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HYP1 is 18

For discussion of the practicalities of setting up and operating income-portfolios which follow the HYP Group Guidelines. READ Guidelines before posting
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tjh290633
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Re: HYP1 is 18

#180712

Postby tjh290633 » November 15th, 2018, 10:18 pm

I see someone also mentioned capital performance. That for HYP1 is not given above, but my income unit value for the same periods are:

Year   TJH Capital
2001 3.58
2002 2.46
2003 3.15
2004 3.72
2005 4.63
2006 5.28
2007 4.33
2008 2.39
2009 3.94
2010 4.61
2011 4.74
2012 5.42
2013 5.61
2014 6.21
2015 5.98
2016 6.66
2017 6.12
2018 6.15

I don't know how that compares, but that is the information. Do bear in mind that for much of the time I have been reinvesting dividends, as well as trimming overweight shares and reinvesting the proceeds. Very much kumquats and apricots, or whatever.

TJH

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Re: HYP1 is 18

#180755

Postby Arborbridge » November 16th, 2018, 7:35 am

Walrus wrote:
Arborbridge wrote:
Walrus wrote:I don't understand how this is even a HYP portfolio in it's current form. If/when Persimmon and/or Bats collapse you are busted.

Crazy if you ask me. I don't know how anyone on here can advocate this as a sensible strategy going forward and highlights the dangers of a no tinker rule.


I don't understand how this is even a HYP portfolio in it's current form. I'm sorry but it is a HYP. It is one of the few HYPs which have been set up and left to run, and as such is very valuable. Not only is it a HYP, but it's the very defining model of a HYP as it is the original.
You may think its not "sensible" and many would agree however, that's a different matter to alleging it isn't a HYP in its current form. Of course it is, in the same way that a child and an adult are both human beings, so this HYP grew from it's childhood form.

Arb.


Not in my eyes it's not. it's a high risk punt


I'm not clear what you are referring to here, since there are two points mentioned.

If you mean that HYP1 as it currently stands is high or higher risk, I agree.
If you mean it isn't a HYP portfolio, I do not agree for the reasons I've already mentioned: it's the very definition of a Dorisian HYP.
That it may have progressed to a high risk state, does not show that it isn't a HYP.

Arb.

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Re: HYP1 is 18

#180758

Postby Arborbridge » November 16th, 2018, 7:41 am

Itsallaguess wrote:
I appreciate that it's easy to do with this board-software Arb, but I just wanted to make it clear, in case there's any chance of a misunderstanding, that even though my name is quoted in your reply above, the text that you are actually replying to is sourced from Lootman in this instance.

Cheers,

Itsallaguess



Sorry about that - as you say, it's easy to do. I can empathise as it's happened to me a few times!


Arb.

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Re: HYP1 is 18

#180784

Postby mrbrightside » November 16th, 2018, 10:34 am

I wonder how many tinkerers (who are noting with horror the HYP1 dividend/income skew and dangerously unbalanced portfolio) would have sold Persimmon when they slashed the dividend in 2008 and then suspended dividend payments completely in 2009.

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Re: HYP1 is 18

#180795

Postby pyad » November 16th, 2018, 11:24 am

Luniversal wrote:
There may be a misunderstanding here.

As used by me, the term derisking refers to the proportion of dividend income received which can be safely spent, compatible with at least preserving the income's purchasing power (adjusted for RPI) from year to year regardless of companies' cuts or freezes. It is like investment trusts' revenue reserving, which has permitted some to maintain or increase dividends for half a century without fail....


Correct there is a misunderstanding but one of your own creation. Why do you call a simple income reserve "derisking" which is a misleading term, possibly giving the impression to the naive that you are somehow reducing the risk to income? By using a jargon word of your own invention, when a perfectly useful and widely understood expression already exists, you don't clarify anything you muddify it. As you say, income reserves are used by ITs and have been around since forever but far as I know, nobody outside of you refers to this as "derisking", simply because it aint.

Very few HYPers will operate income reserves anyway, but why not call it like it is?

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Re: HYP1 is 18

#180801

Postby moorfield » November 16th, 2018, 11:47 am

pyad wrote:Very few HYPers will operate income reserves anyway, but why not call it like it is?


I think many here do operate reserves actually, just out of scope of their HYPs in other pots.

For example:

idpickering wrote:Admittedly there is a large amount just sat in the current account but that’s for emergencies, not pencilled in for investing.


Why isn't he putting that to work holding dividend paying shares? Because it's for "emergencies". (to cover a another dividend cut from Persimmon perhaps? - assuming he holds those). Very sensible imho.

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Re: HYP1 is 18

#180802

Postby ReformedCharacter » November 16th, 2018, 11:54 am

pyad wrote:
Very few HYPers will operate income reserves anyway, but why not call it like it is?


I'm not sure how you know that and there don't seem to be many HYPers as you would describe them, here anyway.

RC

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Re: HYP1 is 18

#180809

Postby idpickering » November 16th, 2018, 12:04 pm

moorfield wrote:
pyad wrote:Very few HYPers will operate income reserves anyway, but why not call it like it is?


I think many here do operate reserves actually, just out of scope of their HYPs in other pots.

For example:

idpickering wrote:Admittedly there is a large amount just sat in the current account but that’s for emergencies, not pencilled in for investing.


Why isn't he putting that to work holding dividend paying shares? Because it's for "emergencies". (to cover a another dividend cut from Persimmon perhaps? - assuming he holds those). Very sensible imho.


Thank you moorfield. You are spot on. I couldn’t be bothered arguing about it yesterday....nor today in fact. ;)

Ian.

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Re: HYP1 is 18

#180813

Postby mrbrightside » November 16th, 2018, 12:13 pm

Lots of people maintain 2-3 months salary in cash to cater for loss of job, critical illness when they are employed.

Why should it be any different when they are retired ?

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Re: HYP1 is 18

#180821

Postby idpickering » November 16th, 2018, 12:27 pm

mrbrightside wrote:Lots of people maintain 2-3 months salary in cash to cater for loss of job, critical illness when they are employed.

Why should it be any different when they are retired ?


Likewise, you’re spot on mrbrightside. Either way, each to their own.

Ian.

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Re: HYP1 is 18

#180823

Postby Arborbridge » November 16th, 2018, 12:39 pm

pyad wrote:Very few HYPers will operate income reserves anyway, but why not call it like it is?


How you possibly know how many HYPers operate an income reserve? I would wager most do, but simply haven't approached the subject in a technical way like - for instance, Gengulphus might - but do it by sticking a finger in the air.

But I do agree that Luni's term "derisking" is unecessary and confusing. "I'm not drawing all the income out 'cos I want a safety net" - in effect that's as Safety Margin. An "income Reserve" strictly would not be re-invested, whereas a Safety Margin or Luni's derisked portion more often is.

Arb.

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Re: HYP1 is 18

#180828

Postby pyad » November 16th, 2018, 12:53 pm

There's a lot of misunderstanding here. I am criticising only the misleading term "derisking", not the general idea of an HYP income reserve. I specifically stated in an earlier message that I have nothing against the idea so no point in arguing about something I never said or even thought.

People also miss the point that by income reserve in this case, we're not talking about a general sum of savings accumulated from all sources such as wages, pension, divs or whatever. A lot of people will do that if they can and obviously it's advisable. That though was not the issue.

The actual issue is about the investor withholding a precise proportion of annual HYP income, not general income, into a separate account so as to create a specific HYP reserve, as promoted by Luniversal in his above message, along the lines of an IT. I'm pretty sure that very few HYPers will do that. By the way, by "HYPers" I'm not referring to the handful who post here, which as someone said correctly are unrepresentative, but to the HYP community at large. And to repeat, I have nothing whatsoever against doing this, just that I doubt many do.

Hope this makes it all clear.

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Re: HYP1 is 18

#180873

Postby Luniversal » November 16th, 2018, 3:12 pm

pyad wrote:

"Why do you call a simple income reserve "derisking" which is a misleading term, possibly giving the impression to the naive that you are somehow reducing the risk to income?"

'Reserve' denotes what one does; 'derisking', why one does it. Purchasing power is protected by the method I described, designed to avoid overspending.

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Re: HYP1 is 18

#180904

Postby Itsallaguess » November 16th, 2018, 5:34 pm

Luniversal wrote:
Purchasing power is protected by the method I described, designed to avoid overspending.


I understand what you're trying to do with your method (although I think it's overcomplicated for what it's trying to deliver..) - but more importantly I think that using the phrase 'de-risking' to describe that method is ambiguous, and because of it's ambiguity, it then becomes misleading in an investment sense.

You've said yourself that it's like an Investment Trust revenue-reserve - so I'm not quite sure why you thought there was a need to confuse things by using such an ambiguous phrase as 'de-risking'....

Cheers,

Itsallaguess

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Re: HYP1 is 18

#181037

Postby Gengulphus » November 17th, 2018, 10:25 am

Lootman wrote:He may be, but what's more important is what the original stated goal of this strategy was i.e. to provide an alternative to a safe annuity income stream for a hypothetical Doris. In that context her current portfolio is woefully risky, unbalanced and dangerous.

Pyad appears wed to his "no tinkering" rule and, as a result, is now running a "bet the farm" hedge fund portfolio and lauding what he once dismissed - capital growth.

HYP1's original stated goal is as stated in his two introductory articles:

https://web.archive.org/web/20140219210 ... 01106c.htm
https://web.archive.org/web/20140528041 ... 01113c.htm

It is not what you've said: those articles don't mention annuities, nor Doris (who didn't appear in his articles until over 6 years later, and only in an article that said he didn't know whether her portfolio had been selected as a HYP!), and they 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.

And I can't say that he has never dismissed capital growth, but he certainly didn't in those articles - their main message about it is in the quotes "the likelihood also that over longer periods the capital may grow as well", "your capital may well increase over time as well", "the subsidiary likelihood of long-term capital growth" and "a good chance of some capital growth as well". Those don't dismiss it - one of them relegates it to secondary importance by using the word "subsidiary", and further bits that I won't bother quoting repeat that message, but secondary importance is not the same thing as totally unimportant as implied by the word "dismiss"!

What they do dismiss is the value of paying any attention to capital fluctuations. And FWIW, while I'm uncertain whether I agree 100% with that, I certainly think that there's no chance of getting any systematic value out of paying such attention without developing quite a high degree of sophistication as a stockmarket investor (and I'm uncertain whether there's any chance of getting it even then - it's hard to distinguish happening to get lucky from having a systematic advantage). And the HYP strategy is IMHO not aimed at those who want to develop such sophistication - the one other mention of capital growth in the articles (at least by strong implication) is "The income portfolio is not for those who like to trade in order to generate capital profits", which is a statement about who the strategy is not suitable for! (One of the things that IMHO has led to a lot of people becoming disenchanted with the HYP strategy has been a tendency for very little attention to be paid to such warnings about who it's not suitable for. And that tendency has appeared both in posts by (over-)enthusiastic supporters and by disenchanted opponents. But I won't pursue that line any further here, as discussing it properly requires discussion of the alternatives as well, and that's a matter for the other board.)

To sum up, I think HYP1 has done what it actually said on the tin. Unfortunately, many people try to judge it by what they misremember the tin as saying, or by the impression they've formed from what others have said about what it said on the tin...

Gengulphus

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Re: HYP1 is 18

#181069

Postby Itsallaguess » November 17th, 2018, 12:57 pm

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.htm

Nowhere 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

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Re: HYP1 is 18

#181108

Postby Lootman » November 17th, 2018, 4:05 pm

Gengulphus wrote:
Lootman wrote:He may be, but what's more important is what the original stated goal of this strategy was i.e. to provide an alternative to a safe annuity income stream for a hypothetical Doris. In that context her current portfolio is woefully risky, unbalanced and dangerous.

Pyad appears wed to his "no tinkering" rule and, as a result, is now running a "bet the farm" hedge fund portfolio and lauding what he once dismissed - capital growth.

HYP1's original stated goal is as stated in his two introductory articles

To sum up, I think HYP1 has done what it actually said on the tin. Unfortunately, many people try to judge it by what they misremember the tin as saying, or by the impression they've formed from what others have said about what it said on the tin...


I am sure you are correct, not least because you have evidently read those original documents and I have not! So I omitted requoting everything you wrote between your first and last paragraph for the simple reason that I have nothing to say about it, having never read those cited "original" articles. Like probably many others here, I don't go back to the original sources for my understanding of what a HYP is, but rather have allowed the collective comments of this community (and its forerunner on TMF) to inform what I understand by the term. And as I mentioned earlier, I am not aware of any other community that talks publicly about HYP and so, as far as I am concerned, a HYP is what we here collectively agree is one.

So when I talk about the basic purpose of a HYP it is not literally citing some chapter and verse from 18 or so years ago. Many of the elements of HYP pre-exist that time, perhaps best shown by TJH's long records of his version of one. And of course the ideas around it have developed significantly since that time, due to the contributions of many here, including your good self (but probably not myself as I am more a dabbler as opposed to a tinkerer :)). It follows that I don't regard pyad/Bland as a single source of wisdom on what is or is not a HYP. Rather he is one historically significant contributor to the evolving theory of HYP'ing.

In that context I am probably speaking loosely rather than precisely but the ideas I referred to, such as the provision of an annuity-like flow of income and the idea that a HYP investor may be very unsophisticated, are common enough elements of HYP discussions here to be considered reasonably valid. Along with others of course that I didn't mention, like equal-weighting, which is rather ionic given how unequal weighted HYP1 has become.

So yes, HYP1 does represent a snapshot of what HYP was thought to be by one individual at that time. But I think now it should be judged by the collective contemporary wisdom of this community. And I would argue that by that higher and broader standard, it has been shown to have developed some significant problems, especially around the no-tinkering idea. Its main utility, at this point, is I believe to inform us that being too literal about not tinkering can lead to an unacceptable concentration risk. In that sense, I think Itsallaguess has it about right in his assessment.

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Re: HYP1 is 18

#181110

Postby tjh290633 » November 17th, 2018, 4:22 pm

Looking at those words, it says that "no more than 15 shares are necessary to strip out the risk of too few shares" but it doesn't say that 15 shares must be the maximum. We know from HYP1 that no portfolio is immune from corporate actions. The policy adopted in HYP1 for allocation of capital sums so released is open to criticism, as mentioned above in various posts.

There have been times when portfolios have halved in value (or worse) and times when income has fallen disastrously. Sometimes these are temporary, but sometimes remedial action is needed. That is why I for one have my own rules for avoiding concentration of either capital or income in any one share.

Everybody needs a rainy day fund, but not everybody can afford to have one. Without one, investing disproportionately in equities is an imprudent act.

TJH

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Re: HYP1 is 18

#181132

Postby IanTHughes » November 17th, 2018, 7:00 pm

To those of you who believe that HYP1 at 18 is dangerously unbalanced and that a proportion of the capital of the largest holdings should be redeployed, can you please explain where you would redeploy that capital?

To help you decide, the forecast yields of the top 4 holdings by value are:

Persimmon PLC (PSN) – 11.04%
British American Tobacco Group (BATS) – 7.21%
Rio Tinto PLC (RIO) – 5.79%
BT Group (BT-A) – 6.04%

I do appreciate that there are some other high yields on offer above 6.00% but such a re-balancing would surely reduce the forecast income of the Portfolio. An odd suggestion for what is first and foremost an Income Strategy.

Of course, many on here would suggest that they would never had allowed a portfolio under their control to get so un-balanced in the first place. In which case I have another couple of questions:

At what point historically would the above 4 holdings have been trimmed back and how much of the subsequent increase in income would have been lost by such tinkering? How sure could you be, when undertaking such trimming, that you would have located a new home for the redeployed capital that would have done as well or better, income-wise.

Anyone criticising the no-tinker rule for HYP1 should be able to answer the above questions and clearly show how subsequent income generation would not be put at risk.


Ian

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Re: HYP1 is 18

#181173

Postby tjh290633 » November 17th, 2018, 11:24 pm

IanTHughes wrote:To those of you who believe that HYP1 at 18 is dangerously unbalanced and that a proportion of the capital of the largest holdings should be redeployed, can you please explain where you would redeploy that capital?


My approach would be to trim them back to something near the median holding value, and redeploy the cash released in either existing holdings or in new holdings. I might also cull the odd holding. Let's just look at the table in the OP, with additions:

Share              Income    Value    Weight %   % Median   Income %   Yield 
Anglo American 366.69 8036 5.17% 100.00% 4.13% 4.56%
BA Tobacco 1639.7 25588 16.45% 318.42% 18.46% 6.41%
BT Group 875.03 14472 9.30% 180.09% 9.85% 6.05%
Dixons Carphone 139.61 2089 1.34% 26.00% 1.57% 6.68%
Glaxo 214.72 5544 3.56% 68.99% 2.42% 3.87%
InterCon Hotels 337.31 17575 11.30% 218.70% 3.80% 1.92%
Land Sex 308.14 5746 3.69% 71.50% 3.47% 5.36%
Lloyds 192.72 3583 2.30% 44.59% 2.17% 5.38%
Mitch & But 34.55 1794 1.15% 22.32% 0.39% 1.93%
Persimmon 2483.95 24459 15.72% 304.37% 27.97% 10.16%
Pearson 155.93 8195 5.27% 101.98% 1.76% 1.90%
RD Shell B 551.19 9743 6.26% 121.24% 6.21% 5.66%
Rio Tinto 1169.71 20091 12.91% 250.01% 13.17% 5.82%
RSA 96.83 2560 1.65% 31.86% 1.09% 3.78%
United Utilities 316.25 6108 3.93% 76.01% 3.56% 5.18%

Total £ 8882.33 155583 100.00% 100.00%
Median 316.25 8036 5.17% 3.56%

The overweight shares jump out, and there are four (BATS, IHG, PSN and RIO) over twice the median weight. These I would reduce to about 1.5 times the median weight. There are also three shares with yields below 2%, one (IHG) being overweight. Those three (IHG, MAB and PSON) I would sell completely. That would reduce the holdings to 12, so I would find three new holdings and invest in them at the old median weight. The money left over would be put into the existing holdings with the lowest weight and highest yield. Oddly, using my top-up ranking method gives anomalous results on the current weights, and I am not getting a correct ranking result. I would therefore top up the highest yielding shares, eliminating PSN because it had been trimmed back.

I would replace MAB with a brewer, either GNK or MARS. IHG would allow a new sector to come in, possibly a bookie like WMH or an industrial like SMDS. PSON, a case for WPP perhaps?

TJH


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