Capital

[Wizard]

I would like to caveat this post with two points:
1) I am not looking to question the merits of HYP or compare it to any other investment strategy, please do not respond on those topics
2) Having checked the current Guidelines I can see nothing in them specifically suggesting capital is an off topic matter, as long as the discussion is in the bounds of the overarching objective of the board, i.e. the practical management of an HYP.
I think on that basis it is reasonable to post this here, if a Mod disagrees I understand they will move it, though I think that would likely kill any discussion.

In the original TMF articulated approach to HYP (PYADic HYP for shorthand) the approach was one of hold forever, never sell unless forced by market activity. There was also comment about capital not being an objective in and of itself, but that the high and increasing income an HYP seeks to deliver would mean that over time cpaital would naturally trend upwards. This seems logical to me, if you never willingly sell then the times you will have to redeploy capital will be very limited.

However, the TLF guidelines are less unequivocal about selling shares voluntarily. We also see that practically on this board with a number of stalwart contributors making voluntary changes to the composition of their portfolio. I can see at least three types, which I would characterise as:

The Barber - happy to make a little trim on a regular basis when there is a degree of untidyness / imbalance in the portfolio, it is not a completely new haircut each time, just a regular little tidy-up to keep things as they should be.

The Surgeon - sometimes part of the protfolio is beyond repair and it needs amputating, this happens rarely and is a matter of very serious consideration before action is taken.

The Car Tuner - frequently looking for ways to optimise performance, that may mean a tweak here or there on a setting in the portfolio or it may mean a complete replacement of a major component.

Now at different times people may take up any one of the roles above. This is also not to say there are no PYADics around, but as has often been said before they would have little reason to make regular contributions to this board.

So what of capital. The Barber tends to trim a little off shares that have become to big a part of either income or capital value, redeploying the funds released usually to top up other shares in the portfolio. The Surgeon having removed a share entirely from the portfolio will also be looking to redploy, maybe to existing shares but possibly to new holdings. The Car Tuner is also redeploying the funds released to improve portfolio performance.

In all of these cases to my mind capital is not irrelevant. The more capital that is released the more can be deployed in to other income generating shares. The PYADic mantra of capital being far less important than income had a logic, but for the Barber, the Surgeon and the Car Tuner is that the case? So when looking at the practical management of a non-PYADic HYP I would say that capital does matter as income does and while some may say it is "all about the income", that income is earned on capital invested and reinvested.

[CryptoPlankton]

I would like to caveat this post with two points:
1) I am not looking to question the merits of HYP or compare it to any other investment strategy, please do not respond on those topics
2) Having checked the current Guidelines I can see nothing in them specifically suggesting capital is an off topic matter, as long as the discussion is in the bounds of the overarching objective of the board, i.e. the practical management of an HYP.
I think on that basis it is reasonable to post this here, if a Mod disagrees I understand they will move it, though I think that would likely kill any discussion.

In the original TMF articulated approach to HYP (PYADic HYP for shorthand) the approach was one of hold forever, never sell unless forced by market activity. There was also comment about capital not being an objective in and of itself, but that the high and increasing income an HYP seeks to deliver would mean that over time cpaital would naturally trend upwards. This seems logical to me, if you never willingly sell then the times you will have to redeploy capital will be very limited.

However, the TLF guidelines are less unequivocal about selling shares voluntarily. We also see that practically on this board with a number of stalwart contributors making voluntary changes to the composition of their portfolio. I can see at least three types, which I would characterise as:

The Barber - happy to make a little trim on a regular basis when there is a degree of untidyness / imbalance in the portfolio, it is not a completely new haircut each time, just a regular little tidy-up to keep things as they should be.

The Surgeon - sometimes part of the protfolio is beyond repair and it needs amputating, this happens rarely and is a matter of very serious consideration before action is taken.

The Car Tuner - frequently looking for ways to optimise performance, that may mean a tweak here or there on a setting in the portfolio or it may mean a complete replacement of a major component.

Now at different times people may take up any one of the roles above. This is also not to say there are no PYADics around, but as has often been said before they would have little reason to make regular contributions to this board.

So what of capital. The Barber tends to trim a little off shares that have become to big a part of either income or capital value, redeploying the funds released usually to top up other shares in the portfolio. The Surgeon having removed a share entirely from the portfolio will also be looking to redploy, maybe to existing shares but possibly to new holdings. The Car Tuner is also redeploying the funds released to improve portfolio performance.

In all of these cases to my mind capital is not irrelevant. The more capital that is released the more can be deployed in to other income generating shares. The PYADic mantra of capital being far less important than income had a logic, but for the Barber, the Surgeon and the Car Tuner is that the case? So when looking at the practical management of a non-PYADic HYP I would say that capital does matter as income does and while some may say it is "all about the income", that income is earned on capital invested and reinvested.

And...?

[Wizard]

I would like to caveat this post with two points:
1) I am not looking to question the merits of HYP or compare it to any other investment strategy, please do not respond on those topics
2) Having checked the current Guidelines I can see nothing in them specifically suggesting capital is an off topic matter, as long as the discussion is in the bounds of the overarching objective of the board, i.e. the practical management of an HYP.
I think on that basis it is reasonable to post this here, if a Mod disagrees I understand they will move it, though I think that would likely kill any discussion.

In the original TMF articulated approach to HYP (PYADic HYP for shorthand) the approach was one of hold forever, never sell unless forced by market activity. There was also comment about capital not being an objective in and of itself, but that the high and increasing income an HYP seeks to deliver would mean that over time cpaital would naturally trend upwards. This seems logical to me, if you never willingly sell then the times you will have to redeploy capital will be very limited.

However, the TLF guidelines are less unequivocal about selling shares voluntarily. We also see that practically on this board with a number of stalwart contributors making voluntary changes to the composition of their portfolio. I can see at least three types, which I would characterise as:

The Barber - happy to make a little trim on a regular basis when there is a degree of untidyness / imbalance in the portfolio, it is not a completely new haircut each time, just a regular little tidy-up to keep things as they should be.

The Surgeon - sometimes part of the protfolio is beyond repair and it needs amputating, this happens rarely and is a matter of very serious consideration before action is taken.

The Car Tuner - frequently looking for ways to optimise performance, that may mean a tweak here or there on a setting in the portfolio or it may mean a complete replacement of a major component.

Now at different times people may take up any one of the roles above. This is also not to say there are no PYADics around, but as has often been said before they would have little reason to make regular contributions to this board.

So what of capital. The Barber tends to trim a little off shares that have become to big a part of either income or capital value, redeploying the funds released usually to top up other shares in the portfolio. The Surgeon having removed a share entirely from the portfolio will also be looking to redploy, maybe to existing shares but possibly to new holdings. The Car Tuner is also redeploying the funds released to improve portfolio performance.

In all of these cases to my mind capital is not irrelevant. The more capital that is released the more can be deployed in to other income generating shares. The PYADic mantra of capital being far less important than income had a logic, but for the Barber, the Surgeon and the Car Tuner is that the case? So when looking at the practical management of a non-PYADic HYP I would say that capital does matter as income does and while some may say it is "all about the income", that income is earned on capital invested and reinvested.

And...?

...thrrefore statements that explicitly or implicitly put forward the view capital does not matter are questionable at best.

[tjh290633]

Moderator Message:
Thread moved to Investment Strategies, where further discussion should take place.

TJH

[Alaric]

...therefore statements that explicitly or implicitly put forward the view capital does not matter are questionable at best.

That's seen in stock selection as well. If attempting to make a choice between two comparable Companies, does it matter if one has a dividend yield of 4% and the other of 5%? A 1% price variation wipes out any advantage potentially offered by the higher yielding stock.

[tjh290633]

...therefore statements that explicitly or implicitly put forward the view capital does not matter are questionable at best.

That's seen in stock selection as well. If attempting to make a choice between two comparable Companies, does it matter if one has a dividend yield of 4% and the other of 5%? A 1% price variation wipes out any advantage potentially offered by the higher yielding stock.

Would you like to show your working?

I think that you need an increase of 25% in the dividend to offset the difference in income. You may find that the variation in price can work in either direction for either share.

TJH

[Alaric]

Would you like to show your working?

Buy 100 of each.

Value of fund for lower yielding stock after one year is 100 + 4 if prices don't move.
Value of fund for higher yielding stock after one year is 100 -1 + 5 if higher yield stock drops in price by 1% to 99..

There's little point in buying a higher yielding share if the higher dividend just walks out the door as a capital loss, particularly for those who are only intending to reinvest the dividend.

[Wizard]

Moderator Message:
Thread moved to Investment Strategies, where further discussion should take place.

TJH

I would be grateful for some guidance on what was contrary to the HYP-P guidance in my OP, so I can avoid making the same mistake again.

[jackdaww]

There's little point in buying a higher yielding share if the higher dividend just walks out the door as a capital loss, particularly for those who are only intending to reinvest the dividend.

============================

yes

i am still baffled by this predilection for high yield , or even any yield , when the SP drops by the same amount on XD day .

its just a return of your capital . isnt it ?

[tjh290633]

Moderator Message:
Thread moved to Investment Strategies, where further discussion should take place.

TJH

I would be grateful for some guidance on what was contrary to the HYP-P guidance in my OP, so I can avoid making the same mistake again.

You are discussing strategies, not practical issues.

TJH

[Arborbridge]

Moderator Message:
Thread moved to Investment Strategies, where further discussion should take place.

TJH

I would be grateful for some guidance on what was contrary to the HYP-P guidance in my OP, so I can avoid making the same mistake again.

You are discussing strategies, not practical issues.

TJH

And it seems reasonable to have the sort of discussion that has occurred in this thread so far, on here rather than HYPP - you were wise to move it.

Arb.

[Urbandreamer]

Moderator Message:
Thread moved to Investment Strategies, where further discussion should take place.

TJH

I would be grateful for some guidance on what was contrary to the HYP-P guidance in my OP, so I can avoid making the same mistake again.

I am not the Mod, and myself have both stopped slavishly following the HYP methodology and posting on the HYP-P board.
However, I think that the OP very clearly pointed out both that they were willing for the post to be moved, but more importantly questioned some holy cows of HYP.

NO, it doesn't matter that people act in a manner that suggests doubt on those aspects. What is important is that those aspects are not debated upon HYP-P.

They could be debated here.

I actually feel that it would be healthy if they were debated here.

Sadly, I must refrain from joining such debate as I have come to the conclusion that HYP, as originally imagined, should be considered a limited life method (which is entirely different from claiming that it won't work today). I now run my investments as a combined growth and income portfolio, so NOT HYP.

My chief complaint about the HYP method is the concept that the world doesn't change over the lifetime of both the investor and their portfolio. The concept can work for decades, but must eventually fail.

Consider Mr Burns investments, of Simpsons fame. Consolidated slave traders, a buggy whip company etc.

I still hold Shell, but clearly it shouldn't be considered a HYP stock as it cut it's dividend. Yet I think that there was a post on HYP-P debating investing in BP or Shell (which I didn't read). Suggesting Shell as a HYP stock is ok, but questioning the holy cows is not.

Indeed the concept that a company that sells shells should be selling shells 100 years later is clearly daft, of course Shell doesn't do so. However assuming that a company selling shells can identify a new technology and invest in drilling rigs etc is outside HYP considerations isn't it? Strategic ignorance etc.

[88V8]

Once one has bought the share, or as I think of it, the income, the capital doesn't matter.
Provided that the income is sustained.

But when there is a cut or cancellation, it becomes more difficult.

At one time, I automatically sold a cutter. However, if the price is underwater, one's capital has diminished and the income that can then be bought is, all things being equal, reduced.
Keep repeating the process, it can make quite a dent in the capital.

So to that extent it matters and one has to decide whether to hang on, or wait for a price improvement and sell later.

But if the income ship is sailing serenely on, capital does not matter. Not to me, at any rate.

V8

[Wizard]

...therefore statements that explicitly or implicitly put forward the view capital does not matter are questionable at best.

That's seen in stock selection as well. If attempting to make a choice between two comparable Companies, does it matter if one has a dividend yield of 4% and the other of 5%? A 1% price variation wipes out any advantage potentially offered by the higher yielding stock.

Would you like to show your working?

I think that you need an increase of 25% in the dividend to offset the difference in income. You may find that the variation in price can work in either direction for either share.

TJH

The clue in Alaric's post is the use of the word "price" rather than "dividend", which you used.

[Itsallaguess]

Would you like to show your working?

Buy 100 of each.

Value of fund for lower yielding stock after one year is 100 + 4 if prices don't move.

Value of fund for higher yielding stock after one year is 100 -1 + 5 if higher yield stock drops in price by 1% to 99..

There's little point in buying a higher yielding share if the higher dividend just walks out the door as a capital loss

If, if, if.....

Some working....

Itsallaguess

[IanTHughes]

Would you like to show your working?

Buy 100 of each.

Value of fund for lower yielding stock after one year is 100 + 4 if prices don't move.
Value of fund for higher yielding stock after one year is 100 -1 + 5 if higher yield stock drops in price by 1% to 99..

There's little point in buying a higher yielding share if the higher dividend just walks out the door as a capital loss, particularly for those who are only intending to reinvest the dividend.

What IF the higher yielding share was also to increase in value, on top of paying out that higher income?

"There's little point in buying a lower yielding share if the higher dividend also provides a greater capital gain, particularly for those who are only intending to reinvest the dividend." Would you agree?

Anyone can make up future scenarios to justify investment decisions, but it is of course simply Mystic Meg forecasting.


Ian

[Arborbridge]

Moderator Message:
Thread moved to Investment Strategies, where further discussion should take place.

TJH

I would be grateful for some guidance on what was contrary to the HYP-P guidance in my OP, so I can avoid making the same mistake again.

I am not the Mod, and myself have both stopped slavishly following the HYP methodology and posting on the HYP-P board.
However, I think that the OP very clearly pointed out both that they were willing for the post to be moved, but more importantly questioned some holy cows of HYP.

NO, it doesn't matter that people act in a manner that suggests doubt on those aspects. What is important is that those aspects are not debated upon HYP-P.

They could be debated here.

I actually feel that it would be healthy if they were debated here.

Sadly, I must refrain from joining such debate as I have come to the conclusion that HYP, as originally imagined, should be considered a limited life method (which is entirely different from claiming that it won't work today). I now run my investments as a combined growth and income portfolio, so NOT HYP.

My chief complaint about the HYP method is the concept that the world doesn't change over the lifetime of both the investor and their portfolio. The concept can work for decades, but must eventually fail.

Consider Mr Burns investments, of Simpsons fame. Consolidated slave traders, a buggy whip company etc.

I still hold Shell, but clearly it shouldn't be considered a HYP stock as it cut it's dividend. Yet I think that there was a post on HYP-P debating investing in BP or Shell (which I didn't read). Suggesting Shell as a HYP stock is ok, but questioning the holy cows is not.

Indeed the concept that a company that sells shells should be selling shells 100 years later is clearly daft, of course Shell doesn't do so. However assuming that a company selling shells can identify a new technology and invest in drilling rigs etc is outside HYP considerations isn't it? Strategic ignorance etc.

You made your decision about HYP, and that's fine, so I'm not going to waste energy trying to convince you otherwise. In my view you seem to have misinterpreted some of the guidelines surrounding HYP and maybe that's why you've come to the conclusion you did.
You talk about "holy cows" but there are a very few general principles and like all good investments strategies changes can be made to suit the conditions. Indeed, pyad's post which you use to be critical is actually an affirmation of the rule of common sense and shows his flexibility. I'm not even quite sure what you comment about Shell is intended to imply, for it seems to me to describe the virtues of HYP quite well, rather than the opposite.

I feel there's no future in a circular debate, but from the above, my feeling is that you have some ideas about HYP which are not inherent in HYP. Going back to read the original articles can be quite refreshing for the ideas are put over with great clarity and simplicity - later people added bells and whistles which put it into people's heads about holy cows, rules etc, but I've never found pyad himself to have anything other than a flexible approach, outside the general ideas.

I guess you either believe those ideas or not, which is everyone's prerogative: a diverse group of large companies, long term or market trading and evolution of a portfolio (which includes the much misunderstood SI), and a concentration on the health of the income stream while letting capital look after itself, plus additional safety factors which can be very much to choice. The details of how to do this are up to the individual and how he sees it.

It's a simple method for semi-educated amateur DIY investors who want income first and foremost. It won't suit anyone, and it never claimed to be the best thing since sliced bread. Taken within its context, it is a notable idea - but if anyone cannot accept it, then they can just do something they prefer and they will get no criticism from me or most HYPers

Arb.

[Alaric]

"There's little point in buying a lower yielding share if the higher dividend also provides a greater capital gain, particularly for those who are only intending to reinvest the dividend." Would you agree?

If that were the case, you would have found a method of selecting individual shares guaranteeing a higher total return. I don't think that happens with any degree of reliability, thus current dividend yield shouldn't be particularly high as an attribute in a system of stock selection. I am reminded that the "sort by dividend yield" method of stock selection would place Carillion above say Unilever.

Dividends are determined by directors, prices by the wider market. High dividend and low price might be a bargain, but also might indicate a Company perceived to be in trouble and unable to pay the current level of dividend in a medium to longer term, including being so unable to pay the dividend that like Carillion it becomes worthless.

[Wizard]

Would you like to show your working?

Buy 100 of each.

Value of fund for lower yielding stock after one year is 100 + 4 if prices don't move.
Value of fund for higher yielding stock after one year is 100 -1 + 5 if higher yield stock drops in price by 1% to 99..

There's little point in buying a higher yielding share if the higher dividend just walks out the door as a capital loss, particularly for those who are only intending to reinvest the dividend.

What IF the higher yielding share was also to increase in value, on top of paying out that higher income?

"There's little point in buying a lower yielding share if the higher dividend also provides a greater capital gain, particularly for those who are only intending to reinvest the dividend." Would you agree?

Anyone can make up future scenarios to justify investment decisions, but it is of course simply Mystic Meg forecasting.


Ian

I agree with you completely, which was exactly my point in the initial post, it is not about just income if you are not wedded to holding the shares forever.

As another example, recently somebody posted about having exited a holding in their HYP because the price of the share had fallen below the level of a stop loss they had set up on their account. The share had stopped paying a dividend some weeks before, but it was the fall in price that resulted in the disposal, presumably because the investor was seeking to protect the amount of capital available to be redeployed.

For the avoidance of doubt I am not critical of such actions.

[hiriskpaul]

There's little point in buying a higher yielding share if the higher dividend just walks out the door as a capital loss, particularly for those who are only intending to reinvest the dividend.

============================

yes

i am still baffled by this predilection for high yield , or even any yield , when the SP drops by the same amount on XD day .

its just a return of your capital . isnt it ?

I am breaking my self imposed rule about commenting on matters HYP, but this comment hits the nail very firmly on the head. A £100m company pays out a dividend of £3m. All else remaining the same, the company is now worth £97m. Capital reduction in all but name.