have to be in place to account for that, such as a cash-buffer. What if instead you accepted that some/all of the best performing stock might be sold periodically as part of cash-buffer replenishing. Typically for a set of assets over a period of time one or more will tend to have performed very well, such that the best uplifts the average of the whole to above the individuals, most of the holdings actually lag the broader average. Hold a buy and hold HYP long enough and likely you'll see relatively heavy weighting into a small number of holdings - which increases risk (over concentration).
TUK020 wrote:Once one has some idea of what an appropriate reserve is per investment strategy (e.g basket if ITs vs HYP stocks), then a more meaningful comparison of performance for the invested portion of the strategy.

Question to the longer term members of TLF & TMF: has any such analysis been done already? and where would I find it?

Contrast stocks with "old-money" (generational) asset allocation, the "a third, a third, a third" mantra ... art, gold, land assets, that may generate zero ongoing income. Typically something is sold periodically to top up available cash (buffer) and that cash is drawn down until all spent and something else is sold, often the right tail (best) asset. If one piece of art had risen 100 fold, then selling that to re-load the cash buffer and buy perhaps 90 other of relatively lower priced pieces of art.

That old-money (three thirds) style asset allocation can compare as equally as well to the likes of stocks, gold, home value (land) in overall benefit. Where for instance the rewards from art can be similar to having invested in stocks. John Maynard Keynes (economist (1883–1946)) started building his art collection in 1918, buying works by Cezanne and Delacroix. In later years, he added pieces by Cezanne, Degas, Matisse, Modigliani, Picasso, Renoir and Georges-Pierre Seurat. A study valued the collection over time by using various insurance appraisals conducted over the years as well as estimates commissioned by the authors from specialists in 2013 and 2019. If the combined works had kept pace with inflation, they would have been worth about 500,000 pounds. Instead, they were worth 76.2 million pounds, not too far short of the 90.2 million pounds the authors calculate Keynes would have generated in the U.K. stock market. “The long-term returns from the Keynes collection are substantial,” according to the report’s authors, David Chambers and Elroy Dimson of the University of Cambridge’s Judge Business School and Christophe Spaenjers of HEC Paris. However, the ten most valuable items of the works he amassed account for 88% their total value — and just two of the works account for almost half of the entire collection’s valuation.

Art as an Asset: Evidence from Keynes the Collector
David Chambers, Elroy Dimson, Christophe Spaenjers
Published: 29 January 2020

...This translates into a nominal internal rate of return (IRR) of 10.4% (6.1% in real terms). The year 2019 value of the art collection is only 16% lower than what it would have been if Keynes had instead invested his outlays in U.K. equities, reinvesting dividends (costlessly) back into the portfolio; the annualised under-performance relative to the equity market is just 0.2%. The collection performed especially well shortly after purchase, suggesting that Keynes was able to buy art at attractive prices. Yet, even over the last six decades the collection continued to appreciate at an annualised real rate of 4.8%. After procuring additional valuations for the collection’s most important works in both 2013 and 2019, we conclude that our estimate of its performance is robust to averaging across idiosyncratic elements in the valuation of individual artworks.

... Fundamentally the cash buffer sizing is the primary factor/complexity. The more held in cash the greater the total portfolio drag factor tends to be. But equally cash % weighting can be variable, perhaps heavily loaded to say 40% initially that is then drawn down to zero over time ... broadly averaging 20% cash over those years. With HYP throwing off dividends to supplement 'cash' then if the expansion rate of cash exceeds/matches the draw from cash rate then there may be no need to sell individual assets. Periodically however that might not be the situation and in which case assets may need to be sold, and ideally not at a time when stock values were down. It's all a dynamic portfolio/cash management issue that is subjective to circumstances. Fundamentally you want to be topping up cash during good times to levels that are sufficient enough to carry you through the bad times when you'd rather not have to sell assets, combined with choice of assets held as for some assets it can be a case of one asset having done well over a time when another asset performed poorly (asset correlations).

Broadly the above 'evidence' of comparison was suggestive that distinctly different assets can yield the same broadly similar outcome/success. But its all so subjective that you could likely be selective of time periods/assets to suggest otherwise. The usual "Lies, damned lies, and statistics".

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Re: Musings on Cash Buffers

#322074

Postby scrumpyjack » June 27th, 2020, 2:55 pm

Dare I say this is all drifting way off topic for HYP but I would just point out the major drawbacks of art as an investment - no yield and substantial costs in storage, insurance etc. Huge transaction costs (Sotheby's charge a 25% buyers premium on top of what they charge the seller), illiquidity etc etc. That is a huge headwind to overcome, and many people will find they bought the wrong things anyway!

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Re: Musings on Cash Buffers

#322082

Postby 1nvest » June 27th, 2020, 3:25 pm

The interesting point is how a bunch of initial holdings tended towards a few being relatively heavily weighted ... same/similar as per HYP1
However, the ten most valuable items of the works he amassed account for 88% their total value — and just two of the works account for almost half of the entire collection’s valuation.

IIRC his collection was large, over 100+ different pieces.

Tweaking back towards equal weighting and not rebalancing seem to generate similar reward. The non rebalanced however tends to have higher volatility, and as such a lower Sharpe (lower risk adjusted reward).

Primary seems to be to initial equal weight, and you can either then just let that run or periodically steer the holdings back towards equal weightings.

In days of high trading costs (£100+ brokers fee, market makers perhaps setting 10%+ bid/ask spreads against postal trades/orders etc.) and typically 10 or fewer individual holding were advocated, diversified across different sectors ... buy and hold. Investors accepted that would drift and find its own cap weighting, be more volatile than rebalancing back to equal weighting - but avoid the high costs involved with rebalancing (where instead the best/highest value was sold-down as a means to steer towards more equal weightings). Some however did advocate letting winners run, cut losers, that has more of a tendency to end up with most of value being held in the few that had the highest gains and where the ones that were being sold often were in capital loss, so selling incurred no tax liabilities. I believe the evidence indicates that overall both choice compare in broad overall rewards, doesn't really matter which choice is employed, but where again the run-winners has the higher volatility and greater single holding concentration risk.

Sotheby's used to be public listed (BID stock ticker) and the share price broadly reflected art/collectables in general, but that was taken private (by a French/Israeli billionaire) in a similar manner to how Christie's is private.

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Re: Musings on Cash Buffers

#322104

Postby tjh290633 » June 27th, 2020, 5:17 pm

1nvest wrote:"Never sell anything" in the context of doing so to provide income is HYP policy (to the extent its even suggested to ignore capital value).

This shibolleth keeps being repeated. Never has the HYP principle said "Never sell anything". It has said that shares should be bought on an LTBH basis. That does not mean never sell. Indeed, selling a holding because the yield has become vanishingly small, or very low, and reinvesting the proceeds in a share with a higher yield, is a reasonable approach. It's what happens if a share is taken over for cash, and the income therefore vanishes.

Secondly, nobody has been told to ignore capital value. What has been said is that it is more important to follow the progress of portfolio income generation than it is to be worried by fluctuations in the capital value of the portfolio, in response to market movements. The implication is that, provided the income continues to increase at an appropriate rate, the capital value will follow it, rather than the converse.

TJH

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Re: Musings on Cash Buffers

#322167

Postby 88V8 » June 27th, 2020, 8:59 pm

dealtn wrote:....I would assume that anyone investing in a fund, would be aware of the investments within that fund, or at least the style of the manager/sponsor.

That's a big assumption. Like assuming that folks will make a good choice with their pension funds.
Or assuming that those who buy a car know how they work.

So, the cash buffer..... which I never had. Even though we derive perhaps 65% of our income from our HYP and FI and IT (in descending order) portfolio. Probably we never had a buffer because in a decade or so while we were both working we went from skint to comfortable and have so remained. We save without effort because we are not spendthrift, and our income so far exceeds expenditure that we need no buffer. Double Doris, that's us.

dealtn wrote:What I don't get (hence the "yet... in the original query) is that those that have an interest in finance/investing, at least to the extent they post on an investment forum, and demonstrate the fact that they actively buy shares themselves, appear to be uncomfortable with the market risk of a single collective

HYP is also a hobby. Hopefully a profitable one. People do what they enjoy. And we like to feel that we have control over our HYP, in a way that we don't over the manager of an IT. Illogical? But there it is.

V8

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Re: Musings on Cash Buffers

#322224

Postby UnclePhilip » June 28th, 2020, 10:23 am

With an unusually large "cash buffer" (I prefer the adjective to the, in my case, otiose noun) following a house sale, I am enjoying watching the progress of our share portfolio.

It is currently about half in a Fisher global equity fund, about one third in Vanguard global index tracker, and about one sixth in a UK based HYP.

So, I get to see the relative performance of active vs passive, global vs UK, funds vs individual shares. Allowing for the specifics of the particular holdings. For the last year or so, and especially this year, the Fisher funds (net of fees) are way out in front, followed by Vanguard.

All unscientific in a statistical context, and of limited practical use to any individual who'll anyway be studying the performance data out there.

But I am mighty relieved at the strategic investment decisions made three years ago....

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Re: Musings on Cash Buffers

#322296

Postby 1nvest » June 28th, 2020, 2:25 pm

UnclePhilip wrote:So, I get to see the relative performance of active vs passive, global vs UK, funds vs individual shares. Allowing for the specifics of the particular holdings. For the last year or so, and especially this year, the Fisher funds (net of fees) are way out in front, followed by Vanguard.

All unscientific in a statistical context

Similarly been interested to watch the situation over the Covid-19 period/last year. My much more artful than scientific picture looks like ...
Image

That 10 stock set of somewhat HYP like is what I use as a "stock" benchmark, the idea being 10 stocks across 10 sectors all equal weighted and where the stocks are global/international, with economies larger than some countries. So as a form of global stock proxy, but where predominately listed in the UK (excepting BRK stock, that I mentally attribute to being a insurance/banking and more recently some tech sectors exposure).

Oil (BP) and Banking (HSBC) having been hit hard over the last 52 weeks. Health (GSK) and drugs (BATS) having been OK, combined average of those two around 5.5% up, which relative to 20% of the total = +2.25% that could be sold down to provide income without having sold at a loss (relative to a year ago price levels). Leaving the rest to be rebalanced - selling some of VOD, BAE shares to add more BP/HSBC shares ..etc.

In the broader picture case, as part of a Talmud type asset allocation/portfolio, where a home and gold are also held, then gold being up +28% pretty much negated stock declines and some. Less so if 'reserves' were 50/50 gold/cash. Similarly house prices have somewhat been flat, but if you include something like LAND as a form of liquid proxy for some of 'house' value, then that's down -33% such that the liquid proxy for part of total 'home' value would have been a sizeable drag down over the last 52 weeks.

More generally, even under the recent 'big dip' in stocks there looks to have been cases that could still have been reduced in order to throw off cash/income without having sold stock at a loss (GSK/BATS). If you start each year/whatever with near equal weightings in a range of stocks/sectors, then you're not being biased towards any one being more likely to do better than the others, you're neutral. And as per Covid-19, pharmaceuticals (GSK) have seen price stability in anticipation of a anti-virus, and drug pushers (BATS) are holding up with so many being idle at home. Whilst with fewer driving Oil has been hit hard, and the financial concerns have seen Banks down near a similar amount.

Relative to actual more broader Global Stock indexes/funds and MSCI global index is up +7% over 52 weeks (total return), whilst the equal weighted version is around break-even. So the -15% for the above stock proxy by comparison is down quite a bit compared to those indexes. Perhaps swings and roundabouts however, and over another period that may expected to flip around/balance out.

The main take-away IMO is that if you factor in selling down some holdings periodically as part of income provision, then that lowers the need for a larger cash-buffer. Often you can still sell some assets that are up (or are at/around break-even) even though stocks in-general/on-average might be down. In which case a cash buffer might be little, maybe even zero. As I recall over the 2008/9 financial crisis, MCD suffered little over the 2008/9 declines, mostly was up. Guess that the global exposure across currencies and people still snaking had it unaffected by events over that period. For that low cash/if-needed-top-slice income from best performing capital/stock to work best IMO you need to be diversified in a equally weighted manner, not perhaps heavily tilted to financials or tech sectors (or whatever) as large cap indexes can tend to tilt towards at times.

Arborbridge
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Re: Musings on Cash Buffers

#322464

Postby Arborbridge » June 29th, 2020, 9:14 am

dealtn wrote:
Arborbridge wrote: However, I could never bring myself to depend on one fund...


I find this interesting and ask you to expand a little please. It is possible I have got your context or meaning wrong.



This is an interesting subject, but as Dod pointed out, way OT for the thread and deserves one of its own. However, you made a big effort, so I feel I should just pen a sentence or two, whilst not doing the subject justice, being OT.

It starts from an extreme aversion to risking all my capital in one or few investments. The main reasons are that down the years I've heard endless tales of people losing their life savings through making faulty judgments, so I spread my risk. The risks are several fold: my own incompetence in choosing investments; the risk in the company or investment manager; risks in counterparties; risk of criminal activity and fraud.

At one time, this aversion grew to the extent that I had well over two hundred different investments. though much reduced now. The main risk is poor performance rather than fraud, and over the years it became obvious that even choosing a fund which performed well and consistently wasn't easy either.

At the beginning of HYP, I was of the opinion that I could "just" imitate what mangers do buy a suitable bunch of shares, receive a higher yield, save on fees and everything would be hunky-dory. The truth proved far more complicated, but nevertheless, my HYP became an experiment (as yet not concluded!) of me as an investment manager, versus those running income ITs. And that's how it remains today.

I would say - and I've used this phrase many times - it is very difficult for an amateur to outpace a good IT manager. Or perhaps, I should say difficult for me to do so - others may just be cleverer.

I've been investing since just before the 1987 crash, and I've experimented with all sorts of dummy portfolio ideas. To be honest, the only one which seemed to work for me was HYP, so I stayed with it. One must find the scheme which suits you best and suits your needs and stage of life best. From my point of view, there's no religious fervour about this: I would, and will change tack if it's advantageous.

Sorry not to go into all the nuances which your enquiy needs, but some of these have already been covered by others.

Arb.


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