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On Doris

General discussions about equity high-yield income strategies
MDW1954
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Re: On Doris

#306830

Postby MDW1954 » May 8th, 2020, 10:26 pm

Wizard wrote:
James wrote:
Wizard wrote:There is a danger in all this is that we read and re-read these articles looking for meaning and subtle messages that were never there in the first place (there is probably a word for that, but it is not in my vocabulary).


It's called "a degree in economics" :D

Ah, well I do have one of those, so I think you have probably correctly diagnosed the problem :lol:


Three, in my case -- although I'm not sure I necessarily concur with the diagnosis!

MDW1954

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Re: On Doris

#306843

Postby moorfield » May 9th, 2020, 12:07 am

I clocked that Pyad had also trousered a gold watch for his efforts, despite his assertion "that wouldn't be right". I trust that was declared under the appropriate gifts policy, but he should have known better that to admit it in print ;) That can be a disciplinary matter these days!

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Re: On Doris

#306852

Postby Arborbridge » May 9th, 2020, 7:01 am

Alaric wrote:
Recent events would suggest that an equity orientated income strategy should perhaps consider the risk of a 50% fall in dividend income. Mitigation strategies include having more income than needed and perhaps as well a cash or near cash reserve. Not chasing income for its own sake might also come into it.


Precisely, and it's what HYPers have been banging on about for more than ten years, as you may have noticed ;) We call the mitigation strategies the Income Reserve and Safety Margin.

TR investors no doubt do the same if they don't want to run out of readies.

Arb.

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Re: On Doris

#306861

Postby Alaric » May 9th, 2020, 8:23 am

Arborbridge wrote:Precisely, and it's what HYPers have been banging on about for more than ten years, as you may have noticed.


pyad originally promoted HYP as an annuity substitute without proposing mitigation approaches to income cancellation risk. I don't believe the subject was mentioned in his articles last year. Equally the monthly updates on how the selections are doing haven't mentioned this aspect either.

Do we now conclude that an unmodified HYP isn't suitable as an annuity replacement?

Those not using HYP as annuity replacement are using an approach to selection of stocks in which to to invest their savings which excludes parts of the available investing universe.

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Re: On Doris

#306868

Postby jackdaww » May 9th, 2020, 9:02 am

Alaric wrote:
Arborbridge wrote:Precisely, and it's what HYPers have been banging on about for more than ten years, as you may have noticed.


pyad originally promoted HYP as an annuity substitute without proposing mitigation approaches to income cancellation risk. I don't believe the subject was mentioned in his articles last year. Equally the monthly updates on how the selections are doing haven't mentioned this aspect either.

Do we now conclude that an unmodified HYP isn't suitable as an annuity replacement?

Those not using HYP as annuity replacement are using an approach to selection of stocks in which to to invest their savings which excludes parts of the available investing universe.


=====================

spot on - even excludes nearly ALL the available investing universe at present .

very good companies are excluded solely because they dont pay a fat yield.

:roll:

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Re: On Doris

#306886

Postby Arborbridge » May 9th, 2020, 10:03 am

Alaric wrote:
pyad originally promoted HYP as an annuity substitute without proposing mitigation approaches to income cancellation risk. I don't believe the subject was mentioned in his articles last year. Equally the monthly updates on how the selections are doing haven't mentioned this aspect either.



I think that's been fully covered in previous discussions. Neither do I remember TR people ever mentioning such well worked out reserving schemes as HYPers propose. The practical management of HYP has been fully explained elsewhere - whether this practical implementation is what Pyad envisaged as a theoretical idea way back, is hardly here nor there and does not invalidate the approach or call it into quesion. Well, unless you are trying to make your mole hill into a mountain for the sake of being argumentative. ;)


Arb.

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Re: On Doris

#306889

Postby Arborbridge » May 9th, 2020, 10:11 am

jackdaww wrote:
Alaric wrote:which excludes parts of the available investing universe.


=====================

spot on - even excludes nearly ALL the available investing universe at present .

very good companies are excluded solely because they dont pay a fat yield.

:roll:


Isn't that inevitable in any investment scheme? Shock horror: anyone who invests in a group of 20 or 30 companies falls at the first hurdle. OTOH, if you are concluding one should invest in a TR or index fund, then they, too, will exlcude a number of very good companies.

So, where's the surprise in all this? And why peddle it on HYP-P when you clearly do not believe in the concept?

Arb.

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Re: On Doris

#306892

Postby Alaric » May 9th, 2020, 10:17 am

Arborbridge wrote: The practical management of HYP has been fully explained elsewhere - whether this practical implementation is what Pyad envisaged as a theoretical idea way back, is hardly here nor there and does not invalidate the approach or call it into quesion.


Did I not read from the primary advocates of the undiluted approach at the start of the current crisis when the Stock Market started tumbling that the time to invest was always today? I didn't read that if the market was falling or there was uncertainty about which way it would head that it was an opportune moment to top up cash reserves.

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Re: On Doris

#306893

Postby Arborbridge » May 9th, 2020, 10:21 am

ReallyVeryFoolish wrote:The snag for me, despite me never, ever, wanting to invest in high yielding junk equities of which the FTSE has many, I bought a small selction of deep blue chip income stocks. And now look what's happened. Unprecented in any previous equity slump as far as I know.

RVF


I expect Ian Hughes will be along in a moment to point out the obvious flaw in what you wrote...

namely, that HYP isn't about selecting junk equities, but about mitigating the risk by examining the safety factors.

"Now look what's happened"
What's happened is that my HYP income per unit has increased up until this crisis by 1.36 times since December 2011. Some HYPers have done considerably better than I, so it's my management rather than HYP which can be held responsible.
Naturally, we cannot tell what the outcome will be after this, but I will be sure to let everyone know as the results come in. The current situation - as far as I can tell - is that my HYP income will be above the threshold where I will have to dig into safety margin dividends. Though again, I won't know until it happens!


Arb.

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Re: On Doris

#306895

Postby Arborbridge » May 9th, 2020, 10:27 am

Alaric wrote:
Arborbridge wrote: The practical management of HYP has been fully explained elsewhere - whether this practical implementation is what Pyad envisaged as a theoretical idea way back, is hardly here nor there and does not invalidate the approach or call it into quesion.


Did I not read from the primary advocates of the undiluted approach at the start of the current crisis when the Stock Market started tumbling that the time to invest was always today? I didn't read that if the market was falling or there was uncertainty about which way it would head that it was an opportune moment to top up cash reserves.


By "Primary advocates" I presume you mean Pyad - so Primary Advocate. singular. What you wrote is true, I believe, so no quarrel there.
But, I'd say "So, what?". Unless and until one knows the outcome, there is no point in speculating on a conclusion - so go ahead and run a dummy experiment if you like. With a TR one alongside - then come back in five years and let us know the result.

You are simply arguing round for the sake of it. Personally, I have some things I must do today, so I bid you farewell, and an enjoyable exchange of views with whoever joins in. :)

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Re: On Doris

#306898

Postby Alaric » May 9th, 2020, 10:31 am

Arborbridge wrote:By "Primary advocates" I presume you mean Pyad - so Primary Advocate. singular.


No I meant plural. pyad doesn't contribute personally very much. [Deleted]
Moderator Message:
Unnecessary negative allusion to another poster removed. - Chris

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Re: On Doris

#306899

Postby IanTHughes » May 9th, 2020, 10:32 am

Alaric wrote:
Arborbridge wrote: The practical management of HYP has been fully explained elsewhere - whether this practical implementation is what Pyad envisaged as a theoretical idea way back, is hardly here nor there and does not invalidate the approach or call it into quesion.

Did I not read from the primary advocates of the undiluted approach at the start of the current crisis when the Stock Market started tumbling that the time to invest was always today? I didn't read that if the market was falling or there was uncertainty about which way it would head that it was an opportune moment to top up cash reserves.

The HYP strategy does indeed say that, when there is cash that is "available to invest", the time to invest is "now". Of course, if all one's cash is required for other purposes, such as supplementing income or topping up cash reserves, then there will be no cash that is "available to invest".

Simples!


Ian

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Re: On Doris

#306903

Postby Itsallaguess » May 9th, 2020, 10:50 am

ReallyVeryFoolish wrote:
The snag for me, despite me never, ever, wanting to invest in high yielding junk equities of which the FTSE has many, I bought a small selection of deep blue chip income stocks.

And now look what's happened.

Unprecedented in any previous equity slump as far as I know.


With all that's been written about the current issues with many high-yield shares, I think we do need to be a bit careful and acknowledge that we're only part-way through this particular story-arc at the moment, and whilst it's clear that there is likely to be quite severe 'income-shocks' to some of our portfolios, the one thing that's not yet clear is just how deep or how prolonged that income-shock is going to be...

If it's a relatively short, sharp shock, with a medium-term recovery in those dividends and share-prices, and if it turns out that a decent level of 'Income Reserve' and 'Safety Margin' would have been adequate to ride through such a storm, then I'd suggest that the overriding lesson should be about the clear recognition that such risk-management aspects should always play an intrinsic part in an income-investment strategy like this, and not necessarily that the underlying income-investment strategy itself is inadequate...

Of course it's likely to feel that way now, as we're sitting in the slump of the issue, but surely it must also feel that way for many 'total-return' investors too, who have equally seen 'current issues' with their own approach to such matters, when viewed against the current market-volatility, but I think it's safe to assume that huge number of 'total-return' investors will know quite well that they themselves also need to cater for things like cash-reserves too, for exactly the same reasons as any particular investment-strategy at all is likely to have to mitigate for...

So I honestly think that these sorts of discussions should perhaps be less about the 'death of HYP', and much more around the real embodiment of the sorts of risk-management processes that should have been built in and clearly explained from the outset...

Cheers,

Itsallaguess

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Re: On Doris

#306906

Postby Wizard » May 9th, 2020, 11:02 am

Moderator Message:
As this thread has morphed into a discussion about the viability of HYP (as defined by the guidelines of the HYP-P board) it is no longer concerned with the practical aspects of running an HYP so it is now on HYP-Strategies (leaving a link). - Chris


I deliberately set up this thread to be on HYP Practical. Why move it, why not delete off topic posts?

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Re: On Doris

#306908

Postby csearle » May 9th, 2020, 11:08 am

Wizard wrote:I deliberately set up this thread to be on HYP Practical. Why move it, why not delete off topic posts?
There is still a link on HYP-P. Mass deletions would just annoy everyone concerned. If you would like a more detailed explanation please PM me. C.

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Re: On Doris

#306927

Postby Dod101 » May 9th, 2020, 12:10 pm

Rather than move it, it might have been better to have closed the thread because it now has little or nothing to do with Doris. However...........

Dod

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Re: On Doris

#306933

Postby CryptoPlankton » May 9th, 2020, 12:22 pm

Dod101 wrote:Rather than move it, it might have been better to have closed the thread because it now has little or nothing to do with Doris. However...........

Dod

Que sera sera - oh, sorry, wrong Doris...

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Re: On Doris

#306936

Postby Julian » May 9th, 2020, 12:26 pm

Arborbridge wrote:
Alaric wrote:
Recent events would suggest that an equity orientated income strategy should perhaps consider the risk of a 50% fall in dividend income. Mitigation strategies include having more income than needed and perhaps as well a cash or near cash reserve. Not chasing income for its own sake might also come into it.


Precisely, and it's what HYPers have been banging on about for more than ten years, as you may have noticed ;) We call the mitigation strategies the Income Reserve and Safety Margin.

TR investors no doubt do the same if they don't want to run out of readies.

Arb.

Re your point that I bolded - not necessarily.

Many (most? all?) TR strategies that an investor might be using to generate income won't require deviation from the basic strategy however bad things get. Take for instance an income investor who has decided to go with some variant of a Harry Browne Permanent Portfolio (as a relatively simple example) which they periodically rebalance as per the strategy. Assuming that the income paid by the investments is less than the annual income the investor has set as their withdrawal rate each year (very likely if the investor has chosen low yield trackers as the instruments to use for the various asset classes) then that investor will have been top-slicing their assets at some regular frequency to extract the extra cash they want to have to live on for all the time they have been using the portfolio to generate their income.

I suspect that most investors would combine the extraction of income with rebalancing to minimise the trading costs and spreadsheet lovers like me would create a spreadsheet into which they could enter current holding values and how much surplus income they want to release after the rebalance and the spreadsheet would tell them the trades they need to make to rebalance and release the required income.

In such a system when the markets melt down one simply continues running one's strategy as it has always been run, periodic rebalance-and-cash-release events. If you need the income, you have cut expenditure as far as you can, and your TR income generation strategy is your only source of income, then you simply have to sell holdings and if you still believe in your previous investment strategy then you will want to keep things balanced as well so you simply continue to follow the rulebook you have been following for years or decades beforehand and hope that asset prices recover before you run out or road.

The one area where I think HYP is different from many TR strategies (again, I suspect that should read "all" TR strategies but maybe I'm overlooking something there) is that it has no mechanism built into the basic investment strategy that tells an HYP investor what to do if dividends received fall below expenditure ("divi-shortfall") and all other mechanisms (income reserve, cutting expenditure, downsizing home etc) have been exhausted hence the discussions amongst HYPers about income reserves and safety margins to try and keep HYP within the rule book for as long as possible. If/when an HYP does get to divi-shortfall despite all the other safety mechanisms put in place the investor does then have to step outside the rule book and breach the "don't tinker" rule (if they are running the purest form of the original HYP policy). At that point they need to make up their own new rules about how/what to sell down as a way to generate income.

- Julian

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Re: On Doris

#306956

Postby dealtn » May 9th, 2020, 1:20 pm

Arborbridge wrote:
Alaric wrote:
Recent events would suggest that an equity orientated income strategy should perhaps consider the risk of a 50% fall in dividend income. Mitigation strategies include having more income than needed and perhaps as well a cash or near cash reserve. Not chasing income for its own sake might also come into it.


Precisely, and it's what HYPers have been banging on about for more than ten years, as you may have noticed ;) We call the mitigation strategies the Income Reserve and Safety Margin.

TR investors no doubt do the same if they don't want to run out of readies.

Arb.


Not sure I understand what you mean, but as a TR investor I don't run an Income Reserve and/or Safety Margin. That's not to say that the portfolio has been immune to the sell off, and will be down in Capital terms, and also likely to have less Dividend Income too this year.

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Re: On Doris

#306977

Postby Arborbridge » May 9th, 2020, 2:08 pm

dealtn wrote:
Arborbridge wrote:
Alaric wrote:
Recent events would suggest that an equity orientated income strategy should perhaps consider the risk of a 50% fall in dividend income. Mitigation strategies include having more income than needed and perhaps as well a cash or near cash reserve. Not chasing income for its own sake might also come into it.


Precisely, and it's what HYPers have been banging on about for more than ten years, as you may have noticed ;) We call the mitigation strategies the Income Reserve and Safety Margin.

TR investors no doubt do the same if they don't want to run out of readies.

Arb.


Not sure I understand what you mean, but as a TR investor I don't run an Income Reserve and/or Safety Margin. That's not to say that the portfolio has been immune to the sell off, and will be down in Capital terms, and also likely to have less Dividend Income too this year.


In that case, you may have to sell capital in the dips, which is not very advantageous. I had assumed that anyone living on a TR scheme would have a big enough pot (i.e.effectively including a Safety Margin) that falls didn't bother them, and sell off when times are good and hold cash or near cash to live on (i.e. income reserve) thus avoiding the need to sell off when prices are low.

So maybe, you have an income reserve and safety margin, but like Dod, just don't use those terms. They are they, but not recognised.

AFAI can see, TR or Income investors need to negotiate risk in a similar way.

Arb.


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