Gengulphus wrote:
..and they [the HYP articles] specifically state that there are risks to both the income and the capital, so that the strategy is only for those who can live with those risks.
They're rather deficient about saying just how big those risks are - about all they say about that is that he considered them to be "less than many people imagine" and "quite small", which are phrases that mean very different things to different people depending on how risk-averse they are, and IMHO the value of HYP1 is that it's given us a more quantitative idea of just what the size of those risks is. But the articles certainly didn't say that HYPs provide a safe income stream.
I totally agree that HYP1 has been of immense value as a live project, but I personally feel that the
greatest value of the project is to highlight how it's not just the opening 'investment risks' related to capital and income that investors would need to both appreciate and live with, but also how those risks
change, and really quite dramatically, over the course of a non-tinkering investment lifetime, and how ignoring those changes can have a dramatic affect on the risk-profile of the income portfolio...
Whilst it's clear that there are always going to be what we might see as quite normal
investment-risk with an income-strategy like this, I think we need to remind ourselves what the opening article had to say about the initial purchase being spread across 15-shares [my bold] -
Whatever the money available, even very large sums, no more than about 15 shares are necessary to take strip out the excessive risk of too few shares. Stick to FTSE 100 companies and spread the holdings around sectors.https://web.archive.org/web/20140219210 ... 01106c.htmNowhere in the HYP articles does it mention that the 15-share selection is done to capture what might turn out to be 'the winners' in that portfolio. The 15-share selection is carried out to '
strip out the excessive risk of too few shares'.
So if that's the starting method of risk-reduction, it's a shame that nowhere in the HYP articles does it discuss the possibility or likelihood of an 'un-tinkered drift' away from that position, and towards a huge reliance on a really quite small number of HYP1 holdings.
The table below shows
2 HYP1 shares now accounting for
46.4% of total income, with
75.6% being delivered by just
5 shares.......
Gengulphus wrote:
To sum up, I think HYP1 has done what it actually said on the tin.
I'm not 100% convinced of that.
I would agree that the income and capital have done what it set out to achieve, but I can't agree that we should ignore the fact that the tin clearly said
'The 15-share selection is carried out to 'strip out the excessive risk of too few shares' .
HYP1 has, with it's lifetime 'no-tinkering' policy, painted itself into a income-risk-profile 'corner' that is, in my opinion,
incompatible with the above statement on the tin...
There's no doubt that until now, it's got away with that risk-profile-drift, but that then leaves us with two questions -
1. How long can it continue to '
get away with it'?
2. Would we be happy '
carrying' that income-profile risk even whilst it does get away with it....
Cheers,
Itsallaguess