Selling Strategy

[Johny01]

Does anyone have a successful selling strategy?

Pyad always recommended don't sell ever.

However the advice used to be only buy if the divi cover was above 1.5. I have thought of selling if the cover fell below about 1.2. The problem is for this to occur usually means there has been a drop in profits and thus a drop in the share price. Good chance you are selling at the bottom.

I have suffered big losses through not selling eg Carillon, Centrica.

Ideas?

[Lootman]

Plenty of people here sell if the position becomes outsized or if the dividend is cut or stopped altogether. So I would not feel bound by the "never sell" proponents, who can end up with very unbalanced portfolios.

My own rule is that if I wouldn't buy it here, then why do I hold it? Is there another share I would buy now instead of it? If so, it becomes a candidate for selling. Although I may not sell it immediately but simply put it on a list of potential sells, rather like a watch list for buys.

I try not to get emotionally invested in my prior decisions, nor I am afraid of selling at a loss. The "I haven't lost money until I've sold" rationalisation for a bad buy or a losing position doesn't work for me.

[kempiejon]

Does anyone have a successful selling strategy?

Pyad always recommended don't sell ever.

However the advice used to be only buy if the divi cover was above 1.5. I have thought of selling if the cover fell below about 1.2. The problem is for this to occur usually means there has been a drop in profits and thus a drop in the share price. Good chance you are selling at the bottom.

I have suffered big losses through not selling eg Carillon, Centrica.

Ideas?

Towards the end of the tax year, perhaps after Christmas I make my sell lists and increase the monitoring of those potentials. I sell unsheltered holdings to move money into ISA or SIPP. I'd obviously prefer to sell those shares where I can use the annual capital gains allowance against my profits, I have sold down my highest income providers to get within the £2k annual allowance for that. Those holdings already sheltered I rarely sell.

[tjh290633]

My rules are fairly simple:

1. If the value of a holding rises above a certain multiple of the median (or average) holding value, then I sell 25% of the holding.

2. If a holding ceases paying dividend, with little prospect of resumption in the immediate future, then I sell the complete holding.

3. If a holding's yield falls below half that of the FTSE100, then I may sell the complete holding.

Case 1 arises on a few occasions each year, two so far this year - RIO in April and CPG in August, yet RIO had fallen enough to be topped up a week ago.

The last time when I invoked Rule 2 was last year, when I sold Indivior INDV. It paid two dividends then stopped, and doesn't look like resuming.

Rule 3 is one where I keep looking at Compass and Diageo, both with low yields. RSA was the last share sold for this reason. Before that it was Whitbread in 2006, BG group the same year and Intercontinental Hotels in 2005. There were a lot of disposals in 2009-10 after the 2008-9 hiatus, mostly because of failure to pay dividends. These were really Case 2.

TJH

[Itsallaguess]

3. If a holding's yield falls below half that of the FTSE100, then I may sell the complete holding.

This is the important one for me, although I do allow myself a little flexibility with regards to hard sell-triggers.

What I would like to say in relation to such 'sell-rules' though, is that if a 'yield' figure is going to influence such a rule, then it's very important to understand which 'yield' is an important one to track for such guidance to be useful.

Any currently-invested capital is only really working as hard for you in terms of income-generation as it's current yield. In addition to this, a forecast yield might also be usefully used to provide some guidance as to the future yield-prospects based on current broker sentiment.

Quite often we see people wanting to use other 'yield' figures, such as 'yield on cost' or similar figures, and we should be clear that using such figures to potentially help govern a rule like Terry's above can lead to really quite erroneous results, and perhaps not provide quite the 'clear picture' that someone wanting to use such a rule might actually require to make it useful to them....

I wrote an example as to why this can be the case on this post -

https://www.lemonfool.co.uk/viewtopic.php?t=5031&start=20#p54230

Cheers,

Itsallaguess

[Gengulphus]

Pyad always recommended don't sell ever.

Not true, in fact. The Value strategy he designed and talked about on TMF's Value Shares board, and which his user name was an acronym for, looked for shares with targets about having low P/E, high Yield, high net tangible Assets and n absence of net Debt. I forget the exact tests for those targets, but each of them was fairly stringent on its own, and the combination of all four of them was very stringent indeed: looking for shares on the market that met all four of them frequently failed to find any, and finding more than one at the same time was very rare indeed. The result was that when he did find one, he generally "bet the farm" on it - and immediately started looking to see whether the value had 'outed', which it could do by the price rising, worsening the P/E and yield ratios or by the company's fundamentals worsening in various ways, such as earnings falling, dividends being cut, more debt being taken on or cash spent, etc, or by various combinations of those. He described it as very much a judgement call when the value had been 'outed' sufficiently, but did mention a rough rule of thumb that it tended to happen around the time that the number of the four targets met dropped to 2. This tended to happen within a few months to a year or two, so it was very much not a strategy with a "don't sell ever" recommendation from pyad. To be fair, it wasn't a strategy he recommended for general use - he was OK himself with "betting the farm", but he said that it definitely wasn't for everyone. But the strategy was easily adaptable to make the individual targets less stringent, so that all four being met happened more often, and to bet only a small fraction of "the farm" on any one share that does pass all four.

Anyway, that strategy was a high-yield strategy, since it required each share it invested in to have a reasonably high yield, but he recommended selling in it - its aim was to make its returns primarily from selling for capital gains, rather than from collecting dividends. And he actually tended to write more of his articles about Value investing than about HYP investing - up until early 2008, he regularly wrote an article a week for TMF, and those articles were almost all about Value investing (with none on HYP investing) up until November 2000, then gradually shifted to a mixture of typically 1-2 per month on HYP investing, 2-4 per month on Value investing over the following year or two, and then the mixture pretty much settled down as that until he stopped writing regularly for TMF in early 2008.

You might of course have meant "Pyad always recommended that HYPers don't sell ever.", and that is AFAIAA true. But on this board, those extra two words are not implied by the board, so you need to actually say them if you're wanting to discuss selling strategies for HYPs rather than selling strategies for high-yield strategies in general!

Gengulphus

[Lootman]

Pyad always recommended don't sell ever.

Not true, in fact.

You might of course have meant "Pyad always recommended that HYPers don't sell ever.", and that is AFAIAA true. But on this board, those extra two words are not implied by the board, so you need to actually say them if you're wanting to discuss selling strategies for HYPs rather than selling strategies for high-yield strategies in general!

I thought it was pretty obvious that Johny was referring to the never-sell idea embedded within HYP, since that is often discussed with regard to HYP but no other strategy here. It is sufficiently unusual an approach that I think we all recongise it.

Of course it was not a literal never-sell rule because of the effect of corporate actions, I am less clear whether, in the event of a mandatory corporate action, that the advice was to sell before the effective date of the action or not. If you sell before then you have voluntarily sold, thereby breaking the rule. But that might be justified if the alternative was not cash but some other security you did not want. But that is probably not an important distinction.

Of course many HYP folks here do voluntarily sell, perhaps most of them. It is not a part of Pyad's version that proved to be popular. Although it is generally a "buy and hold" strategy; most folks here will sell in a variety of circumstances.

Regarding his value strategy, he did indeed include yield as a factor, which I personally thought was odd because some excellent value and recovery situations occur where a company is having problems and has cut its dividend. As a case in point, Pyad clung seemingly forever to huge positions in RBS and Aviva through a good part of the 2008 financial crisis, only to dump them when they cut their dividends. As sometimes happens, that represented close to a bottom in their cycle, so his approach let him down that time. But at least he stuck to his rule. Seems to me he has always had a weakness for financial shares.

[tjh290633]

I seem to recall that Aviva was one of PYAD's farm bet options on the Value Investing board. It kept falling after he had tipped it, but I picked it up near the low point, when I suspect that many had lost faith. That was in 2010 when the price fell to about 370p.

The starting yield was 6.5% and the dividend was reduced in 2013, but started to recover in 2015 and is now higher than when I first bought, the share price having risen to about 560p in 2015, but is now back down near where it started, at 414p last night.

It hasn't been a disaster, but neither has it shot the lights out. A good source of income, though.

TJH

[moorfield]

Does anyone have a successful selling strategy?

A strategy of sorts. I may be unique here in extrapolating into the future (to 2031) an income schedule that I want my whole portfolio to be generating each year, through the combined effects of dividend growth and reinvestment. I have posted this chart before on Portfolio Management & Review.





Essentially, If the yellow line falls short of the red line at year end I take that as a cue to reorganise the portfolio. That hasn't happened, yet. My hunch is three full dividend cuts in one year from 20 holdings would certainly necessitate action; the evidence I can offer is that at least four dividend cuts I remember (CNA twice, CLLN, VOD), and associated collapses of capital value, in the last five years hasn't. The trick here with the extrapolation is to use a reasonable growth rate, I use +7.2% pa.

[Itsallaguess]

I may be unique here in extrapolating into the future (to 2031) an income schedule that I want my whole portfolio to be generating each year, through the combined effects of dividend growth and reinvestment.

I carry out similar projections, although hopefully to slightly different timescales - and in fact I'd say that for me it is one of the most important processes in my whole income-investment strategy.

Given that my income-portfolio will have a massive influence on my retirement planning, I don't think I could plan anything at all in that area without carrying out such projections.

It also takes my mind off the income-portfolio itself, which I think is a huge hidden benefit of playing with spreadsheets like this, as I'm sure you're keenly aware!

Well done on keeping so close to the target-line for so long, and best of luck with the future plotting of it....

Cheers,

Itsallaguess

[moorfield]

Well done on keeping so close to the target-line for so long, and best of luck with the future plotting of it....

That is quite deliberate. I have usually found that by Q3 each year I can stop topping up and leave the portfolio alone, because the annual target has been achieved. My last top up this year was on 10 July and have since accumulated 3 months of 2019 target income in cash, which will be used to start buying more shares again in January.

[Dod101]

If I am unfortunate enough to hold a share where the dividend is cut entirely of course I will sell, but I like to think that I will usually have taken action before that happens. A dividend cancelation does not usually come out of the blue. If there is a profit warning with or without a dividend cut announced I will certainly look very carefully at the whole circumstances. Profit warnings are often followed by worse.

I never held Carillion so did not have a problem with it. Its culture was all wrong and I would never have held it.

I do not follow shares down in the hope that they will recover at least if the drop is caused by poor trading. I always do a thorough review at the end of the calendar year and sometimes, like others, mark a share for sale at that time. Most of those I am likely to sell are in an ISA or SIPP so CGT is not usually a consideration.

I learned an expensive lesson about 20 years ago when Cable & Wireless was riding high, very high. I think it was in 2000 that it started falling and kept on falling. I lost about £25,000 on paper at least. I inherited about £30,000 in them in January 2000 and eventually sold for around £5,000 maybe less. That was my lesson. Cut your losses. It was stupidity or lack of experience on my part because there was not even any dividend to speak of.

Dod