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Response to comment on my HYP review

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Smautf
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Response to comment on my HYP review

#274805

Postby Smautf » January 3rd, 2020, 11:31 am

Yesterday, I posted an annual review of my HYP on HYP Practical, which you can read here :

https://www.lemonfool.co.uk/viewtopic.php?f=15&t=21106

PrefInvestor offered the following response :

I can’t bring myself to HYP though, for a few reasons:-
a) UK focus, ignoring the rest of the world
b) No tinkering rule, even when some of your picks have clearly gone badly wrong
c) Single stock investing approach, rendering you liable to those 10%+ drops to which some stocks are prone
d) The exclusion of other high yield investments eg preference shares which apparently aren’t allowed to be part of a HYP portfolio.

I can kind of see the sense of having a small HYP (sort of 5-10 stocks) within a larger more diversified portfolio (including ETFs, investment trusts, preference shares and other debt investments as well a sizeable chunk of overseas exposure). The HYP approach clearly seems to work but I just could never bring myself to conform to all those constraints.


And, as I can't answer him / her in full without going off topic for HYP Practical, I am doing so here.

HYP constitutes only a part of my long-term savings.

Although it is a significant part of my SIPP (around 80%) I also have an ISA which is worth more, and which I do not invest on HYP lines.

That is not to say that I am a wealthy or sophisticated investor - far from it. I am a basic rate taxpayer and I work in the arts.

However I have tried to come up with a relatively straightforward way of managing my money efficiently and, hopefully, without too much work.

I do admit, though, that I have found running a HYP an absorbing exercise.

So, to reply to Pref point by point :

a) UK focus, ignoring the rest of the world


I accept this line of argument and my response is (a) investments in two Vanguard ex-UK funds within my SIPP (developed and emerging) and (b) large investments in Vanguard Lifestrategy fund in an S&S ISA. My ISA constitutes around 60% of my long-term savings; my SIPP around 40%.

b) No tinkering rule, even when some of your picks have clearly gone badly wrong


As my various reports over the years have admitted, I have done a bit of tinkering and indeed there were two unforced sales during 2019 that I described in my this year's report.

During the course of running my HYP, I have sold Tesco, Balfour Beatty, Pearson, Berkeley and Centrica, as well as small holdings in Indivior and S32. I don't think these decisions are thought of as especially heretical in HYP circles.

c) Single stock investing approach, rendering you liable to those 10%+ drops to which some stocks are prone


And also making possible investments in companies like AstraZeneca, Unilever and Diageo, all of which are worth more than twice what I paid for them...

d) The exclusion of other high yield investments eg preference shares which apparently aren’t allowed to be part of a HYP portfolio.


Personally, I find that having an HYP is easily enough income-focused investing - at least, while I am still working.

My HYP is now paying out around 1/3rd of my annual take-home income from work. I am lucky enough to have a defined benefit pension scheme which is currently forecast to pay another 1/3rd.

So, while this is a fair point, it's not directly applicable to my personal circumstances.

I do appreciate the time taken to comment, though !

Yours,

Chris

PrefInvestor
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Re: Response to comment on my HYP review

#274839

Postby PrefInvestor » January 3rd, 2020, 1:14 pm

Smautf wrote:Yesterday, I posted an annual review of my HYP on HYP Practical, which you can read here :

https://www.lemonfool.co.uk/viewtopic.php?f=15&t=21106

PrefInvestor offered the following response :

I can’t bring myself to HYP though, for a few reasons:-
a) UK focus, ignoring the rest of the world
b) No tinkering rule, even when some of your picks have clearly gone badly wrong
c) Single stock investing approach, rendering you liable to those 10%+ drops to which some stocks are prone
d) The exclusion of other high yield investments eg preference shares which apparently aren’t allowed to be part of a HYP portfolio.


Hi Again Smautf, Ahh so in short in respect of my points:-

a) You have other investments not part of your HYP that address this
b) You have tinkered, but feel only to have done so in a "HYP permitted fashion"
c) Single stock investing you clearly feel has advantages
d) Again sounds like you have other investments not part of your HYP that address this ?.

So in short you have kind of done what I suggested, you have a HYP but have supplemented it with other investments.

Anyway I repeat well done anyway, I can see the income related benefits of HYP. Myself I have moved significantly in the direction of Investment Trusts and ETFs and have very few single stocks left in my portfolio. I will probably get shot for daring to rear my head on HYP Practical but then (as per HYP) following rules laid down by somebody else isn’t my strong point !

ATB

Pref ;)

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Re: Response to comment on my HYP review

#274850

Postby jackdaww » January 3rd, 2020, 1:44 pm

its a personal choice , but you dont have to do HYP at all , or even hold high yield stocks.

i aim for total returns from a mix of stocks and IT's , some growth, some yield , some uk , some global , some smaller companies , all held in ISA's.

all dividends and gains / losses go into the " money pot " .

if i need money i withdraw any cash from the " pot " or sell shares - preferably my losers or duds , into my current account , which holds a substantial buffer .

stock selection and timing are the big issue , IT's are less work , and one wisdom says drip feed at regular intervals .

i am feeling much more comfortable moving more towards IT's , and away from HYP type single shares .

:)

PrefInvestor
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Re: Response to comment on my HYP review

#274865

Postby PrefInvestor » January 3rd, 2020, 2:17 pm

jackdaww wrote:its a personal choice , but you dont have to do HYP at all , or even hold high yield stocks.

i aim for total returns from a mix of stocks and IT's , some growth, some yield , some uk , some global , some smaller companies , all held in ISA's.

all dividends and gains / losses go into the " money pot " .

if i need money i withdraw any cash from the " pot " or sell shares - preferably my losers or duds , into my current account , which holds a substantial buffer .

stock selection and timing are the big issue , IT's are less work , and one wisdom says drip feed at regular intervals .

i am feeling much more comfortable moving more towards IT's , and away from HYP type single shares .


Hi jackdaww, Yes I have much sympathy with most of those comments. ISAs, total return, investment trusts, global - all strike a chord with me.

There are many ways to skin a cat though and many clearly ARE happy and successful with their HYPing, and I wish them all the best with it.

ATB

Pref

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Re: Response to comment on my HYP review

#275035

Postby 77ss » January 4th, 2020, 12:55 am

jackdaww wrote:its a personal choice , but you dont have to do HYP at all , or even hold high yield stocks.

i aim for total returns from a mix of stocks and IT's , some growth, some yield , some uk , some global , some smaller companies , all held in ISA's.

all dividends and gains / losses go into the " money pot " .

if i need money i withdraw any cash from the " pot " or sell shares - preferably my losers or duds , into my current account , which holds a substantial buffer .

stock selection and timing are the big issue , IT's are less work , and one wisdom says drip feed at regular intervals .

i am feeling much more comfortable moving more towards IT's , and away from HYP type single shares .

:)


I started this process, for several reasons, back in January 2011. At the time, I just had 13% in ITs (FCIT) and my initial target was to increase this to 33%. No rush and it has been largely done by putting the proceeds of top-slices into ITs - I'm retired, so there is no new money. Target achieved this year, so I had a closer look to see how I've done.

Treating all my IT investments as a separate pot, the XIRR, 17/1/2011- 31/12/2019 is 11.95%.

Certainly better than either my SIPP or my two ISAs. Some luck I expect and a reflection of my poor stock-picking skills as well perhaps.

Less work, less volatility, no disasters. I shall continue the process.

Bubblesofearth
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Re: Response to comment on my HYP review

#275176

Postby Bubblesofearth » January 4th, 2020, 5:54 pm

jackdaww wrote:its a personal choice , but you dont have to do HYP at all , or even hold high yield stocks.

i aim for total returns from a mix of stocks and IT's , some growth, some yield , some uk , some global , some smaller companies , all held in ISA's.

all dividends and gains / losses go into the " money pot " .

if i need money i withdraw any cash from the " pot " or sell shares - preferably my losers or duds , into my current account , which holds a substantial buffer .

stock selection and timing are the big issue , IT's are less work , and one wisdom says drip feed at regular intervals .

i am feeling much more comfortable moving more towards IT's , and away from HYP type single shares .

:)


Holding a portfolio of single stocks is not necessarily riskier than holding collectives such as trackers or IT's. Clearly it depends on how many stocks are held but it also depends on correlations. If I buy a portfolio of 30 shares, all equal weight on purchase and taken from different sectors (or even countries) then such a portfolio could actually be less risky (in terms of volatility) than funds that have very high capital weightings to particular shares or sectors. It has been noted many times how a whole market index can be vulnerable to a shock to whatever sector happens to have grown to assume a large fraction of said market. Tech shares in 2000 and banks in 2008 are oft quoted examples.

BoE


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