HYP1 is 22 - thread discussing income and capital diversification

[tjh290633]

Simply not true.

You are not comparing like for like.

If you receive a dividend and reinvest it you are simply restoring your equity/cash position to what it would have been if the Board of Directors hadn't decided to pay a dividend. That is true if the share price is high or low. In exactly the same way as if you (crazily) sold shares then reinvested them buying the shares.

Similarly if the directors paid you dividends and you didn't reinvest it your equity/cash ratio in your portfolio would alter - and this is a disadvantage if share prices are low. In exactly the same way as if you sold equivalent shares in a non-dividend paying equity.

The outcome is the same regardless of whether it is the company or the shareholder that makes the decision to disinvest equity capital for cash. Ultimately any shareholder has the opportunity to decide the ratio of equity to cash by counteracting any dividend decision of the company.

Cash is fungible in theory and in practice.

Total codswallop. If the Directors decide not to pay a dividend, you have no idea what the effect on share price will be. If they decide to buy back their own shares instead, or as well, then the share price may rise (or it may not). If you get a dividend, then that is cash in your hand. The value of cash does not vary, except insofar as an exchange rate is involved.

You persist in expounding this view, which is simply untrue.

TJH

[Alaric]

If the Directors decide not to pay a dividend, you have no idea what the effect on share price will be.

I think you have some idea although it can be drowned by market noise. The Company net asset value is higher by the amount of dividend not paid, which should be positive for the share price. Similarly if a Company overpays its dividend that will have a negative effect on its net asset value which may be seen in the share price. That can be seen sometimes with companies that maintain their dividend in adverse circumstances, that the running dividend yield increases as the share price declines.

[tjh290633]

If the Directors decide not to pay a dividend, you have no idea what the effect on share price will be.

I think you have some idea although it can be drowned by market noise. The Company net asset value is higher by the amount of dividend not paid, which should be positive for the share price. Similarly if a Company overpays its dividend that will have a negative effect on its net asset value which may be seen in the share price. That can be seen sometimes with companies that maintain their dividend in adverse circumstances, that the running dividend yield increases as the share price declines.

Agreed, but the market can be perverse at times.

TJH

[Alaric]

A new thread has appeared proposing a HYP 2023.

Some of the dogma has been weakened, in that more than 15 shares are being targeted.

Some still remains, namely the exclusion of overseas shares, Investment Trusts and shares with low dividend yields but high dividend growth rates. The suspicion that an income of 10 and a capital loss of 8 would be preferred to an income of 5 is also still there.

But what type of investor would such an investment portfolio be suitable for?

[88V8]

A new thread has appeared proposing a HYP 2023.....what type of investor would such an investment
portfolio be suitable for?

As originally - one who might otherwise have bought an annuity, but numbers investment amongst their hobbies and prefers to hang on to at least some of their capital.
They might be called Doris.

V8

[Alaric]

As originally - one who might otherwise have bought an annuity, but numbers investment amongst their hobbies and prefers to hang on to at least some of their capital.
They might be called Doris.

Don't they have to be well off though and not totally dependent on the annuity replacement, so as not to be bothered by fluctuating income?

[moorfield]

A new thread has appeared proposing a HYP 2023.

Some of the dogma has been weakened, in that more than 15 shares are being targeted.

Some still remains, namely the exclusion of overseas shares, Investment Trusts and shares with low dividend yields but high dividend growth rates. The suspicion that an income of 10 and a capital loss of 8 would be preferred to an income of 5 is also still there.

It certainly would be worthwhile running a 15-holding (* different AIC sectors) portfolio of income oriented Investment Trusts in parallel with the HYP2023 exercise. If I have time over the weekend, I may try and post one up.

[Arborbridge]

A new thread has appeared proposing a HYP 2023.

Some of the dogma has been weakened, in that more than 15 shares are being targeted.

Some still remains, namely the exclusion of overseas shares, Investment Trusts and shares with low dividend yields but high dividend growth rates. The suspicion that an income of 10 and a capital loss of 8 would be preferred to an income of 5 is also still there.

It certainly would be worthwhile running a 15-holding (* different AIC sectors) portfolio of income oriented Investment Trusts in parallel with the HYP2023 exercise. If I have time over the weekend, I may try and post one up.

You would hardly need 15 to cover the same spectrum of UK shares.

[Arborbridge]

But what type of investor would such an investment portfolio be suitable for?

I'm not sure why you are asking, or whether this is relevant. One answer might be: the point of an experimental portfolio is to find out more information.

But you know all the various answers anyway - having been in the thick of it many times yourself over the decades - so I conclude you are just having a bit of fun, trying to create an argument to needle people. You are not really interested in an answer.

Arb.

[dealtn]

Simply not true.

You are not comparing like for like.

If you receive a dividend and reinvest it you are simply restoring your equity/cash position to what it would have been if the Board of Directors hadn't decided to pay a dividend. That is true if the share price is high or low. In exactly the same way as if you (crazily) sold shares then reinvested them buying the shares.

Similarly if the directors paid you dividends and you didn't reinvest it your equity/cash ratio in your portfolio would alter - and this is a disadvantage if share prices are low. In exactly the same way as if you sold equivalent shares in a non-dividend paying equity.

The outcome is the same regardless of whether it is the company or the shareholder that makes the decision to disinvest equity capital for cash. Ultimately any shareholder has the opportunity to decide the ratio of equity to cash by counteracting any dividend decision of the company.

Cash is fungible in theory and in practice.

Total codswallop. If the Directors decide not to pay a dividend, you have no idea what the effect on share price will be. If they decide to buy back their own shares instead, or as well, then the share price may rise (or it may not). If you get a dividend, then that is cash in your hand. The value of cash does not vary, except insofar as an exchange rate is involved.

You persist in expounding this view, which is simply untrue.

TJH

The point was raised about selling shares at a low price (seemingly being bad) compared with paying a dividend when the price was low (seemingly not bad).

Your points about the value of a dividend to the shareholder remaining unvaried aren't in dispute, nor ever have been. My view on this is the same as yours and not simply untrue.

I suggest you read what has been argued if you want to develop this further.

[Arborbridge]

I suggest you read what has been argued if you want to develop this further.

Speaking personally (and how else can one speak ) the problem with these threads is that they can become huge with interlaced posts making slightly different points - and eventually become circular chit-chat. No way would I usually plough through days of offerrings so read what was said by whom and when.

You young-uns might hold it all in your heads for days on end, but I'm afraid I can't. By the time I've read to the end, I would have forgotten the beginning

Arb.

[dealtn]

I suggest you read what has been argued if you want to develop this further.

Speaking personally (and how else can one speak ) the problem with these threads is that they can become huge with interlaced posts making slightly different points - and eventually become circular chit-chat. No way would I usually plough through days of offerrings so read what was said by whom and when.

You young-uns might hold it all in your heads for days on end, but I'm afraid I can't. By the time I've read to the end, I would have forgotten the beginning

Arb.

Which I have no issue with. I directly answered someone saying something that was not true. If someone else, many posts later when the thread has moved on, takes issue with that conflating it with another point then it doesn't make the original intervention wrong, nor should it go unanswered.

[tjh290633]

The point was raised about selling shares at a low price (seemingly being bad) compared with paying a dividend when the price was low (seemingly not bad).

Your points about the value of a dividend to the shareholder remaining unvaried aren't in dispute, nor ever have been. My view on this is the same as yours and not simply untrue.

I suggest you read what has been argued if you want to develop this further.

The origin of this part of the discussion was in viewtopic.php?p=552596#p552596

I see this point crop up quite a lot in these types of discussions, and I'd like to propose that when it comes to regularly paid out dividends, we might actually see it as the flip-side of pound-cost averaging on the way in, and as such might be considered a little more favourably in that context...

If we consider the share-purchase side of things, there's a valid argument to be had where regular, automatic investment of capital, which ignores market fluctuations, might deliver some benefit to an investor who prefers not to consider himself very good at 'market timing', and as such, just wants to regularly drip-feed funds into shareholdings over a long-term time period where, with a fair wind, there is likely to be some level of balance between purchases made during a rising market, and those made during a dropping one.

I'd like to think that the above 'pound-cost-averaging' process is broadly seen as beneficial, where an investor doesn't think he's got any particular skill with specifically 'timing' individual investments into the stock market...

If the above is broadly accepted, and where we then might consider regular dividends that are paid out, in the main, at a specific drum-beat through a company's financial year, might we consider those regular capital-removals as just the mirror-image of the above 'pound-cost-averaging' process, where any reductions in company-held capital that's paid out in one dividend payment, which might be taken out of the company 'at a relatively bad time', could be seen to be balanced out by another dividend payment that's paid out during a time where the company is in a better position?

In short then, the question might be - does 'pound-cost-averaging' have a potential benefit on the way in *and* on the way out, given that the clear alternative in both situations is putting faith in an individual investor's long-term ability to personally 'time' things correctly each time they might take an alternative manual approach, in *either* of the two capital-flow directions?

If taking the investor out of the process on the way in might be seen as being 'a good thing' - why then wouldn't that also broadly apply on the way out as well?

The accent was on "pound cost averaging" and does it apply to dividend payments. Your argument has nothing to do with this.

TJH

[1nvest]

A new thread has appeared proposing a HYP 2023.....what type of investor would such an investment
portfolio be suitable for?

As originally - one who might otherwise have bought an annuity, but numbers investment amongst their hobbies and prefers to hang on to at least some of their capital.
They might be called Doris.

V8

A annuity will provide a consistent income, inflation adjusted if so selected. A HYP can do similar IF you add in a separate side 'cash' pot and perform your own smoothing; Or not take/spend all of dividends, reinvesting some back into shares again. Either way I haven't seen consistency in relative out-performance of a better annuity style choice of a broad/global stock index fund set to auto-accumulate, and drawing a regular inflation adjusted income such as using SWR. Indeed quite the opposite, HYP is riskier, needs periodic intervention or otherwise might become heavily reliant upon single stocks that could at any time turn bad.

Doris simplicity, auto-dividends reinvested, £400,000 start date amount, 4% SWR = £16,000. Perhaps set to be taken monthly, £1333/month for the first 12 months. Next year, uplift that £16,000 SWR value by inflation, so with RPI running at 14% at present increased to £18,240 (£1520/month). Recursively. Where you might even be able to get your broker to automate that for you. Doris might just look at a monthly bank statement to see that she has £800 of state pension payments in once/month, along with £1500 from her investments (SWR), £2300/month combined spending.

Historically 4% SWR was the lower value, measured across the worst historic 30 year period (worst start and/or 30 year end date, and/or worst sequence of returns) that includes some pretty wild times. More often actual outcomes were much better, could have sustained higher/faster withdrawal rates, or that tended to leave very generous legacies, or simply supported additional periodic splurge spending by selling some shares.

[Alaric]

Doris simplicity, auto-dividends reinvested, £400,000 start date amount, 4% SWR = £16,000.

I think what might be done is to invest £ 384,000 (or less) and hold back £ 16,000 (or more) on instant access deposit. The monthly withdrawal is taken from the deposit and the dividends swept up it into it.

[1nvest]

Doris simplicity, auto-dividends reinvested, £400,000 start date amount, 4% SWR = £16,000.

I think what might be done is to invest £ 384,000 (or less) and hold back £ 16,000 (or more) on instant access deposit. The monthly withdrawal is taken from the deposit and the dividends swept up it into it.

The typical tendency is that over time, years/decades, the original 4% SWR value will decline to maybe being 1% or less of the ongoing portfolio value. Accumulating and selling shares regularly averages out having sold some low and some high, no need to worry about selling low at times, it washes out. A more significant issue arises if you need to sell additional amounts for a one-off larger expense. New roof perhaps costing £10,000 at a time when shares have dived. But that's into non Doris territory, sell £20K of stock, buy £10K of 2x leveraged stock and when share prices have rebounded sell the £10K of 2x to repurchase 1x stock again - so it was little different to having liquidated shares at that higher price level to pay for the roof.

If dividends aren't accumulated the tendency over time would be for too much cash reserves being accumulated, a original 100% stock might have drifted to being a 60/40 stock/cash allocation.

[dealtn]

The origin of this part of the discussion was in viewtopic.php?p=552596#p552596

No. It was https://www.lemonfool.co.uk/viewtopic.php?p=552511#p552511

Which I answered

but addressing this

I see this point crop up quite a lot in these types of discussions, and I'd like to propose that when it comes to regularly paid out dividends, we might actually see it as the flip-side of pound-cost averaging on the way in, and as such might be considered a little more favourably in that context...

If we consider the share-purchase side of things, there's a valid argument to be had where regular, automatic investment of capital, which ignores market fluctuations, might deliver some benefit to an investor who prefers not to consider himself very good at 'market timing', and as such, just wants to regularly drip-feed funds into shareholdings over a long-term time period where, with a fair wind, there is likely to be some level of balance between purchases made during a rising market, and those made during a dropping one.

I'd like to think that the above 'pound-cost-averaging' process is broadly seen as beneficial, where an investor doesn't think he's got any particular skill with specifically 'timing' individual investments into the stock market...

If the above is broadly accepted, and where we then might consider regular dividends that are paid out, in the main, at a specific drum-beat through a company's financial year, might we consider those regular capital-removals as just the mirror-image of the above 'pound-cost-averaging' process, where any reductions in company-held capital that's paid out in one dividend payment, which might be taken out of the company 'at a relatively bad time', could be seen to be balanced out by another dividend payment that's paid out during a time where the company is in a better position?

In short then, the question might be - does 'pound-cost-averaging' have a potential benefit on the way in *and* on the way out, given that the clear alternative in both situations is putting faith in an individual investor's long-term ability to personally 'time' things correctly each time they might take an alternative manual approach, in *either* of the two capital-flow directions?

If taking the investor out of the process on the way in might be seen as being 'a good thing' - why then wouldn't that also broadly apply on the way out as well?

The accent was on "pound cost averaging" and does it apply to dividend payments. Your argument has nothing to do with this.

TJH

Which I answered https://www.lemonfool.co.uk/viewtopic.php?p=552614#p552614

Pound cost averaging applies in both directions, but when selling, the direction is reversed, a lower average sale price is of detriment to the investor.

[moorfield]

A new thread has appeared proposing a HYP 2023.

Some of the dogma has been weakened, in that more than 15 shares are being targeted.

Some still remains, namely the exclusion of overseas shares, Investment Trusts and shares with low dividend yields but high dividend growth rates. The suspicion that an income of 10 and a capital loss of 8 would be preferred to an income of 5 is also still there.

It certainly would be worthwhile running a 15-holding (* different AIC sectors) portfolio of income oriented Investment Trusts in parallel with the HYP2023 exercise. If I have time over the weekend, I may try and post one up.

You would hardly need 15 to cover the same spectrum of UK shares.

Well the point would be demonstrate a portfolio that offers broader diversification, less volatile income output, and (of course) a higher yield than a HYP2023 could.

[1nvest]

A new thread has appeared proposing a HYP 2023.

Some of the dogma has been weakened, in that more than 15 shares are being targeted.

Some still remains, namely the exclusion of overseas shares, Investment Trusts and shares with low dividend yields but high dividend growth rates. The suspicion that an income of 10 and a capital loss of 8 would be preferred to an income of 5 is also still there.

It certainly would be worthwhile running a 15-holding (* different AIC sectors) portfolio of income oriented Investment Trusts in parallel with the HYP2023 exercise. If I have time over the weekend, I may try and post one up.

You would hardly need 15 to cover the same spectrum of UK shares.

Well the point would be demonstrate a portfolio that offers broader diversification, less volatile income output, and (of course) a higher yield than a HYP2023 could.

If another broader index/ETF/IT asset allocation yields the same or better total return than a HYP then that could at least have supported the same (or higher) income provision than HYP, with broader diversification. SWR style of income withdrawals provides a consistent/less volatile income output and there are various enhanced variations of SWR that cater for real increases in income rather than just looking toward inflationary increases in income.

Running one comparison of one HYP and one alternative will be subject to the particular time period, and not be very indicative of a overall broader average. HYP1 somewhat highlights that, as it had a very good early period run compared to many other alternatives that had a poorer earlier run. HYP1 started in late 2001 and the 2002/3 dot com bubble burst in combination generally had many portfolios down -30%, whereas HYP1 side stepped that and more broke-even. In the way of comparisons others had to subsequently relatively gain +42% more just to close down that gap and get back to the same level again ... such that projected forward HYP1 looked good/better mid/longer term, but more broadly/on average is more inclined to be just "average".

[Arborbridge]

A new thread has appeared proposing a HYP 2023.

Some of the dogma has been weakened, in that more than 15 shares are being targeted.

Some still remains, namely the exclusion of overseas shares, Investment Trusts and shares with low dividend yields but high dividend growth rates. The suspicion that an income of 10 and a capital loss of 8 would be preferred to an income of 5 is also still there.

It certainly would be worthwhile running a 15-holding (* different AIC sectors) portfolio of income oriented Investment Trusts in parallel with the HYP2023 exercise. If I have time over the weekend, I may try and post one up.

You would hardly need 15 to cover the same spectrum of UK shares.

Well the point would be demonstrate a portfolio that offers broader diversification, less volatile income output, and (of course) a higher yield than a HYP2023 could.

Well, we already do have a example, if I may be so immodest : ArbIT, which contains several ITs dealing with ex-UK shares.