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Put your mouth where your money is!

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
CryptoPlankton
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Put your mouth where your money is!

#332240

Postby CryptoPlankton » August 10th, 2020, 7:43 pm

In viewtopic.php?p=332203#p332203
dealtn wrote:
The simple model was just to show an example of how it works.


Moderator Message:
Link to source topic provided. TJH

Taken from the "Capital" thread, this seems to sum up the very safe approach of those who relentlessly criticise so-called "income" investors for not seeing it their way. I think the readership is more than familiar with the theoretical "natural yield versus total return" debate by now. Personally, what I'd find far more interesting at this stage would be someone who professes to invest for total return having the gumption to put a little flesh on the bones of their own strategy. There are many income investors on this site who generously share their experiences, explaining their objectives, how their strategies are designed to achieve them, and who give running commentaries and specific details of the management of their portfolios over periods of years. They continue to do this despite frequent (often quite condescending) criticism from people who clearly feel they know what's better for them than they do!

What is conspicuous by its absence, is the same kind of detail from any of these critics about their own investment portfolios. It's one thing to say "I don't invest for income", "money is fungible", "I sell assets when I need cash" and the like, but what does this entail in reality? It would be very helpful in understanding the mindset of someone who invests this way if they would share their investment objectives, how they have built and run their portfolio, what it consists of, how they decide what and when to sell and how they react to unusual (both positive and negative) market events as and when they encounter them.

Although about 20% of my equity investments could be considered "growth" orientated, the bulk of my portfolio consists of "income" shares and investment trusts. This suits me as I can draw a steady and fairly predictable income, reinvesting excess dividends (of which there seem to be fewer this year!) while planning to hopefully use the growth to provide more income in the future. Given my circumstances (that is such a crucial factor in anyone's choices) this works for me and I feel absolutely no need to try to shoot the lights out. Others have explained what works for them and their own personal circumstances. So, to those enthusiastic critics out there, what are the nuts and bolts of your strategy in the context of your circumstances and needs? I dare you. Are you prepared to put your mouth where your money is?

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Re: Put your mouth where your money is!

#332287

Postby dealtn » August 10th, 2020, 9:53 pm

CryptoPlankton wrote:
dealtn wrote:
The simple model was just to show an example of how it works.



Taken from the "Capital" thread, this seems to sum up the very safe approach of those who relentlessly criticise so-called "income" investors for not seeing it their way. I think the readership is more than familiar with the theoretical "natural yield versus total return" debate by now. Personally, what I'd find far more interesting at this stage would be someone who professes to invest for total return having the gumption to put a little flesh on the bones of their own strategy. There are many income investors on this site who generously share their experiences, explaining their objectives, how their strategies are designed to achieve them, and who give running commentaries and specific details of the management of their portfolios over periods of years. They continue to do this despite frequent (often quite condescending) criticism from people who clearly feel they know what's better for them than they do!

What is conspicuous by its absence, is the same kind of detail from any of these critics about their own investment portfolios. It's one thing to say "I don't invest for income", "money is fungible", "I sell assets when I need cash" and the like, but what does this entail in reality? It would be very helpful in understanding the mindset of someone who invests this way if they would share their investment objectives, how they have built and run their portfolio, what it consists of, how they decide what and when to sell and how they react to unusual (both positive and negative) market events as and when they encounter them.

Although about 20% of my equity investments could be considered "growth" orientated, the bulk of my portfolio consists of "income" shares and investment trusts. This suits me as I can draw a steady and fairly predictable income, reinvesting excess dividends (of which there seem to be fewer this year!) while planning to hopefully use the growth to provide more income in the future. Given my circumstances (that is such a crucial factor in anyone's choices) this works for me and I feel absolutely no need to try to shoot the lights out. Others have explained what works for them and their own personal circumstances. So, to those enthusiastic critics out there, what are the nuts and bolts of your strategy in the context of your circumstances and needs? I dare you. Are you prepared to put your mouth where your money is?


Well seeing as it is me that is being quoted can I be the first to respond.

Firstly you have only partially quoted me, and not put a link to the thread itself. On that thread, and generally, I have not been disparaging about any income strategy, nor HYP generally (with the exception of non-income criticisms, which were about limiting the investable universe, and potential lack of diversification. To be clear I would be equally critical of any strategy, be that an income or non-income one).

Secondly I have a large amount of respect for those that put in that work, and post, and demonstrate regularly their portfolios, and for those that patiently "suffer" the criticisms of others that don't do similar. I would like to think from the "likes" (not number but from whom), and the private messages I get, that is broadly true.

Thirdly, on the thread from which this was "spawned" I think you will find I have explained the things I look at, at least initially, being the cash flow statement, and the ROCE (or ROC), as my "filters", which approximate in function to the "Yield" filter often used by income strategists.

Fourthly, and perhaps most boringly, the "it" in the quote you used isn't how "it" (investment) should be done. But was an "it" about a "maths" solution.

Now having said all that, and assuming anyone is still interested, you will find that I often explain why I invest, have invested, or am interested in investing in a particular share. That is often done on "Share Ideas" or "Company News", and not on either of the 2 HYP Boards. Unsurprisingly that's because they may well be off topic at such places. I do occasionally post my investment views there, hopefully helpfully, and tactfully, and within the guidelines there. It can hardly be the fault of the "message" or "messenger" if other Boards are less popular or visible.

The broad reality, and I don't know how reflective that is of other non-income investors, is that unlike HYP, and probably other income strategies, there isn't a single strategy I follow, and it certainly can't be constructed in a rules based way. I will be buying shares (perhaps like Terry Smith) on ROCE, retained earnings, compounding, moat etc. I could be buying shares as I don't believe in the efficient market hypothesis and share prices go to extremes (in both directions) that aren't justified on the fundamentals. I also buy "story stocks" if my faith in the story is sufficient. Like one of the better known "HYPers" on this Board I buy "income" stocks, but sell (or "tinker"?) by selling when the yield falls. I don't think this is HYP (nor do I suspect do many) but I don't lighten up by rules about twice median (or whatever) I usually exit entirely (or double up when I am wrong!). I see that as "value" strategy not an income one, just it is incidental to often being a high yielding share (BT, IMB and ITV are currently in my portfolio for this reason - and I am targeting doubling in the share price - and hopefully no dividend as that will mean it has happened before the next xd date!).

So whether that is useful, or not, feel it my "starter" contribution and I am hoping more follow suit. But to be honest if you want to know my views on any shares, or my portfolio, then you only have to ask and/or contribute to the many contributions I make across the entire site such as on the Boards I have mentioned.

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Re: Put your mouth where your money is!

#332313

Postby CryptoPlankton » August 11th, 2020, 2:22 am

Thank you for your reply, dealtn, and please don't think I was singling you out because of the quote.
dealtn wrote:
Now having said all that, and assuming anyone is still interested, you will find that I often explain why I invest, have invested, or am interested in investing in a particular share. That is often done on "Share Ideas" or "Company News", and not on either of the 2 HYP Boards. Unsurprisingly that's because they may well be off topic at such places. I do occasionally post my investment views there, hopefully helpfully, and tactfully, and within the guidelines there. It can hardly be the fault of the "message" or "messenger" if other Boards are less popular or visible.

It may surprise you to know that I do read both of those boards (and many others besides the one HYP board and the High Yield Shares and Strategies board) and, while your views on particular shares are interesting to read, they really say little about your objectives and overall strategy.
dealtn wrote:
The broad reality, and I don't know how reflective that is of other non-income investors, is that unlike HYP, and probably other income strategies, there isn't a single strategy I follow, and it certainly can't be constructed in a rules based way. I will be buying shares (perhaps like Terry Smith) on ROCE, retained earnings, compounding, moat etc. I could be buying shares as I don't believe in the efficient market hypothesis and share prices go to extremes (in both directions) that aren't justified on the fundamentals. I also buy "story stocks" if my faith in the story is sufficient. Like one of the better known "HYPers" on this Board I buy "income" stocks, but sell (or "tinker"?) by selling when the yield falls. I don't think this is HYP (nor do I suspect do many) but I don't lighten up by rules about twice median (or whatever) I usually exit entirely (or double up when I am wrong!). I see that as "value" strategy not an income one, just it is incidental to often being a high yielding share (BT, IMB and ITV are currently in my portfolio for this reason - and I am targeting doubling in the share price - and hopefully no dividend as that will mean it has happened before the next xd date!).

So no really cohesive strategy, more of a scattergun approach? Is there an overall objective to your investing or is it more of a hobby with spare cash you don't need? Do you lump all your investments together to track your overall progress or don't you bother to keep a record of your returns? I wouldn't call my strategy "rules based", but I know what I'm hoping to achieve and have a pretty good idea of how well I'm doing, but maybe that's because I need the returns from my investments.
dealtn wrote:
So whether that is useful, or not, feel it my "starter" contribution and I am hoping more follow suit. But to be honest if you want to know my views on any shares, or my portfolio, then you only have to ask and/or contribute to the many contributions I make across the entire site such as on the Boards I have mentioned.

It is fine as far as it goes and thank you for making the effort. As I have said, I do read a lot of the boards and I have to say I haven't seen anything of substance about your portfolio - I would be very grateful for a link. As it is, other than learning about a few rules you use for selecting shares in your non rules-based mix of strategies, I'm really none the wiser! I don't know the objectives behind your investments, hardly any of your portfolio, its performance or how you go about deciding what to do if you want to realise cash from it (or whether, in fact, you ever really need to). None of that is a problem, it's your business and maybe your approach is too carefree to help anyway, but I was really hoping for some explanations behind real life examples of portfolio level "total return" investing in practice.

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Re: Put your mouth where your money is!

#332316

Postby GoSeigen » August 11th, 2020, 6:39 am

CryptoPlankton wrote:So no really cohesive strategy, more of a scattergun approach?


Ok, here's my version.

-I don't believe "we know nothing".
-I do believe all investors are intelligent, capable people with all sorts of interests, knowledge, skills and specialisms.
-I believe that each individual applying her skill and capability to finding the most promising investments taking into account the breadth of knowledge they have, when aggregated, results in the most optimal securities pricing that humans are likely to achieve.
-I believe that some of these people, despite their skills and knowledge, are inept when it comes to investing and it is only right that the market should teach them so in short order by transferring their wealth to someone more adept.
-It follows that if each investor invests to the best of their ability, whatever that ability may be the market periodically will prune the weakest of those investors and retain the most skilled and simultaneously deliver an optimal outcome for the economy as a whole.

I invest on that basis, using all my skill and knowledge and learning to find the best place for my capital. I don't follow any rigid mechanical strategy like HYP or others that are discussed from time to time because I don't believe any one rigid strategy can work over all time. One has to continually adapt and evolve one's thinking as the world changes. Otherwise one becomes one of the inept investors that the market will eventually cull with deep dividend cuts, bankruptcies, default or share dilution.

GS

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Re: Put your mouth where your money is!

#332318

Postby Urbandreamer » August 11th, 2020, 7:36 am

I'll chip in as well, though I wouldn't consider myself to criticise how others invest.

There are many respected Fools who follow their own version of HYP and make it work for them. I am critical of what I view as faults in the HYP method as described 20 years ago, but in honesty I question if anyone actually follows the pure method. I do find it irritating that, when pointing that out, I get told to re-read the original articles. I was a fan of the method, but certain assumptions made 20 years ago are not assumptions anyone would make today.

How do I invest? Well it has changed over the years and even today there is much that others could criticise about it.

In the other thread I described my method as income and growth, though it's slightly more than that.
I try to ensure that I have enough income producing "shares" to roughly match or slightly exceed that produced by the FTSE 100. I also invest in "shares" that I consider are growing, many pay little to no income. Then there is the odd company that takes my eye that I take a punt on. Often for reasons unrelated to yield or existing growth.

The lot I describe as a portfolio. Others might have portfolios dedicated to each method, some may even have a HYP as one of many. I view it in the round.

I allocate world wide, hence the quotes around "shares". My overseas investments are via investment trusts. In this manner I achieve a certain degree of diversification while keeping the number of items to a managable size.

Hence I find nothing strange that SMT should rub shoulders with HFEL.
SMT has quite stunning growth (my xirr 24.46%), but yields 0.36%.
HFEL currently shows a very slight negative (-0.33%) xirr on my spreadsheet, buy yields 7.04%.
I would regard both as high risk, though subject to different risks.

When I sell, I try to do so based upon what I see as the future prospects rather than current conditions. I mentioned Shell. The current HYP method might dictate selling based upon the recent dividend cut. I instead would think about the future of oil and how the company is responding to changes in that environment. I didn't sell Shell, but have sold Senior (Aerospace) because of problems that I see over the next few years that I think could affect it's viability. HYP might also have dictated a sell, as it cut it's dividend.

I try not to time the market. I think that I've done so twice. One went well, the other not.

I don't like the term scattergun, but if you wish to apply it to how I invest then I won't take insult. After all, isn't diversification a scatter approach? Or if we were to talk a VERY popular investment method, what of index trackers? Is the investment version of a sniper rifle, ie invest everything in a single or very few "great" investments, a better approach?

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Re: Put your mouth where your money is!

#332329

Postby johnhemming » August 11th, 2020, 8:32 am

I look for shares that I think the Market has undervalued, normally they will pay a dividend and often a higher dividend sometimes because they may issued a profits warning or two. Some such shares are on their way out and others are not, but get devalued because the markets sells on known issues and known unknowns, but ignores unknown unknowns.

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Re: Put your mouth where your money is!

#332339

Postby onthemove » August 11th, 2020, 9:10 am

GoSeigen wrote:
CryptoPlankton wrote:So no really cohesive strategy, more of a scattergun approach?


Ok, here's my version.

-I don't believe "we know nothing".
-I do believe all investors are intelligent, capable people with all sorts of interests, knowledge, skills and specialisms.
-I believe that each individual applying her skill and capability to finding the most promising investments taking into account the breadth of knowledge they have, when aggregated, results in the most optimal securities pricing that humans are likely to achieve.
-I believe that some of these people, despite their skills and knowledge, are inept when it comes to investing and it is only right that the market should teach them so in short order by transferring their wealth to someone more adept.
-It follows that if each investor invests to the best of their ability, whatever that ability may be the market periodically will prune the weakest of those investors and retain the most skilled and simultaneously deliver an optimal outcome for the economy as a whole.

I invest on that basis, using all my skill and knowledge and learning to find the best place for my capital. I don't follow any rigid mechanical strategy like HYP or others that are discussed from time to time because I don't believe any one rigid strategy can work over all time. One has to continually adapt and evolve one's thinking as the world changes. Otherwise one becomes one of the inept investors that the market will eventually cull with deep dividend cuts, bankruptcies, default or share dilution.

GS


I think the OP was asking for actual evidence of portfolio content, and therefore the means to verify some of the alternative investments strategies.

What is conspicuous by its absence, is the same kind of detail from any of these critics about their own investment portfolios.


I believe reference here is being made to how on the HYP board, a number of posters provide detailed breakdowns of their portfolios, and when they make purchases (or sales) they tend to mention this and also indicate how that changes the composition of their portfolio

This also enables people to see the strategy in practice, and also to independently verify how well it is performing for people, without relying on people just popping along and asserting that their strategy is superior and they're making lots of money but without any evidence to back up their claims.

-I don't believe ...
-I do believe ...
-I believe ...
-I believe ...


One of the often quoted criticisms of the HYP approach is that it is perceived by some as almost a religion. That people seem to take it on faith without question.

I believe the OP's challenge is to the non-HYPers to provide evidence - to actually show either their portfolio, or at least maintain a demonstration portfolio which illustrates their non-HYP strategies in action, thereby giving evidence of what their strategy is, how it works, and thereby a means of actually evaluating such strategies.

Come to think of it, while there is a lot of criticism of HYP, I don't think any of those criticising it actually have a specific alternative strategy that could be quantified.

It just seems to be a case of 'anything but HYP'... but what does that mean? An anti-HYP strategy? That they buy anything that an HYP wouldn't, and vice-versa, they don't buy anything an HYPer would?

I mean just look at comparisons on the previous thread - they've been high yield vs the 'rest' or the 'market not-specifically high yield'. Which is either saying it's anti-HYP, or just 'buy the market'. That's not to say 'buy the market' isn't a valid strategy - iirc the buy a low cost market tracker was a recommendation of TMF originally. But I'm not sure that the anti-HYPers are really claiming 'just buy the market' instead of use an HYP.

Your beliefs aren't really a strategy. They're just a manifesto for each individual to buy whatever shares he or she thinks are a good investment, based on their own skills or expertise.

While there's nothing wrong with that, it's hardly what one would call a defined strategy.

Look at it this way, if someone comes to you and asks your strategy be explained to them, it would basically be "buy what you thinks going to make you money".

Obviously 'good' advice, but does it really have any more substance than telling them 'buy low, sell high'? It doesn't actually define anything. It defers all to the individual investor and says 'you make the decision'.

And even then, unless you provide regular updates, or a demonstration portfolio, your beliefs are just that - beliefs. How do you know that someone investing following your beliefs in the individual investors capability, will achieve superior returns? How do *we* know that your beliefs are valid?

You see, on the one hand people can look at the HYP board, and see what it means in practice, they can see the decisions being taken and they can see the results people are obtaining. All documented up front, so as to avoid winner-bias.

But on the other hand, there doesn't seem to be anything equivalent provided by the anti-HYP brigade

So, we know, boy do we know, that many people don't like the HYP strategy. But what we don't have is any evidence other than repeated assertions that 'other' strategies are better. But we don't seem to have any clear idea what these other strategies specifically are, other than they are clearly not HYPs.

And yes, I use the plural "strategies" - I'm not claiming it's binary. So while, imv, there does seem to be a clear group of people who can be lumped together as anti-HYP, I don't claim they all share the same non-HYP strategy. I fully accept there may be multiple alternative strategies.

But right now, I don't think any of us could point to any details, or evidence of performance, of these 'other' strategies to know specifically what they are. Certainly nothing that a newbie could come along and evaluate for themselves whether any of these alternative strategies would suit them, and evidence of how well they perform, etc.

Not just 'growth', or 'low yield' … but what does it actually mean in practice? How do you go about applying the strategy? What verifiable evidence that it actually works (and isn't just survivorship bias)?

I think that's what the OP was specifically asking for.

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Re: Put your mouth where your money is!

#332347

Postby hiriskpaul » August 11th, 2020, 9:48 am

Our portfolio is split into 3 sections.

25% in global equities, mostly cap weighted trackers, but with minor tilts to US REITS, small caps and minimum volatility, plus a long held EM IT that has a lot of capital gains I do not wish to crystallise. Scattergun? Absolutely and totally what I am looking for - long term exposure to the equity risk premium, at low cost, with minimal unsystematic risk. Not something I have to spend any time on other than an annual review/rebalance.

50% is in fixed income, or similar (eg I have held ZDPs and structured products). Most of this is in high yield and in finance sector securities bought following the banking crisis. I used to hold long duration US Treasuries as well, but sold these earlier in the year, topping up a few HY opportunities and buying short dated Treasuries and short dated USD investment grade corporates.

The remainder is used for short term opportunistic investing/trading. These are typically asymmetric in nature with a high chance of a small payoff and low chance of significant loss. Mostly options, occasionally securities with a high chance of a good short term returns, such as very short dated bonds. A strategy sometimes described as "Picking up pennies in front of a steamroller". Not really part of the strategy, but I hold VCTs (which I am winding down) and some low/zero yielding securities such as Berkshire Hathaway here as collateral (initial margin) for options trading.

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Re: Put your mouth where your money is!

#332359

Postby dealtn » August 11th, 2020, 10:12 am

CryptoPlankton wrote:So no really cohesive strategy, more of a scattergun approach? Is there an overall objective to your investing or is it more of a hobby with spare cash you don't need? Do you lump all your investments together to track your overall progress or don't you bother to keep a record of your returns? I wouldn't call my strategy "rules based", but I know what I'm hoping to achieve and have a pretty good idea of how well I'm doing, but maybe that's because I need the returns from my investments.


Not sure I like the scattergun analogy, but it is fair to say I am attracted to shares for different reasons (some of which I have outlined already). I think where you will struggle is that many that are labelled "total return" don't have anything that can neatly be defined as a strategy. If I said I look to identify shares that I think the market has mis-priced and the aim of my strategy is to benefit from the correction in that mis-pricing what can that possibly tell you. I would be open to an accusation of being vague, surely?

To answer some of your specific questions though. Yes I keep records of my investments and their returns. Collectively I measure the value of the portfolio, and loosely benchmark it against an index. Lazily that's the FTSE 100, but usually less than half of any investments would be sourced there. I also benchmark that benchmark against others so have a feel for the wider performance.

I don't need any income. I don't have a job (although my wife does which she loves but is paid less than average wage). Our expenditure of a few thousand a month is covered by what is in the bank account, which typically gets topped up by dividends. Shares aren't sought for their dividends, but the reality is most pay one. I can track and forecast ahead, so if I foresee a shortfall coming I can start to plan what share to sell if I require funds. Typically though events will take care of themselves. A share might reach my target, or be taken over. Occasionally I will borrow short term if that is preferable.

In seeking shares I am often looking for something that has the potential for large capital gains (multibagging), and clearly most won't. Indeed many will lose 100% (or close) but tend to be outnumbered by those that more than double. Amongst larger cap shares that is less likely to happen, so my sights are set lower (elephants rarely gallop after all). My portfolio typically has about 20 shares, I don't track it (but could) and expect the average holding period to be 3 years or so, but there is huge variation here. In addition there will be about 50% more that are in the portfolio, but are typically failures, and will be harvested for capital gains tax purposes when there is something worth offsetting.

I will discover shares through various means, sometimes bottom up, sometimes top down. My educational background is maths and economics, getting a degree in such from (arguably) the UK's top university, and a career in the City let me mix and argue with plenty of economists too, so it is a comfort blanket and I am comfortable with top down macro investing. I will also pick up shares of interest from a site such as this (and one other I follow and occasionally post on - but won't name). Shares discovered will usually be analysed both from a financial perspective and an attempt at "culture", both the company and its Directors. It would be rare for me to pull the trigger immediately, although if I did it will be in smaller size, with full size added too if I am happy (the share may have risen or fallen in the mean time).

The most recent additions to the portfolio have been:-

Frontier Developments (FDEV). Chosen as a growth industry, and the specifics of upcoming game releases. Lockdown looked a big macro opportunity for lots of teenagers and adults with time on their hands, in lockdown. Up about 100% (no dividends).

Best of the Best (BOTB). Similar, but a small add to an existing position. Original stake up 5 fold, small addition up 100% (assisted by takeover announcement).

Gear4Music (G4M). Similar. Originally bought well before lockdown, on the back of market perception of poor results for a "growth" stock. Dropping from about 800p to 200p. I considered that a massive over-reaction having analysed why margins were hit (and in my view likely to recover). My initial target was to double, so back to half previous price. (I am a natural - and stubborn - contrarian). Before that target was hit lockdown provided an opportunity to add (although only small) as the view was that "some" would use lockdown to either learn, or rediscover, musical instruments. (A conversation with the postman confirmed an increase in packages at the sorting office and we speculated about the contents - musical instruments and gym equipment came up!).

Avation (AVAP). Another contrarian play, but offside. Down maybe 40%?

Weir (WEIR). Wanting to buy into the oil/mining sectors on weakness, but like the gold rush I felt more money was likely to accrue to the shovel sellers than the prospectors. Bought below 800p, now above 1200p. A macro punt on a share I know and have owned before.

Off the top of my head I can't think of any other purchases in 2020. With no income, and a tendency to be 100% invested it is difficult to "find" new money to take advantage of potential market sell-offs like we witnessed a few months ago. I suspect I have underperformed many that were able to (and took the risk) of investing fresh money. In my case I reluctantly sold Lloyds (LLOY). (I struggle with "anchoring" too, being stubborn, but that worked out ok!).

I hope that's useful, but if I am honest I can't see myself posting a regular update on my portfolio.

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Re: Put your mouth where your money is!

#332369

Postby dealtn » August 11th, 2020, 10:42 am

onthemove wrote:
Come to think of it, while there is a lot of criticism of HYP, I don't think any of those criticising it actually have a specific alternative strategy that could be quantified.



I have already extensively replied elsewhere but on this point you are probably right. There is no specific alternative strategy.

I enjoy music. I have varied tastes, but do have general interests too. I discover new things from others (my children perhaps, or on a film), but I also tend to revert to my favourites be that from my own collection, or my preferred radio station. What I don't do is (consciously) limit my listening to "UK bands", "from the 70s/80s", "have had at least 1 no 1 record", "must have had at least 3 charting albums" etc. Now I know that analogy isn't perfect, nor meant to specifically apply to "HYP" equivalent, but a demonstration that I don't follow "rules" or "a specific strategy".

What you seem to perceive as "anti-HYP(ers)" I don't relate to (though I recognise some persistent unhelpful contributions and threads as I am sure we all do). Many of the shares I have invested in over-lap with a HYP portfolio. My reasons though are "value" based and I move on when (hopefully) that value is outed. I won't be holding forever, and harvesting dividend cheques.

HYP has its place, as do income strategies, but its not for me, At least one HYPer recognises that it isn't perfect, and wouldn't claim so, but it does the job (for him). In general it has to be better than not investing, buying poor value investment products, or annuities etc. But it is also (and even more so know than when first proposed I imagine) in that the available universe of investable shares is a small one (absolutely and relatively), and the tendency for buy and hold and strategic ignorance (yes I know what they actually mean, and am generalising), which may have the benefit of simplicity, and not needing to spend large amounts of time, there are negatives that apply.

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Re: Put your mouth where your money is!

#332371

Postby SalvorHardin » August 11th, 2020, 10:49 am

My strategy is to look for operating companies which have one or more of Warren Buffett’s economic moats, as well as investing in a variety of investment trusts for additional diversification. Whilst I live off the portfolio’s income, I don’t need to chase high yielding investments and the portfolio currently yields 2.0%

My preferred holding period is forever (several of my holdings were first bought over 20 years ago). I will however trim or even sell a strong moat company if I suspect that its moats are weakening. Occasionally I will invest in a company which crosses my radar but doesn’t meet the moat test. In the early 2000s this was a spectacular success with small oil explorers, notably Soco International and Dragon Oil. My investment returns since the 2008 financial crisis have been good, but nothing like those during the period 2000 to 2007. One such investment was Gilead Sciences, bought last February on the strength of its specialisation in anti-viral drugs, which has since been sold.

My main concern nowadays is preserving the real value of capital and income. I don’t look for or commit to special situations like I used to. It is an anti-HYP strategy, given that I hold a lot in foreign shares and funds whilst avoiding high yielding UK operating companies. The only HYP qualifying share I own is National Grid, which has an excellent moat for a large part of its business.

“The North American Big Five” (26.8% of the portfolio)
Three American and two Canadian operating companies. All five have excellent moats, particularly the railroads. No-one is going to build a competitor railroad and geography (plus the laws of physics) gives the west coast North American railroads a big advantage over trucks over longer distances (say 500+ miles).

Union Pacific (7.0%), Brookfield Asset Management (5.8%), Berkshire Hathaway (5.5%), Disney (4.5%), Canadian Pacific (4.0%)

“The British Big Five” (17.6%)
Finsbury Growth & Income IT (4.4%), Unilever (3.9%), Smith & Nephew (3.6%), Diageo (3.2%), Burberry (2.5%)
Four operating companies with strong moats, mostly thanks to their brands and distribution networks. Finsbury Growth & Income Investment Trust essentially follows a “moat strategy”, with its 10 largest holdings including Burberry, Diageo, Unilever and Mondelez International (which I also own).

Smith & Nephew is a Peter Lynch-style selection. Ten years ago when I had an operation, whilst in hospital I noticed that they used an extremely large amount of Smith & Nephew equipment. So I did a bit of research, bought the shares and have held onto them ever since.

“Foreign Investment Trusts” (9.8%)
These are investment trusts which almost exclusively invest outside the UK.
Templeton Emerging Markets (3.0%), North American Income (2.4%), JP Morgan Indian (1.9%), JP Morgan Japan Smaller Companies (1.3%). Henderson Far East Income (1.2%)

“International Investment Trusts” (8.8%)
Foreign & Colonial (4.4%), Bankers (2.5%), Witan (1.9%)

“UK & European Investment Trusts” (8.0%)
Henderson Smaller Companies (3.0%), TR Property (2.7%), Law Debenture Corporation (2.3%)

“Family Investment Trusts” (7.7%)
Three of these where a family has a big stake. I hold the view that a family will tend to take a longer-term outlook than most other investors.
Caledonia Investments (3.3%), RIT Capital Partners (2.3%), Brunner Investment Trust (2.1%)

“Odds and Sods” (16.7%)
This is an eclectic mixture of operating companies and investment trusts. If I ever find myself looking to invest in something, I will first look here for something to sell before looking elsewhere. Some of the holdings:
American – 3M, Amazon, Lions Gate Entertainment, Mondelez International and Manchester United
Canadian – Bank of Montreal
British – Derwent London, Great Portland Estates (not as much in these as I used to, due to coronavirus-induced questions about the future viability of Central London commercial property).

Cash (4.6%)

Fixed Interest (0%)

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Re: Put your mouth where your money is!

#332389

Postby 1nvest » August 11th, 2020, 12:05 pm

For me, due diligence indicated that all-stock and spending the dividends was a riskier choice compared to using SWR (PWR).

Image
clickable thumbnail

Even more so when you additionally factor in that at times the state might hit dividends hard, typically at the worst possible time such as during the 1960's/70's where even for basic rate taxpayers unearned income taxes rose to around 38% levels.

Predominately seeking wealth preservation over that of maximising rewards, so the left tail (worst case outcomes) was the focal point. Which led me to the Talmud advocated asset allocation (third each in land, commerce and reserves), which in modern day terms I consider to be owning a home (£), US stocks (primary reserve currency), and gold (global currency, also a commodity), where a base income is provided by the 2.4% SWR (which could be taken as 0.2%/month, but in practice I just draw as-and-when).

With SWR, safe withdrawal rate (I actually target a perpetual withdrawal rate i.e.have heirs) such as 2.4%, you take 2.4% of the portfolio value in the first year, and then uplift that £ amount by inflation as the amount drawn in subsequent years - so a consistent/known/regular income is provided come what may. Where that income comes from is predominately either from stock and/or gold as home value is illiquid - as selling a few tiles off the roof of your house in order to reduce home value exposure - isn't really viable :) I do maintain some UK stock exposure as a form of UK house price proxy, that is liquid and I scale that up/down in reflection of the home value element.

I intentionally strive to keep dividends/interest (and costs) low. In many years it will be either stock or gold that had put on reasonable gains - that source income. In some years it may be a combination of both providing the income. In yet other years both might be down, such that you are selling low, but history indicates that washes.

Image

The Callan periodic table above shows yearly real (after inflation) gains for each of the assets, where for each year the best asset is at the top, worst asset at the bottom. Averaging those across decades to provide the average of the decades yearly best and worst figures, and then averaging those two averages, provides a broad feel for how each decades combined stock and gold 50/50 yearly rebalanced worked out, and for me those rightmost average figures are 'good enough'.

In practice a 2.4% is low such that actual portfolio value tends to expand in real terms over time. A variation is to apply either the inflation adjusted uplift of the SWR value or 2.4% of the portfolio value - whichever is the greater ... i.e. see actual income grow ahead of inflation over time. I actually got to where we are however via the opposite route, was taking a higher SWR that expansion of real portfolio value over time enabled me to reduce the SWR %

In good years such as 2019 when both stocks and gold are up, typically I'll take a relatively large chunk out into my cash/cheque account. So if a later year is a relative bad year, both stocks and gold down, there may be enough in my cheque account such that I don't have to draw that years SWR from the portfolio. So far this year its looking like gold will be the asset that would put food on the table (but given last years results that's already covered). 2021 and my guess is it could be stocks. Don't know, don't really care, I'll just take what's given. If economic/conditions change I'm indolent. Already diversified across £/$/global currencies and land/stock/commodity assets in around equal measure.

Fortunate enough such that our London suburbian home is a relatively small proportion of net wealth, such that we do hold UK stocks to make up the third 'home' Talmud portfolio element. I like the FT250 for that, but I guess should really be REIT's. Also in just turning 60, after 15 years+ of unofficial retirement I get a occupational lump sum and pension starting soon, so income sources will be yet further diversified and to the extent that 'rent' is liability matched (in owning a home), core/base living expenses will be liability matched (occupational pension), such that predominately liquid assets are for the added extras and for heirs.

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Re: Put your mouth where your money is!

#332414

Postby CryptoPlankton » August 11th, 2020, 1:13 pm

Many thanks for all the replies so far. After a shaky start, the last few contributors seem to have been beginning to get the hang of it! The pattern I am starting to see is that, by various routes, you have all largely achieved a position where the demands for withdrawals from your investments are relatively modest - congratulations! If one can cover required income from a 2 to 3% (or even lower) withdrawal rate then it seems eminently sensible not to pursue a high yield. You are in the enviable position of being able to use your money to make money with more freedom than I consider myself able to. I need a certain amount of income from my investments and that is why I chose to ring-fence a proportion in relatively high yielding assets. I then feel able to invest the rest with growth in mind. Although the "growthy" part is performing reasonably well, I wouldn't be confident enough to adopt the strategy over my whole portfolio and guarantee comfortably making the annual withdrawal I require. Maybe that's a flaw in my makeup, but I have to say that if I only required 2% then I would think very differently about my strategy. Perhaps this explains a lot...

Anyway, good stuff, keep them coming!

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Re: Put your mouth where your money is!

#332419

Postby Lootman » August 11th, 2020, 1:41 pm

SalvorHardin wrote:My strategy is to look for operating companies which have one or more of Warren Buffett’s economic moats, as well as investing in a variety of investment trusts for additional diversification. Whilst I live off the portfolio’s income, I don’t need to chase high yielding investments and the portfolio currently yields 2.0%

“The North American Big Five” (26.8% of the portfolio)
Three American and two Canadian operating companies. All five have excellent moats, particularly the railroads. No-one is going to build a competitor railroad and geography (plus the laws of physics) gives the west coast North American railroads a big advantage over trucks over longer distances (say 500+ miles).

Union Pacific (7.0%), Brookfield Asset Management (5.8%), Berkshire Hathaway (5.5%), Disney (4.5%), Canadian Pacific (4.0%)

“The British Big Five” (17.6%)
Finsbury Growth & Income IT (4.4%), Unilever (3.9%), Smith & Nephew (3.6%), Diageo (3.2%), Burberry (2.5%)
Four operating companies with strong moats, mostly thanks to their brands and distribution networks. Finsbury Growth & Income Investment Trust essentially follows a “moat strategy”, with its 10 largest holdings including Burberry, Diageo, Unilever and Mondelez International (which I also own).

Smith & Nephew is a Peter Lynch-style selection. Ten years ago when I had an operation, whilst in hospital I noticed that they used an extremely large amount of Smith & Nephew equipment. So I did a bit of research, bought the shares and have held onto them ever since.

“Foreign Investment Trusts” (9.8%)
These are investment trusts which almost exclusively invest outside the UK.
Templeton Emerging Markets (3.0%), North American Income (2.4%), JP Morgan Indian (1.9%), JP Morgan Japan Smaller Companies (1.3%). Henderson Far East Income (1.2%)

“International Investment Trusts” (8.8%)
Foreign & Colonial (4.4%), Bankers (2.5%), Witan (1.9%)

“UK & European Investment Trusts” (8.0%)
Henderson Smaller Companies (3.0%), TR Property (2.7%), Law Debenture Corporation (2.3%)

“Family Investment Trusts” (7.7%)
Three of these where a family has a big stake. I hold the view that a family will tend to take a longer-term outlook than most other investors.
Caledonia Investments (3.3%), RIT Capital Partners (2.3%), Brunner Investment Trust (2.1%)

“Odds and Sods” (16.7%)
This is an eclectic mixture of operating companies and investment trusts. If I ever find myself looking to invest in something, I will first look here for something to sell before looking elsewhere. Some of the holdings:
American – 3M, Amazon, Lions Gate Entertainment, Mondelez International and Manchester United
Canadian – Bank of Montreal
British – Derwent London, Great Portland Estates (not as much in these as I used to, due to coronavirus-induced questions about the future viability of Central London commercial property).

Of all the Lemons here who describe their approach, you are the one who comes closest to how I invest. (There were a couple on TMF I related to as well, but they don't seem to have carried over to TLF). I prefer non-UK and lower-yielding investments and my portfolio probably yields about 2% as well, it's enough for me. This is reflected in the many holdings we have in common. Of those you cited I also hold:

Union Pacific, Brookfield Asset Management, Berkshire Hathaway, Disney. (Also Apple and Amazon).

Finsbury Growth & Income IT, Unilever, Smith & Nephew, Diageo. (Also Spirax-Sarco).

Caledonia Investments, RIT Capital Partners. (Also Personal Assets, Capital Gearing, Scottish Mortgage, Lindsell Train and RIT).

In addition to your strategies I run two other portfolios. One is for AIM shares. The other is an options trading strategy, which is the only short-term/trading strategy. I also have some core holdings in ETFs rather than generalist ITs.

I do very little of the detailed record-keeping and analysis that the OP seems to prefer and so I guess I can't "prove" anything. But then this is mostly just play money anyway. What I will say, which I suspect not many HYP'ers can claim, is that I am now up for the year based on the valuation of my largest share-dealing account.

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Re: Put your mouth where your money is!

#332429

Postby 1nvest » August 11th, 2020, 3:16 pm

CryptoPlankton wrote:I need a certain amount of income from my investments and that is why I chose to ring-fence a proportion in relatively high yielding assets. I then feel able to invest the rest with growth in mind. Although the "growthy" part is performing reasonably well, I wouldn't be confident enough to adopt the strategy over my whole portfolio and guarantee comfortably making the annual withdrawal I require. Maybe that's a flaw in my makeup, but I have to say that if I only required 2% then I would think very differently about my strategy. Perhaps this explains a lot...

My 2.4% excludes imputed rent, which historically had rents at around 4.2% so proportioned to a third of assets = 1.4%, which is like the SWR actually being 3.8%.

I could sell up the home, drop it all into a HYP and that would have to provide a comparable 3.8% consistently, minimum. And that's ignoring the 5% real that also was provided on top.

The more you can liability match the better IMO. If 'rent' is all covered and it doesn't matter if rents are rising or falling, and you have enough in other sources of income to cover basic living expenses (pensions/wages), then you're sitting pretty. Many HYP'ers I believe/suspect do have other assets, such as their own home and pensions. Some (many?) even keep a cash reserve of some kind, so they aren't all-in on HYP, more a case of a stock/bond combination (but where perhaps a relatively high ratio such as 90/10 stock/'bonds'). One of the greatest risk reduction measures is to lower SWR (or whatever income is being drawn). Higher yield/withdrawals is little different to a higher SWR - riskier, so greater risk of a bad sequence of returns that could lead to critical drawdown/failure.

Increasingly as our wealth has grown we've transitioned from 50/50 US stock/Gold for liquid wealth, towards a three way FT250/S&P500/Gold blend. In US scale the UK's FT250 is small cap.

Image

Not a ideal comparison, as TJH's Accumulation years are Fiscal whilst FT250/SP500/Gold are calendar based years, so a degree of misalignment at the individual year level, but that broadly washes in overall total averages; And I've also omitted the most recent year as Covid-19 would otherwise be included in TJH's HYP but not in the FT250/SP500/Gold portfolio (that would unfairly negatively bias the TJH HYP). Yearly granularity figures ...

Image

Since 1980 due to high interest rates at/around that time, and down to very low recent interest rates, its been a great era to have been invested. Didn't really matter what stock/bond asset allocation you held, both achieved exceptional real gains, something like 6% annualised real from holding Gilts for instance. That's not 'normal', is a exception. What you should consider is how might a asset allocation perform outside of that massively rising tide effect. Terry (TJH) kindly provided some insight for 1972 to 1980 type years viewtopic.php?p=325376#p325376

1960 to 1980 was a bad time for investors, after reinvesting all dividends after high and rising taxes, and relatively high costs, for many asset allocations drawing any income was to amplify the portfolio decay. UK stock/US stock/Gold did well, primarily because the price of gold spiked up heavily. At other times, such as the 1980/1990 decades, gold was a drag factor, but stocks rose sufficiently to more than offset that. Since 2000's and gold has again stepped up.

Fundamentally whatever asset allocation you do hold you have to be comfortable with that, otherwise you'll be more inclined to profit-chase - and that more often leads to losses.

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Re: Put your mouth where your money is!

#332438

Postby 1nvest » August 11th, 2020, 3:51 pm

Too late to edit my previous post, but here's the corresponding figures for the FT250

FT250
12.71%
15.55%
19.88%
-37.48%
49.96%
10.84%
0.545

Note that the FT250 didn't actually start until 1992 so years prior that are base dated i.e. measured/calculated historically rather than in real time.

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Re: Put your mouth where your money is!

#332470

Postby hiriskpaul » August 11th, 2020, 5:45 pm

CryptoPlankton wrote:Many thanks for all the replies so far. After a shaky start, the last few contributors seem to have been beginning to get the hang of it! The pattern I am starting to see is that, by various routes, you have all largely achieved a position where the demands for withdrawals from your investments are relatively modest - congratulations! If one can cover required income from a 2 to 3% (or even lower) withdrawal rate then it seems eminently sensible not to pursue a high yield. You are in the enviable position of being able to use your money to make money with more freedom than I consider myself able to. I need a certain amount of income from my investments and that is why I chose to ring-fence a proportion in relatively high yielding assets. I then feel able to invest the rest with growth in mind. Although the "growthy" part is performing reasonably well, I wouldn't be confident enough to adopt the strategy over my whole portfolio and guarantee comfortably making the annual withdrawal I require. Maybe that's a flaw in my makeup, but I have to say that if I only required 2% then I would think very differently about my strategy. Perhaps this explains a lot...

Anyway, good stuff, keep them coming!

Maybe it is worthwhile pointing out here that HY securities are not just for income investors. I hold a lot of high yield investments, many bought at double digit yields and some still that way, but I have never bought anything "for income". I am only interested in total return, or more precisely, risk adjusted return. There are many investors who buy high yielding ordinary shares, either as a by-product of their value investing style, or just agnostically investing based on criteria other than yield, but sometimes picking up high yielding securities.

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Re: Put your mouth where your money is!

#332482

Postby TUK020 » August 11th, 2020, 6:33 pm

SalvorHardin wrote:My main concern nowadays is preserving the real value of capital and income. I don’t look for or commit to special situations like I used to. It is an anti-HYP strategy, given that I hold a lot in foreign shares and funds whilst avoiding high yielding UK operating companies. The only HYP qualifying share I own is National Grid, which has an excellent moat for a large part of its business.

Illuminating and thought provoking post. Thank you.
Do you have/have you considered a Gold holding?
tuk020

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Re: Put your mouth where your money is!

#332488

Postby Lootman » August 11th, 2020, 6:52 pm

CryptoPlankton wrote: The pattern I am starting to see is that, by various routes, you have all largely achieved a position where the demands for withdrawals from your investments are relatively modest - congratulations! If one can cover required income from a 2 to 3% (or even lower) withdrawal rate then it seems eminently sensible not to pursue a high yield. You are in the enviable position of being able to use your money to make money with more freedom than I consider myself able to. I need a certain amount of income from my investments and that is why I chose to ring-fence a proportion in relatively high yielding assets.

It's certainly true that having a larger amount means that one has the luxury of being able to invest with a lower target yield, which in turn gives you a larger range of possible securities and less need to go further out on the risk spectrum (assuming you agree that higher yield equates to higher risk anyway). In fact if you take that argument to its logical conclusion, then if you have enough money then you don't need any income at all. You just spend the cash and you will never run out.

The other way to look at that is in terms of retirement. The earlier you retire, the less money you will presumably have, and therefore the higher the running yield that you will require to live off the income. Not everyone chooses when they retire of course, but for me if I needed my portfolio to yield say 5% I would feel very uncomfortable with that. At minimum I'd want an amount such that an investment in a broad index fund would give me an adequate number. So more generally the worry with me about something like HYP is that it might encourage people to retire when they cannot really afford to, because they think they can get away with it by simply jacking up the yield.

In my case there is another reason why I don't sweat the income. And that is because I have a taxable portfolio, and the process of annually selling some shares in it to utilise my annual CGT-free allowance and to populate the next year's ISA typically spins off enough cash to live off for the year as well. And I have about 10% in cash as a cushion anyway. I also have a wife who still works and is well paid, which helps. And three pensions of which two are being deferred. So in a sense I have no use for "income" but do wish to minimise tax.

For me the more meaningful metric is not the yield, but rather the safe rate of withdrawal, which you mentioned. And if the running yield exceeds what I consider to be my safe rate of withdrawal, then so much the better but it doesn't have to.

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Re: Put your mouth where your money is!

#332489

Postby SalvorHardin » August 11th, 2020, 6:56 pm

TUK020 wrote:[Illuminating and thought provoking post. Thank you.
Do you have/have you considered a Gold holding?

I used to hold shares in several Canadian gold explorers. Sold them last year :-(

But I reinvested some of the money in Amazon :-)

My big winner was Integra Gold, a Quebec-based soon-to-be producer which was taken over in 2017. That more than made up for the rest, which were mostly losers. That comes with the territory.

The one that I keep thinking of going back into is Victoria Gold Corporation, which now produces gold in the Yukon.

Physical gold. I own one sovereign. I'd rather take a chance with explorers and producers than physical gold. When it comes to gold I'm with Warren Buffett

"At Berkshire's 2018 annual meeting, Buffett compared $10,000 invested in stocks and gold in 1942 (the first year he invested in stocks). That money invested in an S&P 500 index fund (there were none at the time, he noted) would've been worth $51 million in 2018 while a gold investment would've been worth only $400,000"

https://markets.businessinsider.com/amp/news/warren-buffett-bashes-gold-2019-2-1027977003


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