Topping up - general

[funduffer]

Economics is such a bunch of hooey.

I am not sure it is economics that is irrational, it is the stock market reaction that is irrational!

[tjh290633]

Surely the HYP related approach is, can you invest the cash you realise to give you increased dividend income? If you cannot, there is no point in doing it.

TJH

[Wizard]

I think Arb's point, which is a quite valid one in my view, is that you could consider the following situation -

1. Buy Share A to gain an 'acceptable' yield.

2. Share A falls by 50%, which means that it's currently yielding (for the sake of this example) 5%.

3. At the same time, Share B falls by 50%, which means that Share B is now on a yield of 6%.

4. By selling Share A, you might well be 'crystallising' (term in quotes because this is purely 'your possible thought process'...) a 50% capital loss, but if you moved the remaining capital into Share B, which has also dropped by 50%, then due to the better yield on Share B, you're actually potentially better off in income terms, due to the better yield of 6% for Share B, compared to the yield of 5% for Share A.

I think Arb's point is that by fixing your mind on not wanting to 'crystallise' a potential share-price drop, you may be allowing yourself to miss other potential market-opportunities where other income-related stocks may have their own prices being subjected to similar levels of volatility, and possibly worse, thus potentially raising the opportunities to achieve better yields for the capital that you've still got, ignoring any potential 'loss of the other half of the original £5000'.

Cheers,

Itsallaguess

I do agree with the basic point and do not understand Ian's (without further explanation) on the face of it irrational position. However, the example as constructed has a flaw IMHO. If both shares have fallen by 50% over the same period it means Share B was yielding more than Share A at the time of the initial purchase (3% versus 2.5%). So there must have been a reason for buying Share A rather than Share B at the time of initial purchase, maybe concerns about cover, debt levels, shorting, etc. Unless something other than the prices of the two shares has changed, why the initial decision be reversed? To make this logical in my view either Share B must have fallen by more than Share A or something other than price must have changed as well.

Terry.

[Itsallaguess]

If both shares have fallen by 50% over the same period it means Share B was yielding more than Share A at the time of the initial purchase (3% versus 2.5%).

So there must have been a reason for buying Share A rather than Share B at the time of initial purchase, maybe concerns about cover, debt levels, shorting, etc. Unless something other than the prices of the two shares has changed, why the initial decision be reversed?

To make this logical in my view either Share B must have fallen by more than Share A or something other than price must have changed as well.

I'd agree with that Terry, but I didn't want to get bogged down with too many potentially confusing details whilst trying to agree with Arb's position on the subject.

As you say, there's usually lots of moving parts to take awareness of in these situations, but I hope the thrust of the point was sufficiently made in that capital is just capital, whether it's cash waiting for a top-up, or a cash element that just happens to be currently invested in a particular share....

A potential historical price movement of a particular share should not hinder our judgement on these matters, is the main point being put across...

Cheers,

Itsallaguess

[Arborbridge]

Itsallaguess
I do agree with the basic point and do not understand Ian's (without further explanation) on the face of it irrational position. However, the example as constructed has a flaw IMHO. If both shares have fallen by 50% over the same period it means Share B was yielding more than Share A at the time of the initial purchase (3% versus 2.5%). So there must have been a reason for buying Share A rather than Share B at the time of initial purchase, maybe concerns about cover, debt levels, shorting, etc. Unless something other than the prices of the two shares has changed, why the initial decision be reversed? To make this logical in my view either Share B must have fallen by more than Share A or something other than price must have changed as well.



Terry.

Terry,
I think by worrying about the defects of a particular example which was trying make the principle clear, you may be guilty of nit-picking. The fact that you accept and understand the point, is surely enough to show the itsallaguess made it well enough, so to fret over the details of the method in which itsallaguess tried to make it clear seems uneccesary and disrespectful, in my vew.

It probably doesn't help calling someone "irrational" either. You probably are aware of studies that reveal that many, if not most, of our decisions are made emotionally and often the justification is a post hoc spin on the facts. In that sense, making an "emotional first" decision is part of being human and not a reason for poking fun at someone.


Arb.

[idpickering]

Terry,
I think by worrying about the defects of a particular example which was trying make the principle clear, you may be guilty of nit-picking. The fact that you accept and understand the point, is surely enough to show the itsallaguess made it well enough, so to fret over the details of the method in which itsallaguess tried to make it clear seems uneccesary and disrespectful, in my vew.

It probably doesn't help calling someone "irrational" either. You probably are aware of studies that reveal that many, if not most, of our decisions are made emotionally and often the justification is a post hoc spin on the facts. In that sense, making an "emotional first" decision is part of being human and not a reason for poking fun at someone.


Arb.

I'm glad someone said that Arb. I couldn't be bothered to do so. Life's to short.

Ian.

[Wizard]

Terry,
I think by worrying about the defects of a particular example which was trying make the principle clear, you may be guilty of nit-picking. The fact that you accept and understand the point, is surely enough to show the itsallaguess made it well enough, so to fret over the details of the method in which itsallaguess tried to make it clear seems uneccesary and disrespectful, in my vew.

I did not see it as nit-picking, rather I thought it useful to point out it was a little more complex. Personally I would see it as rather dangerous to ignore details. I am rather glad that Itsallaguess posted a day before you and he did not seem to see my post as unnecessary or disrespectful.

It probably doesn't help calling someone "irrational" either. You probably are aware of studies that reveal that many, if not most, of our decisions are made emotionally and often the justification is a post hoc spin on the facts. In that sense, making an "emotional first" decision is part of being human and not a reason for poking fun at someone.

Arb.

First, I caveated my comment by saying "without further explanation" and "on the face of it", I thought this gave plenty of opportunity for the point to be explained and the logic clarified if Ian wanted to, which of course he was under no obligation to do and he chose not to. Second, and much more importantly I did not describe anyone as irrational, what I said was that the position being taken was on the face of it irrational. A perfectly rational person can take an irrational stance on one point, this does not make them an irrational person. This is great example of the details being important and ignoring them being dangerous.

Terry.

[absolutezero]

My advice to any HYPers out there, remember it’s about the income, don’t do anything rash, and hold your nerve. This storm will pass, they always do.

Ian.

Great advice as always, thanks Ian.

Thank you I don’t mind admitting that the recent movements on the markets have caused me some concerns, I’m only human after all. But be assured I will be following my own advice, and just riding this current blip out. It might get worse still, who knows, but I’m not going to do anything rash and short+sighted such as to panicking and selling out.

Ian.

I agree with this.
I will 'tinker' with regard to specific companies and the news/sentiment that affects them but general market falls I just ignore.

[Arborbridge]

Great advice as always, thanks Ian.

Thank you I don’t mind admitting that the recent movements on the markets have caused me some concerns, I’m only human after all. But be assured I will be following my own advice, and just riding this current blip out. It might get worse still, who knows, but I’m not going to do anything rash and short+sighted such as to panicking and selling out.

Ian.

I agree with this.
I will 'tinker' with regard to specific companies and the news/sentiment that affects them but general market falls I just ignore.

"I will 'tinker' with regard to specific companies and the news/sentiment that affects them"

See quotes in Knee-jerk Hyping thread: that is precisely what PYad was urging us to avoid doing. "News/sentiment" is so fickle and often based on value judgements: following that is asking for over trading unless one is a very knowledgeable investor.

[idpickering]

Great advice as always, thanks Ian.

Thank you I don’t mind admitting that the recent movements on the markets have caused me some concerns, I’m only human after all. But be assured I will be following my own advice, and just riding this current blip out. It might get worse still, who knows, but I’m not going to do anything rash and short+sighted such as to panicking and selling out.

Ian.

I agree with this.
I will 'tinker' with regard to specific companies and the news/sentiment that affects them but general market falls I just ignore.

I just go for what I think is common sense HYPing I think. As for the odd tinker, I don’t think that’s to bad, as long as that is well worked out and reasonable. I’m surprised you’ve only posted here 7 times. You’ve got a lot to offer our gang here, and I look forward to seeing more from you. Good luck.

Ian

[absolutezero]

Thank you I don’t mind admitting that the recent movements on the markets have caused me some concerns, I’m only human after all. But be assured I will be following my own advice, and just riding this current blip out. It might get worse still, who knows, but I’m not going to do anything rash and short+sighted such as to panicking and selling out.

Ian.

I agree with this.
I will 'tinker' with regard to specific companies and the news/sentiment that affects them but general market falls I just ignore.

"I will 'tinker' with regard to specific companies and the news/sentiment that affects them"

See quotes in Knee-jerk Hyping thread: that is precisely what PYad was urging us to avoid doing. "News/sentiment" is so fickle and often based on value judgements: following that is asking for over trading unless one is a very knowledgeable investor.

What I meant is there are certain scenarios where it's stupid to hang in.

Situations like CLLN - where I was wiped out because of PYAD's "never voluntarily sell" mantra or where dividends are cut massively (e.g First Group). FGP cut dividends some years ago and had I taken the hit an sold at a depressed price and recycled the money into something else I could have at least made some of the loss back by now in the form of dividends from whatever I replaced it with.

Possible blasphemy against the HYP Pyadic God but that's how I see it.

[absolutezero]

Thank you I don’t mind admitting that the recent movements on the markets have caused me some concerns, I’m only human after all. But be assured I will be following my own advice, and just riding this current blip out. It might get worse still, who knows, but I’m not going to do anything rash and short+sighted such as to panicking and selling out.

Ian.

I agree with this.
I will 'tinker' with regard to specific companies and the news/sentiment that affects them but general market falls I just ignore.

I just go for what I think is common sense HYPing I think. As for the odd tinker, I don’t think that’s to bad, as long as that is well worked out and reasonable. I’m surprised you’ve only posted here 7 times. You’ve got a lot to offer our gang here, and I look forward to seeing more from you. Good luck.

Ian

Thank you. That is very kind but I'm a relative newcomer to shares (started in 2009). Still learning - as are we all I guess.

[Arborbridge]

Situations like CLLN - where I was wiped out because of PYAD's "never voluntarily sell" mantra or where dividends are cut massively (e.g First Group). FGP cut dividends some years ago and had I taken the hit an sold at a depressed price and recycled the money into something else I could have at least made some of the loss back by now in the form of dividends from whatever I replaced it with.

Possible blasphemy against the HYP Pyadic God but that's how I see it.

Now, forgive me, but I'm going to go all a bit nit-picky myself
Assuming you have a well constructed HYP with plenty of shares and diversity - you were not wiped out. Only one share was wiped out, and if that share had been held in, say, an investment trust instead of your HYP, you would hardly have known about it.
Sure, you could have sold out with a 50% loss on CLLN instead of 100%, but Pyad's case is that on balance one is better off holding on rather than switching to another share and taking a chance on that one not blowing it too!

I grant you, it's only his theory and I wouldn't blame anyone for saying - "get away, you're kidding", but that's what he believes. Interestingly, the only people (as far as I know) who have looked at this seriously are Gengulphus and myself. I think we've both concluded that it is a close run thing and that the jury is still out. That is "still out" on the question of whether it is better to sell out or hang on, at the first signs of trouble.

The big difficulty is, of course, the "first signs of trouble" may be nothing but a temporary phase, or it may be the beginning of a CLLN situation, and no one could tell us which it will be. Therefore, unless one is really skilled it could lead to trading in and out quite unnecessarily.

Perhaps one of the people around here who does the least trading is Breelander: I wonder if he has anything concrete to contribute from his experience?

Arb.

[Breelander]

the only people (as far as I know) who have looked at this seriously are Gengulphus and myself. I think we've both concluded that it is a close run thing and that the jury is still out. ...

...Perhaps one of the people around here who does the least trading is Breelander: I wonder if he has anything concrete to contribute from his experience?

I analysed in depth one of my two deliberate tinkers (selling FGP in June 2015) for my 2015 Christmas review. The conclusion was...

On the evidence so far, was I right or wrong to tinker? There's no clear answer to that. It's true that I could have timed it better, but who could possibly have foreseen that waiting six months while the market fell would have produced a more profitable result? Or can guess if seven (eight? nine?) months may be even better? Certainly not I. It seems counter-intuitive that selling a share at a peak was a marginally worse decision than waiting for it to fall some 16% or so. At least I increased my income, didn't I? Well... yes - but I've also lost more capital than I would have if I'd just sat on my hands. There are no clear answers yet (I did warn you from the start that mostly it confirmed that 'you never can tell'). On that basis, who can say for certain that 'hold on for recovery' is any worse than the other options?

https://web.archive.org/web/20161104222 ... 09137.aspx

[absolutezero]

the only people (as far as I know) who have looked at this seriously are Gengulphus and myself. I think we've both concluded that it is a close run thing and that the jury is still out. ...

...Perhaps one of the people around here who does the least trading is Breelander: I wonder if he has anything concrete to contribute from his experience?

I analysed in depth one of my two deliberate tinkers (selling FGP in June 2015) for my 2015 Christmas review. The conclusion was...

On the evidence so far, was I right or wrong to tinker? There's no clear answer to that. It's true that I could have timed it better, but who could possibly have foreseen that waiting six months while the market fell would have produced a more profitable result? Or can guess if seven (eight? nine?) months may be even better? Certainly not I. It seems counter-intuitive that selling a share at a peak was a marginally worse decision than waiting for it to fall some 16% or so. At least I increased my income, didn't I? Well... yes - but I've also lost more capital than I would have if I'd just sat on my hands. There are no clear answers yet (I did warn you from the start that mostly it confirmed that 'you never can tell'). On that basis, who can say for certain that 'hold on for recovery' is any worse than the other options?

https://web.archive.org/web/20161104222 ... 09137.aspx

So basically:
Nobody can predict the future. Just do what makes you feel most comfortable at the time!

[Gengulphus]

So basically:
Nobody can predict the future. Just do what makes you feel most comfortable at the time!

Yes, I reckon that's pretty much it - though not quite on the nose, for two reasons. Firstly, because the "to sell or not to sell?" decision does have immediate consequences as well as future ones. They're small - the trading costs of selling and reinvesting the proceeds in something else, and the extra effort of deciding which something else - but the increase in comfort might also be small. So make certain you think the increase in comfort is worth the costs - personally, my rule about that is that if selling will produce a situation I quickly and easily decide I'll find more comfortable, or quickly and easily decide I'll find less comfortable, I'll sell or not sell accordingly. But if I find myself starting to agonise over which of selling or not selling will result in me feeling more comfortable, that's a sign that the difference is probably too small to be worth the cost, and so I decide not to sell...

Or more briefly and without the reasoning, I sell if - and only if - I quickly and easily decide that I'll feel more comfortable selling. In all other cases, I don't sell. Among other things, that helps to keep the time I spend making such decisions down!

Something I do spend some time on is what I might call educating my sense of comfort. I.e. look back at the occasions when I felt uncomfortable enough about not selling to result in me selling - was I right to feel that uncomfortable? Don't do that until a considerable period has passed since the decision, long enough to come to a fairly firm conclusion about whether it would have turned out better not to sell - I reckon at least five years are needed. (Ideally, also look back similarly at the occasions when I felt uncomfortable enough about selling to result in me not selling. But that's a bit more difficult: occasions when I considered selling and decided to sell are easily seen in my portfolio records, occasions when I considered selling and decided not to sell aren't visible. Could be fixed by keeping a diary recording each decision I make about my HYP if I had the self-discipline to keep such a diary - but I don't!)

Such an exercise can produce results that are both surprising and instructive. My most memorable example is Sainsbury in late 2004. I became very uncomfortable about the possibility of it cutting its dividend and sold, quite a few weeks before it actually did so and a few weeks before it gave any concrete hint that it might do so. So a successful prediction of the dividend cut - but nevertheless, at an awful time to sell: the price at which I sold was very close to being an absolute low for the next ten years! I'd have done 5-10% better to have waited until the dividend cut was actually announced before selling, and around 150% to have waited about 3 years... The "instructive" aspect I drew from it (and a number of other examples - a lesson drawn from just one example can easily be based on a very unlikely fluke) was a simple lesson: the connection between a dividend cut and subsequently doing poorly is at best a very poor one. So the fact that a dividend cut has happened doesn't imply that selling is a good idea. Nor does feeling confident that a dividend cut is going to happen - even if that confidence is well-founded. You need additionally to feel well-founded confidence that the market reaction is going to be negative.

Which leads me on to the second reason why I reckon the quote is not quite on the nose. I think "Nobody can predict the future" isn't quite a true statement about the market - I know there have been very rare occasions where I've felt, I think quite correctly, that I could predict enough of the market's future to be decidedly useful in my investing. But I really do mean very rare: two occasions in the last twenty years or so, and a third that I'm rather less certain about. That isn't anywhere near frequent enough to base an investment strategy around such occasions - so all I do about them is exploit them as best I can if and when I see them, and otherwise forget about them and just get on with running my normal strategies as usual.

I should possibly add that none of those occasions involved predicting the future in anything like full detail. Rather, they were occasions when I felt that I could safely predict that one of a range of possibilities would happen, and they all said that a particular course of action was a good idea. For example, the first was in November/December 1999, when I became certain that the tech boom was a bubble and was going to burst. I had no real idea when it would burst or how quickly - it could have been going to happen in the very next week, it could have been six months down the line - other than that more than another year of what was happening was totally implausible. But no matter when it was going to burst, things had reached the stage where it would be an excellent idea to cash in a good part of my tech boom gains to date and find somewhere completely different to put them...

Gengulphus

[absolutezero]

So basically:
Nobody can predict the future. Just do what makes you feel most comfortable at the time!

Yes, I reckon that's pretty much it - though not quite on the nose, for two reasons. Firstly, because the "to sell or not to sell?" decision does have immediate consequences as well as future ones. They're small - the trading costs of selling and reinvesting the proceeds in something else, and the extra effort of deciding which something else - but the increase in comfort might also be small. So make certain you think the increase in comfort is worth the costs - personally, my rule about that is that if selling will produce a situation I quickly and easily decide I'll find more comfortable, or quickly and easily decide I'll find less comfortable, I'll sell or not sell accordingly. But if I find myself starting to agonise over which of selling or not selling will result in me feeling more comfortable, that's a sign that the difference is probably too small to be worth the cost, and so I decide not to sell...

Gengulphus

Yes.
I think this is what I did with my utilities - with them being such a large chunk of my portfolio I was starting to worry about Corbyn seizing them. Still a reasonably likely possibility but I'm now at a level where is that was to happen it'd not knock things too much given 4.6% of my HYP income is now from utilities rather than a much higher figure this time last week. It would be more than a bit annoying but I'd survive.

Moderator Message:
Edited to bring in line with this forums and TLF's conventions. Raptor.