HYP1 is 23 - Total Return

[Bubblesofearth]

The cost of buying and selling shares includes stamp duty if buying and transaction fee in any case. The latter is fixed, or may be zero in some circumstances. It is part of the consideration paid, or the cash received, in a transaction. You cannot avoid these costs, so why worry about them?

TJH

You can avoid them by not trading.

BoE

[tjh290633]

The cost of buying and selling shares includes stamp duty if buying and transaction fee in any case. The latter is fixed, or may be zero in some circumstances. It is part of the consideration paid, or the cash received, in a transaction. You cannot avoid these costs, so why worry about them?

TJH

You can avoid them by not trading.

BoE

So how do you reinvest dividends, if you wish to that with surplus income?

TJH

[Bubblesofearth]

So how do you reinvest dividends, if you wish to that with surplus income?

TJH

I thought we were talking about tinkering/top-slicing not initial investments, new investments or forced corporate actions.

BoE

[Bubblesofearth]

No. He codified a system that creates an issue of overly riskiness knowing of that "lack of genius". He could have solved much of that asymmetry, and its need, with a few additional rules around rebalancing. Why he didn't he would need to explain. It could be lack of foresight that it would be an issue, arrogance, or laziness, or that the additional costs in time and £s didn't compensate.

As has been pointed out already, though, that risk and need for diversification was recognised at inception, so strange it wasn't considered over the long time frame such a portfolio was designed to last.

In practice many have realised they can avoid the worst features of the system, and do.

Surprised you have joined the bandwagon talking about the need to rebalance. There is zero evidence AFAIA that a 15 share portfolio chosen along HYP-lines ever needs to be rebalanced. And still no attempt by anyone to quantify this supposed risk.

BoE

[tjh290633]

So how do you reinvest dividends, if you wish to that with surplus income?

TJH

I thought we were talking about tinkering/top-slicing not initial investments, new investments or forced corporate actions.

BoE

The same applies. If you trade with low value transactions, your dealing costs will be high. If your deal is over £10,000, you will also be charged £1 PTM levy. That's 0.001%. your selling cost may have been 10 times that, a total of 0.010%. Buying you would have stamp duty at 0.5% as well. You are quibbling about numbers which may be swamped by daily price movements.

TJH

[Bubblesofearth]

The same applies. If you trade with low value transactions, your dealing costs will be high. If your deal is over £10,000, you will also be charged £1 PTM levy. That's 0.001%. your selling cost may have been 10 times that, a total of 0.010%. Buying you would have stamp duty at 0.5% as well. You are quibbling about numbers which may be swamped by daily price movements.

TJH

I'm with AJ Bell. They charge £10 to buy, £10 to sell. Typical purchase size for me has been £5000. A buy/sell round trip at £5000 would cost £20 (buy/sell costs) + £25 (stamp) + a bit for buy/sell spread on shares. If we call the share buy/sell spread £5 (it will be higher for smaller caps) then total round trip cost is £50, or 1% of the underlying transaction.

Obviously this percentage comes down with larger amounts but if your top-slicing is over £10,000 then you are in what I suspect is a very unusual position. It implies your underlying holding is considerably larger! Good for you if it is but I suspect for the majority 1% will be typical or even a slight underestimate.

I don't consider 1% trivial as minimising costs is IMO one of the most important factors in investment success.

BoE

[GoSeigen]

What a funny discussion! I don't know about others but I target a return of 3% net net net. If the LT nominal return of my holding is below 1.5% how am I ever going to achieve that return?

It's an absolute no-brainer not only to top-slice but to dispose of the entire holding.


GS

[dealtn]

No. He codified a system that creates an issue of overly riskiness knowing of that "lack of genius". He could have solved much of that asymmetry, and its need, with a few additional rules around rebalancing. Why he didn't he would need to explain. It could be lack of foresight that it would be an issue, arrogance, or laziness, or that the additional costs in time and £s didn't compensate.

As has been pointed out already, though, that risk and need for diversification was recognised at inception, so strange it wasn't considered over the long time frame such a portfolio was designed to last.

In practice many have realised they can avoid the worst features of the system, and do.

Surprised you have joined the bandwagon talking about the need to rebalance. There is zero evidence AFAIA that a 15 share portfolio chosen along HYP-lines ever needs to be rebalanced. And still no attempt by anyone to quantify this supposed risk.

BoE

No. Not joining any bandwagon. Just pointing out the asymmetry the author of this system instigated where a requirement for diversification was sufficient at the outset to be required but not throughout its anticipated life. It's not a system I would ever use or advocate, but given this sites roots regarding "amuse, educate and inform" it is remiss not to address the latter 2 of those.

Out of interest what evidence would convince you that any portfolio "needs to be rebalanced"?

[Arborbridge]

The same applies. If you trade with low value transactions, your dealing costs will be high. If your deal is over £10,000, you will also be charged £1 PTM levy. That's 0.001%. your selling cost may have been 10 times that, a total of 0.010%. Buying you would have stamp duty at 0.5% as well. You are quibbling about numbers which may be swamped by daily price movements.

TJH

I'm with AJ Bell. They charge £10 to buy, £10 to sell. Typical purchase size for me has been £5000. A buy/sell round trip at £5000 would cost £20 (buy/sell costs) + £25 (stamp) + a bit for buy/sell spread on shares. If we call the share buy/sell spread £5 (it will be higher for smaller caps) then total round trip cost is £50, or 1% of the underlying transaction.

Obviously this percentage comes down with larger amounts but if your top-slicing is over £10,000 then you are in what I suspect is a very unusual position. It implies your underlying holding is considerably larger! Good for you if it is but I suspect for the majority 1% will be typical or even a slight underestimate.

I don't consider 1% trivial as minimising costs is IMO one of the most important factors in investment success.

BoE

Then buy on the cheap dealing day of the 10th! I can't believe trimming/toppingup/reinvesting actions are so date critical that one cannot arrange almost all of them on the 10th of the month. Admittedly the "sell" is going to be the same price, but you can at least save on the "buys".

Arb.

[Bubblesofearth]

No. Not joining any bandwagon. Just pointing out the asymmetry the author of this system instigated where a requirement for diversification was sufficient at the outset to be required but not throughout its anticipated life. It's not a system I would ever use or advocate, but given this sites roots regarding "amuse, educate and inform" it is remiss not to address the latter 2 of those.

Out of interest what evidence would convince you that any portfolio "needs to be rebalanced"?

Very large n numbers that we simply don't have. We have HYP1 and a few other poorly documented or short-term HYP's scattered around these boards. Could well be survivor bias creeping in there as well. Basically very little evidence on either side to say that rebalancing HYP reduces risk or doesn't. There is one other piece of research that I'm aware of which has been posted several times on the boards and that is the study of the original Dow components. This showed that that portfolio, if left alone, would have done better than the Index and even better if initially equal weighted. But that only adds one portfolio to an inadequate data set.

It's very easy to look at HYP1, or any LTBH HYP left alone for a long time, and see the inevitable imbalance in holding sizes. Very easy to go from that to saying it is therefore riskier than a portfolio where all holdings are the same size. But this misses the performance of the overall portfolio, especially where that performance has been significantly better than the index from which it was taken. We don't know whether, if HYP1 had rebalanced regularly, it's performance would have matched LTBH HYP1. You would certainly have ended up with less difference between holdings but at what cost?

Take 2 portfolios, one with 15 holdings worth £10k each and another with 14 holdings worth £9k each and one worth £50k. The first portfolio is worth £150k and the second £186k. The second portfolio is very unbalanced compared to the first but worth £36k more. Which portfolio is riskier? The second portfolio is definitely riskier than an evenly balanced portfolio worth £186k but compared to an evenly balanced portfolio of £150k? How are we measuring and comparing risks?

Bottom line there is simply not enough evidence out there to claim rebalancing reduces risk. The only certainly is that it increases costs.

BoE

[dealtn]

Take 2 portfolios, one with 15 holdings worth £10k each and another with 14 holdings worth £9k each and one worth £50k. The first portfolio is worth £150k and the second £186k. The second portfolio is very unbalanced compared to the first but worth £36k more. Which portfolio is riskier? The second portfolio is definitely riskier than an evenly balanced portfolio worth £186k but compared to an evenly balanced portfolio of £150k? How are we measuring and comparing risks?

Bottom line there is simply not enough evidence out there to claim rebalancing reduces risk. The only certainly is that it increases costs.

BoE

The second portfolio is definitely riskier - you admit it yourself! I have made no comment on value, its irrelevant to the argument.

If you want to now have an argument about risk vs reward that's fine but that's another discussion.

[Bubblesofearth]

Take 2 portfolios, one with 15 holdings worth £10k each and another with 14 holdings worth £9k each and one worth £50k. The first portfolio is worth £150k and the second £186k. The second portfolio is very unbalanced compared to the first but worth £36k more. Which portfolio is riskier? The second portfolio is definitely riskier than an evenly balanced portfolio worth £186k but compared to an evenly balanced portfolio of £150k? How are we measuring and comparing risks?

Bottom line there is simply not enough evidence out there to claim rebalancing reduces risk. The only certainly is that it increases costs.

BoE

The second portfolio is definitely riskier - you admit it yourself! I have made no comment on value, its irrelevant to the argument.

If you want to now have an argument about risk vs reward that's fine but that's another discussion.

I admit the second portfolio is riskier than an evenly balanced one worth the same amount. Is it riskier than a balanced portfolio worth less? Riskier in what sense? Sure, it has a higher risk of falling by any given percentage but a lower risk of falling to a given total value. Which is more relevant to an investor?

I don't think you can look simply at one particular risk (e.g. volatility) and use that as an argument that rebalancing is a no-brainer. That's what a number of people seem to be doing.

boE

[GoSeigen]

It's the jimsusan school of investing!

The corollary of the argument is that if (when) the oversize position starts to underperform we're even happier because it will naturally reduce the imbalance in the portfolio...


GS

[Arborbridge]

We have HYP1 and a few other poorly documented or short-term HYP's scattered around these boards.
BoE

Blimey: I had hoped that I might be doing better than that.


Arb.

[Dod101]

I have no idea what this thread is contributing or what it is intended to illustrate. Surely it would be better to be left alone?

Dod

[tjh290633]

Very large n numbers that we simply don't have. We have HYP1 and a few other poorly documented or short-term HYP's scattered around these boards

The discussion is about whether it is better to allow a share to rise or to rebalance at some point. One of my examples is IMB, spun out of Hanson in 1996 at 375p. I added to my holding 3 times, at 416p, 369p and 440p, to bring it up to weight.

In 2002 they had a rights issue and I sold my rights ar 974p, not long after I sold 20% at 1083p. I think I was still working on 10% of portfolio value as the limit. A year later I sold another 20% at 986p, in 2007 I sold anotherr 20% at 2323p and a year later another 20% at 2669p. Then again in 2008 they had a rights issue and I sold my rights at 2043p.

Had I taken up both sets of rights and not trimmed when overweight, I estimate that I would now have almost 7 times the number of IMB shares. That would take it to 7 times the current median value. Can you see any merit in having one share that much heavier than the median of all the others? I first took fright in 1997 when LLOY got to about 16% of my portfolio value. The average weight would have been just over 5% at the time.

Would you not have been concerned at such a big overweight situation?

TJH

[CryptoPlankton]

I have no idea what this thread is contributing or what it is intended to illustrate. Surely it would be better to be left alone?

Dod

A strange request from someone who bemoans the lack of investment discussion on the boards! With that in mind, surely it would be better to allow those who are interested to continue with it rather than trying to close it down?

[Dod101]

I have no idea what this thread is contributing or what it is intended to illustrate. Surely it would be better to be left alone?

Dod

A strange request from someone who bemoans the lack of investment discussion on the boards! With that in mind, surely it would be better to allow those who are interested to continue with it rather than trying to close it down?

I know, I know. I make myself vulnerable to this sort of comment with some of my comments. I will go back to sleep.

Dod

[Arborbridge]

As regards rebalancing to keep somewhere near equal weight: I agree it's hard to produce numbers on how this might reduce risk. Indeed, I believe that could be an impossible task simply because the risk might be determined by unpredictable black swan events.

However, intuitively, it feels right that risk increases as more is invested in one share compared with others. Taken to the limit, all capital would be invested in a single share, which is clearly more inherently risky than a basket of shares: I would argue therefore that 50% in one share and 50% in the other shares is less risky, and 40% in one and 60% in the others is even less risky - and so on.

The theory behind "leaving the HYP alone" is that in time rebalancing will occur naturally. It may, it may not, but my contention is that the process is in anycase too slow, taking place unpredictably and over a number of years.
I would prefer to speed up the process by some intervention.

Arb.

[dealtn]

The second portfolio is definitely riskier - you admit it yourself! I have made no comment on value, its irrelevant to the argument.

If you want to now have an argument about risk vs reward that's fine but that's another discussion.

Sure, it has a higher risk of falling by any given percentage but a lower risk of falling to a given total value. Which is more relevant to an investor?

The former. Plus, especially in this context, it is the potential fall in Income not value surely? HYP1 23 for instance.