My HYP seventeen years on

[Gengulphus]

After building the HYP for a while and seeing how large the fluctuations could get went I decided early on that I felt more comfortable with more holdings than the basic 15. I have tried to maintain and add sector diversification as it grew.

Well, you sure have maintained even grown that diversification!

When you were selecting top-ups for the portfolio, what limit if any did you place upon the value and/or income concentration? Or did you always try to diversify into another holding or Sector? If the latter, this surely goes someway to explain the low yield achieved and it is hardly HYP

If your solution now is to sell some holdings and re-build with a smaller selection, the question has to be asked as to why so much diversification in the first place?

Having at times in the past grown my HYP up to fairly close to the size of rhinestone's (a maximum of 42 holdings IIRC, or maybe one or two more, compared with rhinestone's 47), the answer in my case was a combination of:

* Buying on multiple occasions, picking what looked to me like the best choice for the portfolio on each occasion (on the usual HYP grounds of high yield, my best assessments of individual share dividend safety, and good diversification); and:

* Not giving up at all readily on companies that are in trouble (including those that are simply poor performers without any clear signs of being in acute trouble).

Over many years, the buying on multiple occasions can easily lead to one having more sectors than tend to contain decent HYP candidates on any one purchase date, due to sectors coming into favour and falling out of it, and also to being doubled, tripled or even quadrupled up in quite a few sectors, due to the same happening for companies within a sector. Over time, that can lead to a very large number of companies entering one's HYP. And while giving up too readily on companies in trouble is liable to result in a portfolio not following a Long-Term Buy & Hold approach, making avoiding it essential for a portfolio to be a HYP, avoiding it too assiduously will mean that too few holdings disappear from the HYP to counteract the tendency of buying on multiple occasions to grow the number of holdings before that number becomes too big for comfort. (Some companies will disappear even if one completely avoids giving up on companies in trouble, due to companies being taken over, merging with other companies in the HYP, or going bust, and the rates of those things happening will tend to go up as the number of holdings increases - but they'll also tend to be quite low.)

So basically, buying a HYP using multiple purchases over many years involves paying a price. One can choose what form that price takes, with quite a number of forms being available - for instance, accepting that one will end up with more holdings than are administratively comfortable, or artificially restricting one's purchase choices to existing companies in the HYP, or 'tinkering' existing holdings away a bit more readily, or various combinations of those. But some price has to be paid.

In my case, I realised that I'd let my HYP's number of holdings expand a bit too much for comfort (my comfort, of course - others' mileage may differ) at around 42, and decided to aim for (a) 'tinkering' a bit more readily; (b) no more than doubling up in any sector - if I felt that a third holding in a sector was a good purchase, I would have to decide whether it was good enough to justify 'tinkering' one of the existing two away. I wasn't aiming for it very hard, but after a few years of doing that, with the extra 'tinkering' generally motivated by some additional factors as well as that aim (such as improving my CGT position, or in one case a specialist investment trust shifting its investment objective away from income into pure growth) I'm now down to 38 holdings in 25 sectors (13 of them with double holdings, 12 with single holdings), which I find rather more comfortable. I will probably go a bit further to reduce its number of holdings in the future, by the way, but doing so is even less urgent...

So basically, in my case the answer to "why so much diversification in the first place?" is basically continuing with my previous strategy on purchasing and 'tinkering' until the number of holdings became quite noticeably less than ideal - by which time it had gone some way above being ideal.

Gengulphus

[tjh290633]

In my case, I realised that I'd let my HYP's number of holdings expand a bit too much for comfort (my comfort, of course - others' mileage may differ) at around 42, and decided to aim for (a) 'tinkering' a bit more readily; (b) no more than doubling up in any sector - if I felt that a third holding in a sector was a good purchase, I would have to decide whether it was good enough to justify 'tinkering' one of the existing two away. I wasn't aiming for it very hard, but after a few years of doing that, with the extra 'tinkering' generally motivated by some additional factors as well as that aim (such as improving my CGT position, or in one case a specialist investment trust shifting its investment objective away from income into pure growth) I'm now down to 38 holdings in 25 sectors (13 of them with double holdings, 12 with single holdings), which I find rather more comfortable. I will probably go a bit further to reduce its number of holdings in the future, by the way, but doing so is even less urgent...

My portfolio tended to grow organically, with demergers, take-overs, disposals for various reasons, and was 37 at its peak, currently 36 holdings. Currently I have up to 3 holdings in some of my "sectors" (using my own classification) as shown below:

Summary                                                                
Sector      Weight    Income    Cost      Yield    Shares              
Banks/Fin     1.77%     0.00%     4.62%    0.00%   LLOY                
Bldg          2.79%     0.00%     3.41%    0.00%   TW.                 
Eng           6.13%     6.18%     1.91%    3.76%   BA.      IMI        
Food          8.04%     7.66%     4.64%    3.50%   TATE     ULVR   RB. 
Leisure       8.41%     2.09%     8.54%    0.79%   WMH      DGE    MARS
Insur         9.74%    15.93%    12.10%    6.10%   AV.      ADM    LGEN
Media         3.27%     2.52%     5.41%    2.88%   PSON                
Mining        6.73%    10.28%     8.98%    3.87%   BHP      S32    RIO 
Oil/Gas       5.33%     7.96%    10.08%    5.59%   BP.      RDSB       
Pharm         8.37%     6.35%     2.01%    4.39%   AZN      GSK        
Property      8.64%     7.57%     8.64%    3.22%   SGRO     BLND   PHP 
Retail        7.03%     3.35%    11.74%    1.43%   MKS      TSCO   KGF 
Support       5.01%     2.47%    -2.25%    1.57%   CPG      SMDS       
Telecom       4.85%     4.48%     8.77%    3.22%   BT.A     VOD        
Tobacco       4.81%    10.40%     3.75%    8.15%   IMT      BATS       
Utils         9.07%    12.75%     7.63%    5.25%   UU.      NG.    SSE 
                                                                       
Totals:     100.00%   100.00%   100.00%    3.69%       16     13      7
Medians:      6.43%     6.27%     6.52%    3.36%                       
                                          Total:       36

The effects of the current situation can be seen. I have tried to keep the number of holdings about this level, and at the time of the Vodafone demerger I sold before the split and bought back afterwards, in order to avoid having Verizon shares. Some trivial holdings from splits have been sold along the way. Most recently Indivior was dumped after it ceased paying dividends. On the other hand, South 32 was retained and added to.

TJH

[ignatius]

Over many years, the buying on multiple occasions can easily lead to one having more sectors than tend to contain decent HYP candidates on any one purchase date, due to sectors coming into favour and falling out of it, and also to being doubled, tripled or even quadrupled up in quite a few sectors, due to the same happening for companies within a sector.
Gengulphus

I started in 2006 and I find that I'm up to 42 holdings. At the outset, I added two or three new shares a year but, lately, I've been adding attractive companies as and when. 11 of my holdings are runts, many of which were hammered during the financial crash of 2008/2009. Some have been hammered more recently. Interserve has been the only bust (doh!) and Sky the only takeovers.

My wife is up to 30 (2013 start). Son is up to 21 (2013 start). Daughter is up to 13 (2016 start).

I hugely admire Terry's approach, and the similar management techniques adopted by others, but I'm really not minded to be a constant gardener.

[idpickering]

I started in 2006 and I find that I'm up to 42 holdings. At the outset, I added two or three new shares a year but, lately, I've been adding attractive companies as and when. 11 of my holdings are runts, many of which were hammered during the financial crash of 2008/2009. Some have been hammered more recently. Interserve has been the only bust (doh!) and Sky the only takeovers.

My wife is up to 30 (2013 start). Son is up to 21 (2013 start). Daughter is up to 13 (2016 start).

I hugely admire Terry's approach, and the similar management techniques adopted by others, but I'm really not minded to be a constant gardener.

Welcome to TLF HYP Practical Board! A great post, especially as it's your first hereabouts.

Ian.

[tjh290633]

I hugely admire Terry's approach, and the similar management techniques adopted by others, but I'm really not minded to be a constant gardener.

I find hard pruning to be one of the more satisfying parts of gardening. I once heard a talk by a local rosegrower, who advocated pruning roses on Boxing Day, as it was a day when he was usually not working.

"Put you knuckles on the ground and go snip, snip" he said. Not to be recommended for standard roses.

TJH

[csearle]

I started in 2006

Yes welcome to The Lemon Fool! I kinda get the impression though that you are not really that new to it.

Chris

[vrdiver]

I have tried to keep the number of holdings about this level, and at the time of the Vodafone demerger I sold before the split and bought back afterwards, in order to avoid having Verizon shares.

Hindsight is a wonderful thing.
I still have the Verizon shares from the split, which I topped up in November 2016 (£38.25 including costs). They currently show a XIRR of 9.9%, whereas my VOD shares (first bought for almost a £1 and topped up in 2014 and again in 2018, show a XIRR of 5% (including a nominal credit for the VZ shares as if I'd sold them and credited the cash to my VOD record).

VRD