Top up quandary

[EssDeeAitch]

I have some funds to execute a top up, but not enough to enter a new position. I have WPP and SLI in my HYP (I can almost hear the violins playing) and having bought these at the wrong time, both are cheap compared to my initial purchase price.

I have three questions:-
1 - Is it a good idea to top up stocks whose price has dropped to "average down"?
2 - Is either of these stocks worth topping up?
3 - If yes to 2 - then which is the better candidate?

Thanks in advance for your opinions.
SDH

[Itsallaguess]

I have some funds to execute a top up, but not enough to enter a new position.

You don't have to enter into a new position in one go - if trading costs are not punitive, then building a position over a number of trades in a new HYP option might well be worth considering, certainly if you've got access to low 'regular trading' costs with your investment account (they don't have to be regular-trades, the idea is that you just take advantage of a single trade with this process, and then turn it off after the trade...), and especially if you're perhaps using this view as an 'excuse' to....

I have WPP and SLI in my HYP (I can almost hear the violins playing) and having bought these at the wrong time, both are cheap compared to my initial purchase price.

I have three questions:-

1 - Is it a good idea to top up stocks whose price has dropped to "average down"?

This is impossible to answer. The only way you'll ever know if this was a 'good idea' is at some future point.

What I will say is that I have hard experience of this being absolutely the worst thing I could have done, on a number of occasions when I did it....

You'll hear people talking about 'falling in love' with a share, and becoming emotionally attached to a share as 'an idea', and I think there's sometimes a great deal of truth in that, and I think this is often especially true when we've seen a purchase subsequently drop substantially in price - we convince ourselves that we could never have been 'wrong' to buy it in the first place, and as 'concrete evidence' of that belief, what would be better than actually purchasing more of that investment, to 'prove to ourselves' that we were right to purchase it in the first place, with the added benefit of perhaps being able to 'hide' our initial purchase-mistake by massaging the figures with a, perhaps much lower, 'average-down' price of the final, complete holding....

If that rings any bells, for anyone at all, then it's meant to, because it's certainly how I've made HYP mistakes in the past, and lived to regret them...

Cheers,

Itsallaguess

[monabri]

Based on a previous posting, selection of either will not make a significant difference to you overall.

viewtopic.php?f=15&t=15515#p190965

(Your HYP being 5% of your total investments portfolio...currently comprising 8 companies - thus- each holding , on average, is less than 1% of your total investment, so a poor decision regarding a top isn't so critical).

Of the two, I would plump for WPP. The dividend cover is better than SLA ( I assumed you meant SLA rather than SLI as SLA was in your last HYP update). The new boss is looking to grow the business ( step 1 would be to kill off SFOR, Sorrell's new business before it establishes itself !).

https://www.londonstockexchange.com/exc ... 98724.html

SLA - I bought into Standard Life and it morphed into Aberdeen Asset Management...I' m fearful that we are likely to see further declines in assets under management ( the rise of the ETF coupled with panicky investors bailing when their portfolio falls in values ?). Their divi cover is thinner than WPPs.

[pyad]

As a general rule, it is completely correct in the HYP strategy to top up shares which have fallen in value. In fact that is the standard way to do so, by identifying those sectors you own showing the lowest value below average and the highest acceptable yield on your usual HYP purchase criteria. It is very likely that the lowest value sectors are those which have fallen in value some way since purchase.

The proviso is that those shares continue to look attractive on the sort of criteria you use to locate any HYP share so that as IAAG suggests, no emotional grounds should be employed in this decision, it must be done cold.

But don't be persuaded that just because a share has fallen in value, this means there must be something wrong with it for that reason alone. As always the test is the fundies [fundamentals], not the sort of [vague waffle] so often seen around here. No guarantees of course, you can study the fundies to death and still go wrong, equity investing, even purely for income, is still risk investing.

Finally, if a share has fallen in value considerably, and there can't be a HYPer to whom this hasn't happened, that doesn't mean it was "wrong" to buy it at the original price. As I say above, all you have to go on are the fundies and if they look good, you go in. That decision in some cases may later not work out as hoped but it wasn't wrong to buy it if it met rational HYP purchase criteria.

Moderator Message:
edits to replace inappropriate language, dspp

[tjh290633]

If you only have 8 holdings in your HYP, then you should be using any cash available to increase the number of holdings. Only when you have gone past the 15 holdings mark should you contemplate topping up.

At that stage you can use the HYPTUSS tool to help you decide which shares to top up. Alternatively you can top up any which are the lowest in holding value, provided that the yield is adequate.

When you are adding new holdings, it is best to bring the value of the new holding up to the average or median holding value at that time. You can do this in stages as your cash flow allows.

TJH

[Arborbridge]

I have some funds to execute a top up, but not enough to enter a new position. I have WPP and SLI in my HYP (I can almost hear the violins playing) and having bought these at the wrong time, both are cheap compared to my initial purchase price.

I have three questions:-
1 - Is it a good idea to top up stocks whose price has dropped to "average down"?
2 - Is either of these stocks worth topping up?
3 - If yes to 2 - then which is the better candidate?

Thanks in advance for your opinions.
SDH

None of the above. If your HYP is as it was, with eight shares, I would keep that cash in reserve and when more has accumulated, buy a completely new holding.
TJH has already covered this ground, but I think he is correct. Gradually build up the number of holdings to improve diversity and reduce company specific risk - only after that, think in terms of top-ups.

Arb.

[Raptor]

I am in agreement with IAAG and Arb. 8 shares is, IMO, far too few, I would look to 15 as a minimum for a pure Share HYP.

What I would do is set yourself either a target of buying when you have enough for a median purchase or set yourself a "cost" to buy a share. I set myself a 1% cost in the past, taking into account Dealing costs and stamp duty.

Raptor.

[EssDeeAitch]

Many thanks for all the responses, whilst topping up seems to be a valid option I am much more inclined to go with the view of increasing sector coverage even with a partial amount. I will then top that new holding up to the mean.