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Why High Yield?

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
gryffron
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Re: Why High Yield?

#283955

Postby gryffron » February 13th, 2020, 11:03 am

I'll take a stab at this.
IMO
Growth vs yield is a false argument. It's trivial to convert capital into income or vice versa. So people who argue that they "need" the income are approaching this from the wrong angle.

The issue is picking shares.
It's relatively easy to pick High yield shares. Last years high yielders will probably also be this years high yielders. Dividends change little, and even share prices aren't too drastic at this end of the market. Not saying prices don't fluctuate, but they fluctuate quite slowly.
By comparison, picking growth shares is hard. Particularly amongst the FTSE350. There is little evidence that last years top growth share will grow well this year. Indeed, such evidence as exists suggests any correlation may be negative. As unsustained localised price "bubbles" can give a false impression of growth. Even "real" growth in earnings, sales or NAV can be lumpy and unpredictable. Professional fund managers who focus on growth or impetus usually fare badly. if the pros can't do it, what chance does an amateur have?

Somebody said "simplicity", but trackers are even simpler. But if you want to pick individual shares rather than a tracker, then HYP is the "easy" option.

Gryff

tjh290633
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Re: Why High Yield?

#283958

Postby tjh290633 » February 13th, 2020, 11:07 am

gryffron wrote:By comparison, picking growth shares is hard. Particularly amongst the FTSE350. There is little evidence that last years top growth share will grow well this year. Indeed, such evidence as exists suggests any correlation may be negative.

I concur with that and my year-on-year data demonstrates it admirably:

.       2014              2015               2016      .      2017       .       2018             2019
Epic Change Epic Change Epic Change Epic Change Epic Change Epic Change
UU. 36.41% TW. 47.39% S32 207.62% INDV 37.81% PSON 27.50% SGRO 52.43%
AZN 27.44% REX 33.21% BLT 71.91% TW. 34.46% AZN 14.68% TW. 41.94%
INDV @ 24.50% IMT 26.46% PFL * 67.45% DGE 29.15% GSK 12.76% MARS 35.25%
TW. 23.59% INDV 25.70% INDV 57.72% IMI 28.17% BHP 8.48% TSCO 34.25%
BLND 23.53% ADM 25.49% RDSB 52.56% SGRO 28.14% CPG 3.13% SSE 33.01%
IMT 21.30% SMDS 23.20% BP. 43.95% SMDS 26.81% DGE 2.57% LGEN 31.17%
SSE 18.39% RB. 20.56% RIO @ 42.12% S32 25.54% ADM 2.25% AZN 29.52%
NG. 16.51% BT.A 17.48% TSCO 38.36% ULVR 25.30% SGRO 0.27% BATS 29.26%
CPG 13.75% SGRO 15.96% CPG 27.74% RIO 24.81% ULVR -0.41% SMDS 28.37%
SGRO 10.87% MARS 15.95% BATS 22.55% VOD 17.59% BP. -5.12% UU. 28.14%
MKS 10.68% ULVR 11.36% IMI 20.72% BLT 16.53% RIO -5.38% IMI 24.89%
RB. 8.70% WMH 9.24% BA. 18.39% AZN 15.40% TATE -6.12% NG. 23.57%
BA. 8.51% BATS 7.74% TATE 18.11% WMH 10.96% RDSB -6.72% BA. 23.00%
BATS 8.09% CPG 6.71% LGEN @ 15.33% LGEN 10.38% INDV* -8.87% WMH 21.58%
AV. 7.74% AV. 6.50% GSK 13.77% BLND 9.85% TSCO -9.15% RIO 20.72%
RSA * 6.74% BA. 5.85% DGE 13.65% ADM 9.58% S32 -9.25% LLOY 20.61%
ULVR 5.88% UU. 2.13% ULVR 12.51% BATS 8.58% UU. -11.25% BLND 19.80%
BT.A 5.82% NG. 2.11% PSON 11.21% LLOY 8.41% BT.A -12.37% GSK 19.30%
MARS 0.00% AZN 1.34% ADM 10.13% CPG 6.60% NG. -12.67% TATE 15.18%
RDSB -2.06% BLND 1.16% RB. 9.63% RDSB 6.56% RB. -13.09% CPG 14.55%
SMDS -3.01% DGE 0.43% SGRO 6.68% AV. 4.13% LGEN -15.48% DGE 14.51%
LLOY -3.88% GSK -0.22% KGF 6.31% BP. 2.57% MARS -16.40% ADM 12.80%
VOD -6.05% TATE -0.66% REX * 4.90% TSCO 1.16% SSE -18.07% AV. 11.50%
DGE -7.58% VOD -0.74% SMDS 2.87% RB. 0.48% BA. -19.86% BHP 7.58%
WMH -9.80% KGF -3.23% SSE 1.64% TATE -0.64% MKS -21.47% ULVR 5.89%
PSON -11.26% LLOY -3.63% NG. 1.50% BA. -3.13% BLND -22.89% KGF 4.58%
KGF -11.49% MKS -5.51% IMB -1.23% KGF -3.60% LLOY -23.86% RB. 1.93%
ADM -12.39% SSE -5.80% UU. -3.69% UU. -7.94% IMB -24.92% VOD -4.02%
REX -14.46% BP. -13.87% AZN -3.88% NG. -8.04% AV. -25.86% RDSB -4.29%
GSK -14.61% TSCO -20.90% AV. -5.74% MKS -10.06% IMI -29.18% BP. -4.91%
BP. -15.79% RDSB -30.90% VOD -9.57% PSON -10.08% TW. -33.99% MKS -13.63%
IMI -17.18% IMI -31.79% LLOY -14.08% IMB -10.63% VOD -34.94% BT.A -19.18%
PFL -20.76% PSON -38.15% MARS -18.32% SSE -15.00% KGF -38.55% IMB -21.37%
TATE -25.46% PFL -44.32% BLND -19.91% GSK -15.33% SMDS -42.16% S32 -23.37%
BLT -25.71% BLT -45.26% CLLN @ -20.03% MARS -17.28% BATS -50.18% PSON -32.12%
TSCO -43.47% S32 @ -49.52% BT.A -22.22% BT.A -25.95% WMH -51.86%
MKS -22.63% CLLN -92.69% CLLN* -100.00%
TW. -24.42%
WMH -26.72%

@ Addition
* Disposal


Compare and contrast.

TJH

dealtn
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Re: Why High Yield?

#283971

Postby dealtn » February 13th, 2020, 11:52 am

tjh290633 wrote:
gryffron wrote:By comparison, picking growth shares is hard. Particularly amongst the FTSE350. There is little evidence that last years top growth share will grow well this year. Indeed, such evidence as exists suggests any correlation may be negative.

I concur with that and my year-on-year data demonstrates it admirably:


TJH


Sorry, but what are you demonstrating in that table (I won't replicate it to save space), but that isn't a list of the FTSE350. Nor is it a table of what might be described as a portfolio of growth shares.

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Re: Why High Yield?

#283995

Postby torata » February 13th, 2020, 1:05 pm

gryffron wrote:I'll take a stab at this.
IMO
Growth vs yield is a false argument. It's trivial to convert capital into income or vice versa. So people who argue that they "need" the income are approaching this from the wrong angle.

The issue is picking shares.
[SNIP]


Apologies as I'm not adding anything to the thread, but your whole post (not just the snippet I've quoted) felt like it hit the nail on the head. Thanks.

torata

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Re: Why High Yield?

#283997

Postby daveh » February 13th, 2020, 1:12 pm

dealtn wrote:
tjh290633 wrote:
gryffron wrote:By comparison, picking growth shares is hard. Particularly amongst the FTSE350. There is little evidence that last years top growth share will grow well this year. Indeed, such evidence as exists suggests any correlation may be negative.

I concur with that and my year-on-year data demonstrates it admirably:


TJH


Sorry, but what are you demonstrating in that table (I won't replicate it to save space), but that isn't a list of the FTSE350. Nor is it a table of what might be described as a portfolio of growth shares.


Its a table of TJH's HY shares listed by annual growth and shows that what grew well one year generally hasn't the next and also vice versa - what did poorly last year has often done well the next.

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Re: Why High Yield?

#284008

Postby dealtn » February 13th, 2020, 1:40 pm

daveh wrote:
dealtn wrote:
tjh290633 wrote:I concur with that and my year-on-year data demonstrates it admirably:


TJH


Sorry, but what are you demonstrating in that table (I won't replicate it to save space), but that isn't a list of the FTSE350. Nor is it a table of what might be described as a portfolio of growth shares.


Its a table of TJH's HY shares listed by annual growth and shows that what grew well one year generally hasn't the next and also vice versa - what did poorly last year has often done well the next.


Ok understood, but it was in a reply to (and quoted) the proposition about selecting growth shares from the FTSE-350, or at least that's how I read it. Extrapolating how HY shares perform from one year to the next tells us little about how such a performance might, or might not, exist across a set of different shares. Unless you would be making the claim that growth shares (however that is defined) are similar to HY shares, and I doubt anyone would be making such a claim.

Momentum strategies, and what might loosely be called "total return" strategies, do make claims such that good performers tend to repeat that performance going forward. Demonstrating that doesn't hold true for HY shares doesn't show such claims for other shares can't be upheld.

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Re: Why High Yield?

#284056

Postby 1nvest » February 13th, 2020, 5:14 pm

That's the whole nature of gains. A broadly inflation pacing asset with high volatility might see it down -25% one year, up +33.3% the next, net 0% (in real terms) gain/loss, but with a combined average of +4.2%

Sort any group of assets by yearly worst through to best and average those yearly worst and best and generally the best will counter the worst .. and some. The left and right tails will be the extremes, which for a large number of individual assets will be relatively few. It's difficult to predict those that will fall into those slots, the odds are against you concentrating most into the few great cases. The more assets, and assuming equal weightings, the less you'll have in the few - but the higher (best, deeper for worst) those tails tend to be. Fundamentally the reason why a relatively small number such as the Dow 30 stocks can compare to the wider S&P 500 stocks.

The best measure of two different asset allocations is to compare total returns with the same amount of income being drawn from both. When so generally high yield selections are no different. Higher yield tends to produce lower price appreciation than lower yield (that tends to have higher price appreciation). Limiting oneself to just one type such as higher yield limit the range of candidates, tends to be less diversified.

The way the likes of HYP tending to be reported makes it very opaque when attempting to make like for like comparisons. Total returns enable more transparent comparison. High yield is not indicative of assured value as some will be high yield in reflection of higher risk - and where the risk comes to light (stock falters/fails).

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Re: Why High Yield?

#284057

Postby funduffer » February 13th, 2020, 5:18 pm

I think many good points have been made to explain the attraction of a high yield strategy.

One other point is that for relatively inexperienced investors, picking HY shares is not too difficult as was pointed out above.

However, the thing that is difficult for inexperienced investors is selling shares. Psychologically it is difficult (particularly if you are selling at a loss), and an attraction of HYP is that you rarely have to do it!

FD

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Re: Why High Yield?

#284064

Postby tjh290633 » February 13th, 2020, 6:01 pm

dealtn wrote:
tjh290633 wrote:
gryffron wrote:By comparison, picking growth shares is hard. Particularly amongst the FTSE350. There is little evidence that last years top growth share will grow well this year. Indeed, such evidence as exists suggests any correlation may be negative.

I concur with that and my year-on-year data demonstrates it admirably:


TJH


Sorry, but what are you demonstrating in that table (I won't replicate it to save space), but that isn't a list of the FTSE350. Nor is it a table of what might be described as a portfolio of growth shares.

OK, here are the bottom 12 of my portfolio, ranked by yield, which is a representative selection of shares with yields under the average for the FTSE100.

24   TATE   3.80%
25 IMI 3.68%
26 BA. 3.41%
27 PSON 3.41%
28 ULVR 3.10%
29 S32 2.91%
30 AZN 2.87%
31 RB. 2.73%
32 TSCO 2.68%
33 DGE 2.28%
34 SGRO 2.12%
35 CPG 2.05%

See how they did from year to year.

TJH

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Re: Why High Yield?

#284245

Postby dealtn » February 14th, 2020, 11:56 am

tjh290633 wrote:
dealtn wrote:
tjh290633 wrote:I concur with that and my year-on-year data demonstrates it admirably:


TJH


Sorry, but what are you demonstrating in that table (I won't replicate it to save space), but that isn't a list of the FTSE350. Nor is it a table of what might be described as a portfolio of growth shares.

OK, here are the bottom 12 of my portfolio, ranked by yield, which is a representative selection of shares with yields under the average for the FTSE100.

24   TATE   3.80%
25 IMI 3.68%
26 BA. 3.41%
27 PSON 3.41%
28 ULVR 3.10%
29 S32 2.91%
30 AZN 2.87%
31 RB. 2.73%
32 TSCO 2.68%
33 DGE 2.28%
34 SGRO 2.12%
35 CPG 2.05%

See how they did from year to year.

TJH


Well firstly I wouldn't go looking for "growth" or "total return" shares from a previously selected HYP portfolio for choice, but in the spirit of generosity lets do as you suggest. I don't think it's inappropriate to filter slightly the shares you offer though. I doubt it is too controversial to suggest that shares that would really qualify would need to pass a filter such as Return on Capital (or perhaps Return on Equity). I would suggest a ROC>10% would be simple enough to use, which eliminates PSON, S32, AZN and TSCO.

To limit the numbers of disqualifiers let's keep AZN as that has a ROC of 8%, and a ROE of 17%. It's much clearer that the three eliminated wouldn't be called "growth" or "total return" shares by many (any?).

Of course we have the problem of using today's ROC or ROE as a filter for a share we want to analyse over the last 5 years, which isn't ideal as we should be looking at what these metrics were 5 years ago, not now, but you chose the shares, and I don’t have the history to do that easily, so let's stick with what we have, for simplicity sake, if not accuracy!

Well what do we see? Taken in turn the annual "share price" growth rates for Tate are -4%, 35%, -21% 26% and 10% which generates an overall gain of 40% comparing today's share price with that of 5 years ago. Similarly for IMI it's -47%, 63%, 1%, -23% and 17%, with an aggregate of -21%. BA. produces numbers of -11%, 30%, -5%, -8% and 25%, which is an aggregate of 25%. ULVR has its sequence as 6%, 12%, 17%, 11% and 8% producing 65% over the 5 years. AZN shows growth in annual increments of -11%, 14%, 4%, 27% and 24%, which is 68% in aggregate. RB. has 5%, 16%, -9%, -5% and 6% which is 12% growth overall. DGE follows with -4%, 27%, 10%, 23% and 1% and 67% for the entire period. SGRO has -4%, 17%, 20%, 17% and 43% which produces 128% in aggregate, with lastly CPG having 6%, 20%, 8%, 13% and 11% producing 74% in aggregate.

This of course is a simple exercise, from a small pool, subject to survivor bias and many other "errors" but as an illustration serves to prove a point that (at least after the event!) shows that selected shares that have done well in one year can, and do, repeat that in the next year, and over a longer period in aggregate. Which is what Gryfon (I think) was saying there is little evidence for. I think his claim that it is hard to pick such shares in advance may hold, although a simple ROC or ROE filter might help.

Of the 9 shares looked at 8 have growth over 5 years. Furthermore 2 see growth in each of the 5 one year periods, and an additional 3 have 4 consecutive one year growth periods. (Notably the FTSE, and most indices, fell considerably in the first year of this analysis and all 3 beat the index in that year so on a relative analysis, which I haven't done, the performance results might be even more striking).

It is perhaps only right to also look at Dividends over the period also, for 2 reasons. Firstly we are talking about "total return", but also because Dividends are the cornerstone of at least one other strategy, and of course that strategy provided the initial shares you chose. Should one have invested 5 years ago, in addition to the Capital growth mentioned above, Income as a percentage of initial investment on the 9 shares would have been Tate - 25%, IMI - 14%, BA. - 21%, ULVR - 23%, AZN - 26%, RB. - 14%, DGE - 17%, SGRO - 20% and CPG 21%.

HYP isn't a strategy I follow, nor do I care for Dividend Income (I am happy for investments to pay no dividend and for companies to reinvest that in the underlying business themselves, but few actually do this completely) so I don't know off hand whether any of the 9 were "cutters" or "holders", although I suspect AZN at least hasn't been much of a riser, it at all.

Others can make claims whether the selected 9 would be suitable, or not, from an income perspective, whether that is "enough" or "growing". It simply doesn't interest me enough to do the work, or compare it to alternatives, but I am sure comments might be of interest to others amongst the community here.

Anyway, I hope the above is useful to some, and keeps the thread open, even if it isn't complete scientific analysis, nor descriptive enough to be an "Investment Strategy" in its own right.

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Re: Why High Yield?

#284249

Postby Alaric » February 14th, 2020, 12:05 pm

dealtn wrote: Should one have invested 5 years ago, in addition to the Capital growth mentioned above, Income as a percentage of initial investment on the 9 shares would have been Tate - 25%, IMI - 14%, BA. - 21%, ULVR - 23%, AZN - 26%, RB. - 14%, DGE - 17%, SGRO - 20% and CPG 21%..


Some of the shares on that list are known for having stellar performance over a long period.

ULVR - Unilever
DGE - Diageo
SGRO - SEGRO
CPG - Compass

They are the stocks that if you hold them in a taxed account, that CGT may be a problem if they were to be taken over.

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Re: Why High Yield?

#284328

Postby dealtn » February 14th, 2020, 3:59 pm

Just out of curiosity I ran a broad screen for UK listed companies with ROCE>10% Gross Margin>10% and Market Cap>£50mio. This gives 272 companies as a "pool" to fish in. Not a particularly challenging set of criteria.

Restricting that pool to just constituents of the top 350 and having a yield of 4% or above, to make it "HYPish", shrinks the pool to just 18.

That in essence, I guess, is why I find it hard to compute why many would be fishing exclusively in such a pool.

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Re: Why High Yield?

#284336

Postby Itsallaguess » February 14th, 2020, 4:27 pm

dealtn wrote:
Just out of curiosity I ran a broad screen for UK listed companies with ROCE>10% Gross Margin>10% and Market Cap>£50mio. This gives 272 companies as a "pool" to fish in. Not a particularly challenging set of criteria.

Restricting that pool to just constituents of the top 350 and having a yield of 4% or above, to make it "HYPish", shrinks the pool to just 18.

That in essence, I guess, is why I find it hard to compute why many would be fishing exclusively in such a pool.


Isn't that what filtering does - shrinks the pool to seek out what we're looking for?

You've potentially filtered for good income-investment options, and investment filters are usually deployed with the idea to do exactly what you've done, which is to hone in on a sub-set of investment-options with a view to delivering your objective, which in this case might be to seek out solid, reliable companies with relatively high yields....

Such filtering isn't an activity that's exclusive to income-investment....

Couldn't we run some well known 'Value' filters that might show the same 'shrinking the pool' process? Would we discount 'value-investing' too, for the same reasons?

As an aside, it's also a slightly tenuous approach to 'the small pool' idea anyway, given that such a 'pool' is likely to change over time to offer up different investment-options, so the idea of 'exclusively fishing' in a pool of just 18 shares isn't as rigid as the above suggestion seems to promote.....

I would like to caveat the above with one observation though, and this is that the above 'pool shrink' to just 18 shares is one of the reasons why I personally don't subscribe to the 'time to buy is now' view, regarding the potential for investing a very large amount of capital into a 'single-shot' HYP. I'd very much prefer to spread out such a purchase with the specific idea of seeing some varied options within that given 'pool' at different times...

Cheers,

Itsallaguess

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Re: Why High Yield?

#284341

Postby 1nvest » February 14th, 2020, 4:47 pm

dealtn wrote:Well what do we see? Taken in turn the annual "share price" growth rates for Tate are -4%, 35%, -21% 26% and 10% which generates an overall gain of 40% comparing today's share price with that of 5 years ago. Similarly for IMI it's -47%, 63%, 1%, -23% and 17%, with an aggregate of -21%. BA. produces numbers of -11%, 30%, -5%, -8% and 25%, which is an aggregate of 25%. ULVR has its sequence as 6%, 12%, 17%, 11% and 8% producing 65% over the 5 years. AZN shows growth in annual increments of -11%, 14%, 4%, 27% and 24%, which is 68% in aggregate. RB. has 5%, 16%, -9%, -5% and 6% which is 12% growth overall. DGE follows with -4%, 27%, 10%, 23% and 1% and 67% for the entire period. SGRO has -4%, 17%, 20%, 17% and 43% which produces 128% in aggregate, with lastly CPG having 6%, 20%, 8%, 13% and 11% producing 74% in aggregate.

This of course is a simple exercise, from a small pool, subject to survivor bias and many other "errors" but as an illustration serves to prove a point that (at least after the event!) shows that selected shares that have done well in one year can, and do, repeat that in the next year, and over a longer period in aggregate.

The figures I have recorded seem to differ to yours, at least for Unilever. Yearly share price changes of ...
Image
and from 1998 where for some price appreciation accumulated to relatively little, mostly rewards arose from dividends
Image
Collectively, yearly rebalanced back to equal weightings accumulated a price only 3.86% annualised real gain (6.5% nominal), excluding a average dividend of 3.48% (so around 10% nominal annualised total return, 7.4% real).

The Callan/periodic table perhaps helps with visualisation of the variability of the individuals relative to each other.

That set is more a case of just sector diversification

VOD telecoms
BAE Tech
RIO materials
Unlever consumer (discretionary)
ABF Consumer (Foods)
BP energy/oil
GSK healthcare
HSBA financials

along with being multi-nationals (with some smaller cap (FTSE250) and US (Berkshire Hathaway) also thrown in).

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Re: Why High Yield?

#284395

Postby 1nvest » February 14th, 2020, 11:49 pm

dealtn wrote:prove a point that (at least after the event!) shows that selected shares that have done well in one year can, and do, repeat that in the next year,

Using FTSE 100, FTSE 250, Gold and S&P500 (£ adjusted) yearly total gains, and holding the prior years best performing asset for the current year

Image

did produce a good outcome for 1987 to 2019 inclusive

Image

But in the last four years, holding the prior years best asset has proved to be the current years worst performing asset.

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Re: Why High Yield?

#284411

Postby TUK020 » February 15th, 2020, 8:05 am

1nvest wrote:But in the last four years, holding the prior years best asset has proved to be the current years worst performing asset.

So are you expecting reversion to the mean?

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Re: Why High Yield?

#284424

Postby JamesMuenchen » February 15th, 2020, 8:59 am

1nvest wrote:Image

Shows what a terrible index the FTSE100 has become, stuffed with pedestrian high-yielders.

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Re: Why High Yield?

#284483

Postby ADrunkenMarcus » February 15th, 2020, 12:18 pm

1nvest

Thank you for sharing with us so much interesting data. I will take time to chew some of it over!

I did have a query on Unilever. I have an interest as a holder so took a closer look.

The shareprice was around 1100p in January 1998 according to Google Finance and I believe that has been adjusted for any consolidations/splits etc. that may have occurred along the way, which implies a much greater capital return and CAGR than your figures indicate. Is there a grimlin or share split adjustment that needs to be made somewhere? Thanks.

Best wishes

Mark.

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Re: Why High Yield?

#284525

Postby BusyBumbleBee » February 15th, 2020, 2:59 pm

The question is not "Why High Yield?" but "why High Yield here?"

Maybe I am being Hypersensitive but aren't there whole swathes of this site dedicated to just that where everything that could possibly be said has already been said many, many times? I, for one, came here to escape from it :?

dealtn
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Re: Why High Yield?

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Postby dealtn » February 15th, 2020, 3:00 pm

1nvest wrote:The figures I have recorded seem to differ to yours, at least for Unilever. Yearly share price changes of ...


Presumably because you have used calendar years, whilst I calculated mine using "now" as a reference (which is now yesterday, of course!). So 14/2/15 to 14/2/16, 14/2/16 to 14/2/17 etc. for instance

The addition of so many colours, and other shares, makes it difficult on my eyes to know what you are trying to show to be honest, but maybe that's just me!


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