50 years of "A Random Walk Down Wall Street"

[dealtn]

You have to bear in mind that, for some considerable time, using higher yield shares gave a better total return than using low yield shares. Just look at the comparison between the FTSE350 HY and FTSE350LY TR indices.

Yes let's look!

Starting in 1999, up until 2022, there have been 23 years you could have invested in either index and patiently waited whilst observing which of those indices has delivered the better Total Return.

High Yield "wins" in just 5 of those long run observation periods, against a victorious Low Yield in the other 18.

I think that you are misleading yourself. You are looking at annual changes, whereas I am looking at the actual numbers. It happens that I have kept copies of some of the tables from the FT, which illustrate my point:

Date        HIX-TR     LIX-TR     Ratio
31-Dec-97   1,851.80   1,789.91    1.03
02-Jan-15   5,411.20   3,451.00    1.57
16-Jun-15   5,521.38   3,761.70    1.47
02-Jan-16   5,115.82   3,707.64    1.38
01-Jun-16   5,278.47   3,697.75    1.43
01-Feb-17   6,353.07   4,016.56    1.58
01-Jun-17   6,775.79   4,448.71    1.52
04-Jun-18   7,226.79   4,816.76    1.50
03-Apr-20   5,230.85   3,828.57    1.37
26-Sep-20   5,072.90   4,751.06    1.07
20-Apr-21   6,448.82   5,047.81    1.28
01-Sep-21   6,953.52   5,794.85    1.20
24-Jan-22   7,587.84   5,687.61    1.33
06-Apr-22   8,015.19   5,522.51    1.45
01-Oct-22   7,478.11   4,826.98    1.55

I am not sure of the date when the TR indices began, but I believe that they started on the same day with the same value (1000). If you look at the data, you will see that, for a LTBH investor, the HY index has been ahead of the LY index all the way. There was a time in 2020 when it nearly overtook the HY index, but in general the HY TR index has been up to 50% ahead and continues to be so.

There are ups and downs in the ratio, but the lead is maintained. I'm sorry that I do not have data for all of the earlier period.

TJH

I think you are misleading yourself, and others.

What you are showing is if an investor chose between those two indices at inception, how would that singular choice have played out over time. HY is ahead - which I am not arguing against.

However that option to invest in either index at 1,000 is no longer available to a potential investor, who might instead consider how that choice would have played out were it taken at a number of other occasions since inception. I postulate a consideration with a much larger statistical sample population to analayse is more meaningful than a single moment in time (which might have specific reasons for being a good, or bad, time to invest).

As I said. Since 1999 (when my records began) at the beginning of each tax year an investor could consider how a single investment in either index would have performed if left untouched, measured against Total Return of that investment.

Such an experiment results in "wins" for a singular investment in High Yield in the 5 years, being 1999, 2000, 2019, 2020 and 2021.

Such an experiment results in "wins" for a singular investment in Low Yield in the 18 years, being 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, and 2018.

I can't predict the future, I am willing to concede, and I doubt anybody on this site can either. But were I an ignorant investor seeking to passively invest for Total Return between the only choices of FTSEHY or FTSELY I might consider that with evidence suggesting on the last 23 occasions I could have made that choice I would have been better off with the LY option on 18 of them I would find a claim that HY has performed better a stretch of belief.

Stick to an impossible to repeat investment decision on inception as your proof if you like but few, if any, single observation experiments in the real world would go unchallenged, particular if regular repeats of that same experiment led to alternative outcomes and different conclusions.

[tjh290633]

See above

Your results depend on knowing the future. Not a likely scenario. There are also the not inconsiderable costs of switching a whole portfolio on an annual basis.

Better perhaps to compare both indices from a range of start dates and holding to the present time.

However a more practical approach would be to choose a selection of share from the relevant index, buy initially at equal weight and hold long term, until either taken over or removed from that index.

TJH

[simoan]

Your missing the point I am making, maybe wilfully. Other than someone who only posts their results on a bulletin board, who you seem to trust, where is the great fund manager of the High Yield Equity Income world? Why is there no-one who you can point to who follows this path and whose results are excellent and a matter of public record? ?

Spot on. Terry's performance is presumably gross, i.e. before commission, stamp, custodian and other fees. And he does not tell us what his active share, how much he deviates from the index. As it is only has a limited number of names that figure would indicate just how risky it was. I suspect the answer is; A Lot.

Terry is free to use whatever benchmark he likes to gauge his own performance for himself. However, if there is any "alpha" between his performance and that of the FTSE100 index, how do you know if this is because there is some genuine "secret sauce" in his method or it's just because he is comparing a market-weighted index with his approach (which from what I understand) uses an equal-weighted method? "You don't!" is the correct answer. This is why I'm against bench marking, what is the point if you're comparing apples with iPads? It tells you nothing, but if it makes you feel warm and cuddly inside about your investment performance, go right ahead...

BTW I have just seen the moderator message above. In no way is anything I have written an attack on TJH. In fact it wasn't me who brought him into the discussion. I apologise if he feels I am attacking him.

[tjh290633]

BTW I have just seen the moderator message above. In no way is anything I have written an attack on TJH. In fact it wasn't me who brought him into the discussion. I apologise if he feels I am attacking him.

Not to worry, I don't. As you said, benchmarks are just that. I have always attributed my divergence from the FTSE100 index to nominal equal weighting and the choice of shares from those which have yields in the higher range (in the most part) when first selected. I tend not to take notice of the TR versions, because I use my calculated income unit value as the comparator. Being unitised means that additions and withdrawals of capital or dividends have no effect.

TJH

[simoan]

BTW I have just seen the moderator message above. In no way is anything I have written an attack on TJH. In fact it wasn't me who brought him into the discussion. I apologise if he feels I am attacking him.

Not to worry, I don't. As you said, benchmarks are just that. I have always attributed my divergence from the FTSE100 index to nominal equal weighting and the choice of shares from those which have yields in the higher range (in the most part) when first selected. I tend not to take notice of the TR versions, because I use my calculated income unit value as the comparator. Being unitised means that additions and withdrawals of capital or dividends have no effect.

TJH

That's great. I think you're right to ignore the TR versions - apart from anything there is a complete lack of transparency about how they are derived. We've had this discussion before, so I know you understand that the market-cap weighted FTSE100 index is just the best comparison there is for your equally-weighted method. However, that differential is enough to question where any outperformance or underperformance comes from, particularly as the top 10 constituents account for 50% of the FTSE100 by value.

[simoan]

I have no interest in posts containing someone's supposed investing results, never have.

Thanks Si - that's exactly what I thought your position was, as someone who earlier in the thread clearly said -

'I am not aware of a single successful long term investor who built wealth using a high yield only investment approach'

If you've now changed those goal-posts to only include 'great fund managers', and point-blankly refuse to even consider looking at the long-term investment results of others on this site, then I'm happy to leave that position on the record for others to perhaps consider when we all no doubt continue to hear your entrenched views on the subject...

Watch out for those Zebras...

Cheers,

Itsallaguess

Yes, very good. I didn't change the goal posts, you just couldn't think of anyone who has a public record open to public verification and scrutiny. There's no-one is there? And there's me thinking Warren Buffett must be an idiot not to invest in the highest yielding shares in the FTSE100. It's you that is bypassing all the points I am making. As I have made clear, I am very happy for Terry that he's found a method that works for him to meet his investment goals, but I doubt very much it has been the main cause of his wealth. It's a bit sad that your confirmation bias is so strong that the only person you can point to as a counter argument to my opinion is someone you've probably never met on a bulletin board who uses a flawed benchmarking technique (see my posts above) to show he is beating the world worst stock market index.

[Itsallaguess]

I am not aware of a single successful long term investor who built wealth using a high yield only investment approach[/i]

If you've now changed those goal-posts to only include 'great fund managers', and point-blankly refuse to even consider looking at the long-term investment results of others on this site, then I'm happy to leave that position on the record for others to perhaps consider when we all no doubt continue to hear your entrenched views on the subject...

As I have made clear, I am very happy for Terry that he's found a method that works for him to meet his investment goals, but I doubt very much it has been the main cause of his wealth.

So now it's not

'who built wealth using a high yield only investment approach'

but

'who built their main wealth using a high yield only investment approach'

Wouldn't it be simpler if you just tell us all that you simply refuse to accept anyone ever being happy with a high-yield investment approach?

Given the number of times you're moving the goal-posts here Si, and given your regular and well-known views on the subject on this site over the years, that's clearly your underlying position on this, for some strange reason, so why not just come out and say it?

'I know some of you might think that you're happy with your high-yield investment strategy, but I simply refuse to validate or recognise that happiness'

There - that sounds like your true position, and saves all this twisting and turning on your behalf, surely, and because someone might not meet your specific definition of 'success' when it comes to investment, then they're simply doing it all WRONG....

Cheers,

Itsallaguess

[OhNoNotimAgain]

BTW I have just seen the moderator message above. In no way is anything I have written an attack on TJH. In fact it wasn't me who brought him into the discussion. I apologise if he feels I am attacking him.

Not to worry, I don't. As you said, benchmarks are just that. I have always attributed my divergence from the FTSE100 index to nominal equal weighting and the choice of shares from those which have yields in the higher range (in the most part) when first selected. I tend not to take notice of the TR versions, because I use my calculated income unit value as the comparator. Being unitised means that additions and withdrawals of capital or dividends have no effect.

TJH

Oh Crikey I think I have completely misjudged Terry. Comparing his portfolio, which includes reinvested dividends, to the FTSE 100 capital only index, which doesn't, is simply downright misleading. He has totally ignored the main source of growth in his comparator benchmark.

[simoan]

I am not aware of a single successful long term investor who built wealth using a high yield only investment approach[/i]

If you've now changed those goal-posts to only include 'great fund managers', and point-blankly refuse to even consider looking at the long-term investment results of others on this site, then I'm happy to leave that position on the record for others to perhaps consider when we all no doubt continue to hear your entrenched views on the subject...

As I have made clear, I am very happy for Terry that he's found a method that works for him to meet his investment goals, but I doubt very much it has been the main cause of his wealth.

So now it's not

'who built wealth using a high yield only investment approach'

but

'who built their main wealth using a high yield only investment approach'

Wouldn't it be simpler if you just tell us all that you simply refuse to accept anyone ever being happy with a high-yield investment approach?

Given the number of times you're moving the goal-posts here Si, and given your regular and well-known views on the subject on this site over the years, that's clearly your underlying position on this, for some strange reason, so why not just come out and say it?

'I know some of you might think that you're happy with your high-yield investment strategy, but I simply refuse to validate or recognise that happiness'

There - that sounds like your true position, and saves all this twisting and turning on your behalf, surely, and because someone might not meet your specific definition of 'success' when it comes to investment, then they're simply doing it all WRONG....

Cheers,

Itsallaguess

I see what you're doing here. You're the one personalising things on this thread. When you need to quote me out of context and ignore the main points I am making, I don't see any reason to continue a discussion with you. I feel quite sorry for you, because it's you that is being closed-minded. I may have even raised some issues that you have not previously considered, not that I'd expect any thanks for them.

[Lootman]

Comparing his portfolio, which includes reinvested dividends, to the FTSE 100 capital only index, which doesn't, is simply downright misleading. He has totally ignored the main source of growth in his comparator benchmark.

Whilst I would agree that it is confusing to compare a total return index with a capital-only index, I think you are jumping the gun there by claiming that dividends are the "main source of growth".

Clearly a few of us here are arguing exactly the opposite - that high dividends can often inhibit growth. Else why has the FTSE-100 seen zero growth since 1999, and has lost a lot of value in real terms? Whiist paying out dividends as some kind of substitute for real growth?

Some HY investors like Terry have managed to do well, presumably because of superior share-picking skills. But mindlessly investing in yield via only UK shares has been a bad growth strategy for almost a generation now.

[Itsallaguess]

When you need to quote me out of context and ignore the main points I am making, I don't see any reason to continue a discussion with you.

My interest in this thread has been consistent in quoting one line of yours back to you Si, and probing it's validity - nothing more, nothing less, and I stand by the points I've made in that respect.

The fact that you're now wanting to change important details regarding that quoted line is pertinent to the problem we've got in discussing this issue, I think...

To complain about someone ignoring other points that you're making, at the same time as persistently setting up a particular 'straw man' level of 'investment success' that you persist in wanting to compare other people's investment strategies to, whilst you yourself ignore the fact that process-related aspects and personally-preferred advantages of a given investment-strategy might be well outside the specific and particular 'success' metric that you think only you get to define, is a source of ongoing wonderment...

Different things are important to different people. Who'd have thought it...

Cheers,

Itsallaguess

[OhNoNotimAgain]

Comparing his portfolio, which includes reinvested dividends, to the FTSE 100 capital only index, which doesn't, is simply downright misleading. He has totally ignored the main source of growth in his comparator benchmark.

Whilst I would agree that it is confusing to compare a total return index with a capital-only index, I think you are jumping the gun there by claiming that dividends are the "main source of growth".

Clearly a few of us here are arguing exactly the opposite - that high dividends can often inhibit growth. Else why has the FTSE-100 seen zero growth since 1999, and has lost a lot of value in real terms? Whiist paying out dividends as some kind of substitute for real growth?

Some HY investors like Terry have managed to do well, presumably because of superior share-picking skills. But mindlessly investing in yield via only UK shares has been a bad growth strategy for almost a generation now.

You are wrong and the BEG, Dimson and Siegel have consistently demonstrated that. Dividends, growth in dividends and reinvested dividends are the main source of equity returns over the long run. If you want to deny the truth there are plenty of election campaigns that can use you.

[tjh290633]

BTW I have just seen the moderator message above. In no way is anything I have written an attack on TJH. In fact it wasn't me who brought him into the discussion. I apologise if he feels I am attacking him.

Not to worry, I don't. As you said, benchmarks are just that. I have always attributed my divergence from the FTSE100 index to nominal equal weighting and the choice of shares from those which have yields in the higher range (in the most part) when first selected. I tend not to take notice of the TR versions, because I use my calculated income unit value as the comparator. Being unitised means that additions and withdrawals of capital or dividends have no effect.

TJH

Oh Crikey I think I have completely misjudged Terry. Comparing his portfolio, which includes reinvested dividends, to the FTSE 100 capital only index, which doesn't, is simply downright misleading. He has totally ignored the main source of growth in his comparator benchmark.

I think that you have overlooked the bit that I have emboldened above. Reinvested dividends increase the number of units, not their value.

TJH

[dealtn]

See above

Your results depend on knowing the future. Not a likely scenario. There are also the not inconsiderable costs of switching a whole portfolio on an annual basis.

No they don't. I have specifically said I don't know the future. Nor did I, or any other investor, on any of the dates I have used (22 more than you have)

Better perhaps to compare both indices from a range of start dates and holding to the present time.

Which is exactly what I have done. The first date of the last 23 tax years and held to date (more accurately to the last day of the last complete tax year).

From those 23 selected dates HY has "won" on 5 occasions (6 if you include inception) against 18 for LY.

[Lootman]

Comparing his portfolio, which includes reinvested dividends, to the FTSE 100 capital only index, which doesn't, is simply downright misleading. He has totally ignored the main source of growth in his comparator benchmark.

Whilst I would agree that it is confusing to compare a total return index with a capital-only index, I think you are jumping the gun there by claiming that dividends are the "main source of growth".

Clearly a few of us here are arguing exactly the opposite - that high dividends can often inhibit growth. Else why has the FTSE-100 seen zero growth since 1999, and has lost a lot of value in real terms? Whiist paying out dividends as some kind of substitute for real growth?

Some HY investors like Terry have managed to do well, presumably because of superior share-picking skills. But mindlessly investing in yield via only UK shares has been a bad growth strategy for almost a generation now.

You are wrong and the BEG, Dimson and Siegel have consistently demonstrated that. Dividends, growth in dividends and reinvested dividends are the main source of equity returns over the long run. If you want to deny the truth there are plenty of election campaigns that can use you.

The "reinvested dividends" part there is a red herring. You are misrepresenting what those studies discovered, none of which advocated a high yield approach.

If mindlessly investing in high dividends brought about superior growth then why has the FTSE-100 done nothing in 23 years, given that its constituents mostly pay out high dividends?

Whilst even if you reinvested those dividends, you would have under-performed a simple global index fund that also reinvested dividends.

Anyone following your approach would have completely missed investing in Berkshire Hathaway, Amazon, Google and (for most of its life) Apple, inevitably leading to significant under-performance versus a global benchmark.

[dealtn]

Comparing his portfolio, which includes reinvested dividends, to the FTSE 100 capital only index, which doesn't, is simply downright misleading. He has totally ignored the main source of growth in his comparator benchmark.

Whilst I would agree that it is confusing to compare a total return index with a capital-only index, I think you are jumping the gun there by claiming that dividends are the "main source of growth".

Clearly a few of us here are arguing exactly the opposite - that high dividends can often inhibit growth. Else why has the FTSE-100 seen zero growth since 1999, and has lost a lot of value in real terms? Whiist paying out dividends as some kind of substitute for real growth?

Some HY investors like Terry have managed to do well, presumably because of superior share-picking skills. But mindlessly investing in yield via only UK shares has been a bad growth strategy for almost a generation now.

You are wrong and the BEG, Dimson and Siegel have consistently demonstrated that. Dividends, growth in dividends and reinvested dividends are the main source of equity returns over the long run. If you want to deny the truth there are plenty of election campaigns that can use you.

Yes, and further, those 3 distinguished sources all point to the effect of retained earnings, and the growth in earnings, from which those increased dividends come from, as the driver and their biggest effect is on the capital value eg. the share price.

(Growing) Dividends in themselves are not the source of these long term gains. They are the consequence. The higher the dividend as a proportion of those earnings limits the availability of retained earnings, and creates potential tax issues for holders and the frictional costs associated with reinvestment of them, which largely don't exist if that "round-trip" was avoided through higher retained earnings.

I suggest you reaquaint yourself with the works of these distinguished authors before making rash declarations regarding someone being "wrong".

[simoan]

I've got to say, I find the misunderstanding of basic investment concepts on this thread quite depressing. No wonder it feels much better to follow a blinkered investment method that requires nothing but "strategic ignorance" and to pick your shares on the most simplistic terms possible, high dividend yield across different sectors. Being ignorant doesn't work in most other areas of life (unless you're a politician) so why should it work in investing?

The reason I find it so depressing is that I am talking about clearly intelligent people who are far from ignorant. Everyone likes simple solutions, but they are, unfortunately, rarely the best solution possible.

All the best, Si

[mc2fool]

You are wrong and the BEG, Dimson and Siegel have consistently demonstrated that. Dividends, growth in dividends and reinvested dividends are the main source of equity returns over the long run. If you want to deny the truth there are plenty of election campaigns that can use you.

Yes, and further, those 3 distinguished sources all point to the effect of retained earnings, and the growth in earnings, from which those increased dividends come from, as the driver and their biggest effect is on the capital value eg. the share price.
:
I suggest you reaquaint yourself with the works of these distinguished authors before making rash declarations regarding someone being "wrong".

The Credit Suisse Global Investment Returns Yearbook 2011 by Dimson, Marsh & Staunton seems relevant here, seeing you are both lobbing Dimson's name around. Start on page 15.

Media release (2 page summary):
https://www.credit-suisse.com/media/assets/corporate/docs/about-us/media/media-release/2011/02/000000022339.pdf

PDF download:
https://www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/credit-suisse-global-investment-yearbook-2011.pdf

P.S. I'm not interesting in getting into this bun fight ... just thought I'd provide some more buns ...

[OhNoNotimAgain]

If mindlessly investing in high dividends brought about superior growth then why has the FTSE-100 done nothing in 23 years, given that its constituents mostly pay out high dividends?

Whilst even if you reinvested those dividends, you would have under-performed a simple global index fund that also reinvested dividends.

Anyone following your approach would have completely missed investing in Berkshire Hathaway, Amazon, Google and (for most of its life) Apple, inevitably leading to significant under-performance versus a global benchmark.

No one is talking "mindlessly investing in high dividends". We are talking about the elements that contribute to the total return.

You quote some high profile examples, and we know what Buffet thinks about dividends because he makes sure he invests in companies that generate them and doesn't pay them out. But you have ignored other formerly stellar stocks like Nokia and Blackberry that are now as much a part of history as Great Western Railways. At the end all you are left with is the cash generated by a business venture.

[OhNoNotimAgain]

You are wrong and the BEG, Dimson and Siegel have consistently demonstrated that. Dividends, growth in dividends and reinvested dividends are the main source of equity returns over the long run. If you want to deny the truth there are plenty of election campaigns that can use you.

Yes, and further, those 3 distinguished sources all point to the effect of retained earnings, and the growth in earnings, from which those increased dividends come from, as the driver and their biggest effect is on the capital value eg. the share price.
:
I suggest you reaquaint yourself with the works of these distinguished authors before making rash declarations regarding someone being "wrong".

The Credit Suisse Global Investment Returns Yearbook 2011 by Dimson, Marsh & Staunton seems relevant here, seeing you are both lobbing Dimson's name around. Start on page 15.

Media release (2 page summary):
https://www.credit-suisse.com/media/assets/corporate/docs/about-us/media/media-release/2011/02/000000022339.pdf

PDF download:
https://www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/credit-suisse-global-investment-yearbook-2011.pdf

P.S. I'm not interesting in getting into this bun fight ... just thought I'd provide some more buns ...

From Dimson

In general, the authors highlight that investment strategies favoring
stocks and markets with high dividend yields tend to pay off handsomely over the long run for the patient
investor.