Investment trusts

[Alaric]

Because the author had to dream up stuff to sell a tipsheet subscription. .

It did sufficiently well to gain cult status, probably helped by restrictions at the TMF discussion boards on adverse and critical comment. That's something perpetuated to an extent on TLF even though there's no financial incentive for TLF to promote it.

[BullDog]

Because the author had to dream up stuff to sell a tipsheet subscription. .

It did sufficiently well to gain cult status, probably helped by restrictions at the TMF discussion boards on adverse and critical comment. That's something perpetuated to an extent on TLF even though there's no financial incentive for TLF to promote it.

It did indeed. The author did very well monetising his idea, all kudos to him. Great to see someone making money from such a simple idea. Wish I could have done it.

There must be oh...... maybe a dozen people still following it.

[CliffEdge]

HYP seems to me to be quite a dangerous thing to have on here. But I've said that before and it offended some people so I'll accept that under the current board structure it's sensible.

TLF is not an investment advice site: it's an investment discussion site. Therefore it's generally going to lack some 'focus'. This where the problem comes, I think, with the unique and specific way that HYP Practical is presented on here.

Or it's fairer to say, I believe, with the way that it is perceived to be presented on here. It is unique in its kind of "IKEA flat pack assembly instructions - assemble the bits incorrectly and you don't get a wardrobe, assemble the bits incorrectly and you don't get an HYP" HYP Practical board.

I don't think any other methodology is idolised in the same way, but maybe there is no other methodology that is so limited.

If you're not a leprechaun you may not want all your clothes to be green.

[Lootman]

It did sufficiently well to gain cult status, probably helped by restrictions at the TMF discussion boards on adverse and critical comment. That's something perpetuated to an extent on TLF even though there's no financial incentive for TLF to promote it.

It did indeed. The author did very well monetising his idea, all kudos to him. Great to see someone making money from such a simple idea. Wish I could have done it.

There must be oh...... maybe a dozen people still following it.

I don't know that he really did make much money from the tipsheet. I do recall when he wound it up, saying that it was not viable or sustainable, or something like that. And the TMF/HYP community was never that large, although bigger than the rump that remains on TLF.

Of course it is easy to write a tipsheet, especially now that it can all be done online. But with a "buy and forget" system, you would not have much need to buy a tipsheet once it is set up.

As I recall he did not quit his day job, doing peoples tax returns. So I suspect that it was just hobby income. And a bit of an ego boost especially for a guy who never really worked in the markets.

[Padders72]

Bearing in mind Doris was defined to be a bit of a thicko or at least took no interest whatsoever in where her income was coming from and is now either dead or too ancient to care, it has always surprised me that some still choose to slavishly follow an investment strategy designed for her decades ago. Just shows how bloody minded some on here really are. Keep buggering on and all that.

[bluedonkey]

Regarding PYAD never working in the markets, in fact he did work for Slater Walker back in the day.

[Arborbridge]

HYP was an idea, in a sense an experiment. It has been sufficient unto the day, but that's not to say there cannot be far better ways of building wealth. And HYP1 has shown beyond doubt that it works well enough, and continues to work - as does the example run by TJH. Yes, one can find something which has built capital faster, I'm sure, but there's always something that will go faster if you look hard enough. Whether that vehicle will go faster more consistently, and over the decades, we can all argue about. Which is where the fun lies - investment is a never ending story.

It may not be that the semi-mythical Doris was a "thicko" - perhaps she was an astute, wise old bird who knew when to be satisfied. Has the stock market and human nature changed much in 20 years? I doubt it. Where Stephen Bland was radical, and why he upsets conventional investors, is that he regarded income as the most important driver, and that if income increased, capital values would follow. Most of us start out thinking quite the opposite is true, but to a retiree with a pension pot to invest, that is not so important: income is.

As regards HYP at the moment, I'd say that most of the investors here who have some sort of HYP, most also invest in ITs or other types of investment in order to provide variety and security. I can think of only one contributor who definitely does not do so.

Arb.

[SalvorHardin]

It may not be that the semi-mythical Doris was a "thicko" - perhaps she was an astute, wise old bird who knew when to be satisfied. Has the stock market and human nature changed much in 20 years? I doubt it. Where Stephen Bland was radical, and why he upsets conventional investors, is that he regarded income as the most important driver, and that if income increased, capital values would follow. Most of us start out thinking quite the opposite is true, but to a retiree with a pension pot to invest, that is not so important: income is.

IMHO in the past 25 years there have been three major developments which have benefited private investors, all of which are facilitated by the rapid expansion of the internet in the 1990s.

1) The cost of investing overseas has fallen dramatically.

2) The ease with which we can get information about foreign companies.

3) The development of ETFs which give easier access to overseas markets, in particular countries and sectors that investment trusts did not cater for (e.g. single country funds covering countries like South Korea; Agricultural ETFs).

Doris almost certainly bought her shares in the days when Britain had foreign exchange controls. So for her buying British meant cheaper dealing costs, it was much easier to get information about the companies (before the internet it could be extremely difficult to get overseas share prices for many foreign companies, let alone even know that they existed) and there were no foreign exchange controls to worry about.

Then there was the serious systemic failure of HYP during lockdown where a lot of HYP favourites either cut their dividends or stopped paying them altogether. None of my foreign companies or investment trusts did that (okay, Ocean Wilsons Holdings did, but for HYP purposes it's British (not Bermudan) since it is listed in London).

Also dropping the no foreign shares rule means that Canadian banks are now available. No major Canadian bank has reduced its dividend since 1940, not even during the coronavirus lockdown or the 2008 financial crisis. By comparison British banks are a joke when it comes to income.

https://financialpost.com/investing/why-canadas-big-banks-defend-dividends-in-coronavirus-market-rout-and-at-all-other-times

[Padders72]

HYP was an idea, in a sense an experiment. It has been sufficient unto the day, but that's not to say there cannot be far better ways of building wealth. And HYP1 has shown beyond doubt that it works well enough, and continues to work - as does the example run by TJH. Yes, one can find something which has built capital faster, I'm sure, but there's always something that will go faster if you look hard enough. Whether that vehicle will go faster more consistently, and over the decades, we can all argue about. Which is where the fun lies - investment is a never ending story.

It may not be that the semi-mythical Doris was a "thicko" - perhaps she was an astute, wise old bird who knew when to be satisfied. Has the stock market and human nature changed much in 20 years? I doubt it. Where Stephen Bland was radical, and why he upsets conventional investors, is that he regarded income as the most important driver, and that if income increased, capital values would follow. Most of us start out thinking quite the opposite is true, but to a retiree with a pension pot to invest, that is not so important: income is.

As regards HYP at the moment, I'd say that most of the investors here who have some sort of HYP, most also invest in ITs or other types of investment in order to provide variety and security. I can think of only one contributor who definitely does not do so.

Arb.

I did offer not interested as an alternative to thicko, and as far as I remember Doris was described more in those terms, her astuteness or sharpness of wit wasn't really touched upon I'll admit, my comment was more for effect or amusement. Regarding your last para. As you say, from one POV most if not all of us on here could be said to be running some kind of HYP, since most (all?) of us have some of the eligible instruments. Most of us though are not limited to HYP eligible shares only and since the dogma of HYP exlcudes other instruments, the other side of the coin would be that only one contributor in fact has a HYP at all.

[Arborbridge]

I did offer not interested as an alternative to thicko, and as far as I remember Doris was described more in those terms, her astuteness or sharpness of wit wasn't really touched upon I'll admit, my comment was more for effect or amusement. Regarding your last para. As you say, from one POV most if not all of us on here could be said to be running some kind of HYP, since most (all?) of us have some of the eligible instruments. Most of us though are not limited to HYP eligible shares only and since the dogma of HYP exlcudes other instruments, the other side of the coin would be that only one contributor in fact has a HYP at all.

I offer a potential second and third contributor: Miner1000 who rarely writes, but occasional pops in as a break from drinking Sangria on retirement in Spain, and Breelander. And the well known TJH has the bulk invested in HYP, as far as we know. A lovely theory is that HYPers are so satisfied they never have to write or even worry about their HYPs - I'm not sure I buy that one.

However, from my own experience I can say that HYP has worked better than other schemes I've tried and I am certain by itself it could have provided all my pension income. However, my nature is to mess around and put things in many baskets, so that's what I've done. I wouldn't be so critical of HYP: indeed from my POV it came along just at the right time and I feel gratitude to Pyad for writing about it and giving me some ideas for my pension pot - and never made a penny from me for it. The same goes for all the generous contributors here who "honed" HYP with a few bells and whistles plus HYPTUSS.

Arb.

[Charlottesquare]

I meant to pick up on Charlottesquare’s comment about the age of Scottish investment trusts. Apart what is said to be oldest trust, F & C, the Scottish trusts are I think the oldest but they were first established in the 1850s or thereabouts so they are no older than about 160/170 years old as a means for using some of the huge profits arising from the industrial revolution in pre welfare state Victorian Britain, in much the same way that Hong Kong wracked up huge surpluses in the 20 year period prior to 1997 which enabled it to build huge infrastructure projects with almost no borrowings and China in the following 20 years.

Dod

I was more trying to say that Scottish Trusts have been around for hundreds of years rather than say Scottish Investment Trusts have been around for hundreds of years, often used by people leaving funds/settling funds for a particular purpose, e.g. my father's firm in the 1980s still had some marriage codicil trusts running (say settling funds on the daughter to ensure her new husband did not snaffle the money), these trusts in a broader sense are more a demonstration that there is a long history of trying to invest for a particular purpose over time and as investment trusts came into existence these were often selected as suitable investments within said trusts, in effect if they were good enough for generations of solicitors maybe they ought to be good enough for us.

[Arborbridge]

As regards the valid point mentioned concerning dropping of dividends during/after covid...

this is what I was referring to when I mentioned the bells and whistles later added to the management of HYP by people on these boards (well, actually TMF). This enabled my HYP "system" to come through in a sanguine way and without having to sell any invesments to pay my pension. The Income Reserve and Safety Margin both protected me.

Of course, I would rather income from dividends hadn't fallen, true enough, but sensible management as described on TMF and with the experience of TJH's HYP in the previous crisis as a guide, meant it all worked rather well.

I suppose I should add "so far"!

Arb.

[tjh290633]

As regards the valid point mentioned concerning dropping of dividends during/after covid...

this is what I was referring to when I mentioned the bells and whistles later added to the management of HYP by people on these boards (well, actually TMF). This enabled my HYP "system" to come through in a sanguine way and without having to sell any invesments to pay my pension. The Income Reserve and Safety Margin both protected me.

Of course, I would rather income from dividends hadn't fallen, true enough, but sensible management as described on TMF and with the experience of TJH's HYP in the previous crisis as a guide, meant it all worked rather well.

I suppose I should add "so far"!

Arb.

That period of 2008-10 saw many companies reducing or stopping paying dividends. ITs were able to avoid this effect by drawing on income reserves. Those, of course, are not held as cash but invested in their holdings of individual shares.

There has been much discussion in the past of holding cash reserves alongside HYPs and other portfolios. My recollection is that this can be anywhere between 6 month's' expected income and two years', according to personal preference. The other approach is only to withdraw a proportion of the income, as mooted by the late Gengulphus, and to reinvest the remainder. In extremis it may be necessary to sell some shares, which is where the reinvested cash went. A problem is that a 1974 style fall in the market may reduce the value of those shares, so that you are realizing more shares than would otherwise be the case.

In practice it was more a case of grin and bear it, while dumping some of those shares which had stopped paying dividends in favour of more reliable payers. It still took several years for dividends to recover to their former level.

As I recall, HYP1 suffered during this period but, being a no-tinkering portfolio, had to rely on natural (or market) forces to do their work. My preference was to dump those shares which looked set for some years of no or reduced dividends.

Prudent portfolio management is what I would call it.

TJH

[daveh]

As regards the valid point mentioned concerning dropping of dividends during/after covid...

this is what I was referring to when I mentioned the bells and whistles later added to the management of HYP by people on these boards (well, actually TMF). This enabled my HYP "system" to come through in a sanguine way and without having to sell any invesments to pay my pension. The Income Reserve and Safety Margin both protected me.

Of course, I would rather income from dividends hadn't fallen, true enough, but sensible management as described on TMF and with the experience of TJH's HYP in the previous crisis as a guide, meant it all worked rather well.

I suppose I should add "so far"!

Arb.

That period of 2008-10 saw many companies reducing or stopping paying dividends. ITs were able to avoid this effect by drawing on income reserves. Those, of course, are not held as cash but invested in their holdings of individual shares.

There has been much discussion in the past of holding cash reserves alongside HYPs and other portfolios. My recollection is that this can be anywhere between 6 month's' expected income and two years', according to personal preference. The other approach is only to withdraw a proportion of the income, as mooted by the late Gengulphus, and to reinvest the remainder. In extremis it may be necessary to sell some shares, which is where the reinvested cash went. A problem is that a 1974 style fall in the market may reduce the value of those shares, so that you are realizing more shares than would otherwise be the case.

In practice it was more a case of grin and bear it, while dumping some of those shares which had stopped paying dividends in favour of more reliable payers. It still took several years for dividends to recover to their former level.

As I recall, HYP1 suffered during this period but, being a no-tinkering portfolio, had to rely on natural (or market) forces to do their work. My preference was to dump those shares which looked set for some years of no or reduced dividends.

Prudent portfolio management is what I would call it.

TJH

This is how my Income Portfolio has performed in terms of Income. My portfolio consists of UK high yield shares (when purchased) some preference shares some high yield ETFs and ITs for non-Uk high yield and this year a bond IT (NYCF). Dividends have gone from 100s of pounds per year in 2000 to 10s of thousands of pounds per year now, but I've been adding new cash and reinvesting dividends. In cash terms the big drops in dividend in 2008 and 2020 were back at or above the level before the drop just one year later (but that is helped a lot by the fact I'm still adding new money and reinvesting dividends). Looking at the dividend per income unit in the table below gives a better idea of what the dividends would have done if you were taking them as income, with a 30% drop in 2009 and then a slow increase over the next ~4 years to get back to previous levels. The 36% drop in 2020 due to covid was still slightly below 2019 levels last year, so if you were taking most or all of the dividends as income you could be in trouble. So for me if/when I have to live off this portfolio as my sole source of income I'd want a decent surplus of income over the amount required, so that in most years I was still building the income to some extent and to allow some leeway in the years when dividends were inevitably cut. I'd also want to carry a decent amount of cash or near cash to act as an emergency fund (At the moment I have a holding of short dated low coupon gilts for this purpose, bought this year as my interest for cash holdings was going to breach the £1000 interest allowance).

Income Performance

[funduffer]

Interesting data.

In a 20 year period you have suffered two major crises - 2008/9 GFC and 2020/21 pandemic. Both show that it has taken a few years for the Div/Inc unit to recover to it's previous high.

I have only been investing for income for 10 years, starting in 2013, so I have only suffered the one major crisis, but my results look pretty similar.

This is an example of 'sequence of return' risk, where your results might be significantly affected with when you invest.

The best time to start an income portfolio in the past 20 years was probably at the bottom in 2008/9 or in 2020.

You have invested progressively so have probably smoothed out a lot of this effect.

FD

[daveh]

Interesting data.

In a 20 year period you have suffered two major crises - 2008/9 GFC and 2020/21 pandemic. Both show that it has taken a few years for the Div/Inc unit to recover to it's previous high.

I have only been investing for income for 10 years, starting in 2013, so I have only suffered the one major crisis, but my results look pretty similar.

This is an example of 'sequence of return' risk, where your results might be significantly affected with when you invest.

The best time to start an income portfolio in the past 20 years was probably at the bottom in 2008/9 or in 2020.

You have invested progressively so have probably smoothed out a lot of this effect.

FD

Its also interesting that if you look at the change in dividends per income unit, which will remove the effect of adding new money and reinvesting dividends, after the GFC dividends only increased slowly. So the 31% drop was followed by a small gain of 2%, then bigger gains in the teens before dropping back to the 2-3% level. After the covid drop of 36%, dividends have been much more rapidly re-instated with gains of 36% and 10% in the last two years. Presumably because many of the cuts due to covid were precautionary as companies had no idea what the pandemic would do to their business, but they were able (in many cases) to rapidly reinstate dividends back at the original levels.

[tjh290633]

Interesting data.

In a 20 year period you have suffered two major crises - 2008/9 GFC and 2020/21 pandemic. Both show that it has taken a few years for the Div/Inc unit to recover to it's previous high.

I have only been investing for income for 10 years, starting in 2013, so I have only suffered the one major crisis, but my results look pretty similar.

This is an example of 'sequence of return' risk, where your results might be significantly affected with when you invest.

The best time to start an income portfolio in the past 20 years was probably at the bottom in 2008/9 or in 2020.

You have invested progressively so have probably smoothed out a lot of this effect.

FD

Its also interesting that if you look at the change in dividends per income unit, which will remove the effect of adding new money and reinvesting dividends, after the GFC dividends only increased slowly. So the 31% drop was followed by a small gain of 2%, then bigger gains in the teens before dropping back to the 2-3% level. After the covid drop of 36%, dividends have been much more rapidly re-instated with gains of 36% and 10% in the last two years. Presumably because many of the cuts due to covid were precautionary as companies had no idea what the pandemic would do to their business, but they were able (in many cases) to rapidly reinstate dividends back at the original levels.

My own data over the years is:

Rebased                       
             Income       Ordinary         
Year to      Unit Value   Divs/unit   Yield
05-Apr-88        100.00      100.00   2.86%
05-Apr-89        128.62       94.81   2.11%
05-Apr-90        132.33      147.94   3.20%
05-Apr-91        146.08      189.25   3.71%
05-Apr-92        142.51      262.34   5.27%
05-Apr-93        165.06      241.32   4.19%
05-Apr-94        186.35      218.85   3.36%
05-Apr-95        181.10      261.07   4.13%
05-Apr-96        213.39      257.48   3.46%
05-Apr-97        236.59      293.36   3.55%
05-Apr-98        361.87      310.04   2.45%
05-Apr-99        376.51      295.34   2.25%
05-Apr-00        363.63      395.51   3.12%
05-Apr-01        359.81      409.64   3.26%
05-Apr-02        368.39      454.50   3.53%
05-Apr-03        250.50      422.26   4.83%
05-Apr-04        320.00      405.63   3.63%
05-Apr-05        378.97      421.42   3.19%
05-Apr-06        470.76      458.13   2.79%
05-Apr-07        537.45      490.19   2.61%
05-Apr-08        452.64      849.07   5.37%
05-Apr-09        249.55      739.15   8.48%
05-Apr-10        403.89      386.20   2.74%
05-Apr-11        455.51      583.44   3.67%
05-Apr-12        481.46      609.34   3.63%
05-Apr-13        576.84      694.93   3.45%
05-Apr-14        584.66      714.45   3.50%
05-Apr-15        646.46      744.60   3.30%
05-Apr-16        648.19      756.58   3.34%
05-Apr-17        724.14      872.20   3.45%
05-Apr-18        669.42    1,020.51   4.37%
05-Apr-19        694.76    1,020.97   4.21%
05-Apr-20        503.29    1,023.17   5.82%
05-Apr-21        655.37      660.92   2.89%
05-Apr-22        733.06      897.48   3.51%
05-Apr-23        680.54    1,138.16   4.79%

The effects of the GFC on income in 2009-10 is clearly showm. Taking 2006-7 as the base year, that level of dividends per unit was reached in 2010-11. The Covid period also showed a dip.

TJH

[funduffer]

My own data over the years is:

Rebased                       
             Income       Ordinary         
Year to      Unit Value   Divs/unit   Yield
05-Apr-88        100.00      100.00   2.86%
05-Apr-89        128.62       94.81   2.11%
05-Apr-90        132.33      147.94   3.20%
05-Apr-91        146.08      189.25   3.71%
05-Apr-92        142.51      262.34   5.27%
05-Apr-93        165.06      241.32   4.19%
05-Apr-94        186.35      218.85   3.36%
05-Apr-95        181.10      261.07   4.13%
05-Apr-96        213.39      257.48   3.46%
05-Apr-97        236.59      293.36   3.55%
05-Apr-98        361.87      310.04   2.45%
05-Apr-99        376.51      295.34   2.25%
05-Apr-00        363.63      395.51   3.12%
05-Apr-01        359.81      409.64   3.26%
05-Apr-02        368.39      454.50   3.53%
05-Apr-03        250.50      422.26   4.83%
05-Apr-04        320.00      405.63   3.63%
05-Apr-05        378.97      421.42   3.19%
05-Apr-06        470.76      458.13   2.79%
05-Apr-07        537.45      490.19   2.61%
05-Apr-08        452.64      849.07   5.37%
05-Apr-09        249.55      739.15   8.48%
05-Apr-10        403.89      386.20   2.74%
05-Apr-11        455.51      583.44   3.67%
05-Apr-12        481.46      609.34   3.63%
05-Apr-13        576.84      694.93   3.45%
05-Apr-14        584.66      714.45   3.50%
05-Apr-15        646.46      744.60   3.30%
05-Apr-16        648.19      756.58   3.34%
05-Apr-17        724.14      872.20   3.45%
05-Apr-18        669.42    1,020.51   4.37%
05-Apr-19        694.76    1,020.97   4.21%
05-Apr-20        503.29    1,023.17   5.82%
05-Apr-21        655.37      660.92   2.89%
05-Apr-22        733.06      897.48   3.51%
05-Apr-23        680.54    1,138.16   4.79%

The effects of the GFC on income in 2009-10 is clearly showm. Taking 2006-7 as the base year, that level of dividends per unit was reached in 2010-11. The Covid period also showed a dip.

TJH

TJH of course has a 35 year investing history, so includes a third crisis, the 2002/3 'Tech bubble' or whatever it was called. Not such a big dip, but it is there in the data. Still, 3 crises in 35 years is not so bad and is probably what we should all expect in our investing lives.

FD