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SLA share purchases

Practical discussions about equity High-Yield Portfolios (HYP) for income
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pyad
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Re: SLA share purchases

#203131

Postby pyad » February 22nd, 2019, 11:00 am

Dod101 wrote:pyad assumes that buybacks are funded by debt. It is not as simple as that because buybacks could (and many would argue should) be funded by surplus cash on the Balance Sheet. It is most certainly not the case that buybacks are always funded by debt and even if they were, some debt is usual in any trading company. It is only if it becomes excessive (and that depends on the nature of the business, level of interest of the borrowings and such matters) that it becomes a problem.

I am no longer surprised, but it is a shame, that pyad is always so black or white when discussing investment matters. Investment is more often a shade of grey and picking a path which is appropriate to a business and the economic environment at the time.

Dod


Almost all major companies run net debt positions so that net cash is exceedingly rare. I'm very surprised you don't appear to know that. Consequently a buyback must, unavoidably, increase net debt compared with not having the buyback. There's no "grey" about it, it is black and white.

Dod101
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Re: SLA share purchases

#203150

Postby Dod101 » February 22nd, 2019, 11:32 am

pyad wrote:Almost all major companies run net debt positions so that net cash is exceedingly rare. I'm very surprised you don't appear to know that. Consequently a buyback must, unavoidably, increase net debt compared with not having the buyback. There's no "grey" about it, it is black and white.


Of course I know that but even you have admitted that net cash is perfectly possible and as I said carrying some debt is usual. Just because a company funds a share buyback from debt is not necessarily a negative and yet you argue as if it is always wrong. Of course there are shades of grey about it.

Dod

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Re: SLA share purchases

#203161

Postby TheMotorcycleBoy » February 22nd, 2019, 11:54 am

Dod101 wrote:pyad assumes that buybacks are funded by debt. It is not as simple as that because buybacks could (and many would argue should) be funded by surplus cash on the Balance Sheet. It is most certainly not the case that buybacks are always funded by debt and even if they were, some debt is usual in any trading company. It is only if it becomes excessive (and that depends on the nature of the business, level of interest of the borrowings and such matters) that it becomes a problem.

I am no longer surprised, but it is a shame, that pyad is always so black or white when discussing investment matters. Investment is more often a shade of grey and picking a path which is appropriate to a business and the economic environment at the time.

Dod

Well does the net asset position change regardless of whether the purchase is by using excess cash/borrowing more, or as I think GS suggests, the net asset position is uneffected, since (if I interpreted his last post correctly), an asset appears in the firm's equity? I haven't fully processed pyad's last, but on my initial understanding of his, I think is that he suggests that the net asset position reduces.

Clearly I need to do more reading!

Matt

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Re: SLA share purchases

#203167

Postby scrumpyjack » February 22nd, 2019, 12:16 pm

Whether the net assets per share increases or reduces after a buyback is simply a question of whether the share price at which the buyback is done is above or below net asset value. Usually the SP is above NAV so a buyback reduces the NAV per share.

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Re: SLA share purchases

#203179

Postby TheMotorcycleBoy » February 22nd, 2019, 12:46 pm

OOI I found a few write ups on this stuff online:

https://www.investopedia.com/articles/i ... chases.asp
https://www.accountingweb.co.uk/busines ... ed-to-know

I'm still after a decent paper book on company equity matters!

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Re: SLA share purchases

#203211

Postby Gengulphus » February 22nd, 2019, 2:35 pm

TheMotorcycleBoy wrote:Well does the net asset position change regardless of whether the purchase is by using excess cash/borrowing more, or as I think GS suggests, the net asset position is uneffected, since (if I interpreted his last post correctly), an asset appears in the firm's equity? I haven't fully processed pyad's last, but on my initial understanding of his, I think is that he suggests that the net asset position reduces.

The net assets drop, either because the cash assets reduce or because the debt liabilities rise. This is balanced on the balance sheet not by other changes to the assets and liabilities, but by the capital and reserves also dropping. Specifically, they drop because what is spent on the buybacks is charged to the company's distributable reserves, typically the retained earnings reserve (or whatever other name the company uses for it).

The net assets per share can either increase or decrease (usually decrease) as scrumpyjack says.

Gengulphus

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Re: SLA share purchases

#203227

Postby NeilW » February 22nd, 2019, 3:47 pm

GoSeigen wrote:They do. You just don't understand how. Read my earlier posts and Gengulphus's.


I understand perfectly well, and they don't.

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Re: SLA share purchases

#203235

Postby TheMotorcycleBoy » February 22nd, 2019, 4:18 pm

Gengulphus wrote:
TheMotorcycleBoy wrote:Well does the net asset position change regardless of whether the purchase is by using excess cash/borrowing more, or as I think GS suggests, the net asset position is uneffected, since (if I interpreted his last post correctly), an asset appears in the firm's equity? I haven't fully processed pyad's last, but on my initial understanding of his, I think is that he suggests that the net asset position reduces.

The net assets drop, either because the cash assets reduce or because the debt liabilities rise. This is balanced on the balance sheet not by other changes to the assets and liabilities, but by the capital and reserves also dropping. Specifically, they drop because what is spent on the buybacks is charged to the company's distributable reserves, typically the retained earnings reserve (or whatever other name the company uses for it).

The net assets per share can either increase or decrease (usually decrease) as scrumpyjack says.

Gengulphus

Thanks Geng,

That's kinda what I'd suspected.

Matt

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Re: SLA share purchases

#203276

Postby Alaric » February 22nd, 2019, 6:25 pm

In the context of SLA, surely they had a pile of cash, or at worst easily realisable securities as a consequence of the sale of the life assurance and pensions business of Standard Life to Phoenix? So I don't think they are borrowing to buy back the shares.

Cash and Debt are opposite sides of the same coin.

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Re: SLA share purchases

#203328

Postby Gengulphus » February 22nd, 2019, 10:26 pm

With an extra level of quote restored to make it clear what is being talked about:

NeilW wrote:
GoSeigen wrote:
NeilW wrote:It seems to me that they return company money to people who no longer want to be invested in the company. Why not return the money to those that wish to remain invested?

They do. You just don't understand how. Read my earlier posts and Gengulphus's.

I understand perfectly well, and they don't.

Assuming that you're referring to my post viewtopic.php?f=15&t=16173&start=40#p201080, neither of you seems to have understood it quite correctly. I said in it that "Plenty of us have seen a return from share buybacks", not that "Share buybacks have returned money to plenty of us". The two are subtly different, and that difference makes the first true and the second false. Specifically, the return we have seen from share buybacks is that they have caused subsequent dividends to return more money to us than would have come our way from the same total dividend payout by the company if the buybacks had not happened, not that the share buybacks have returned money to us themselves.

Gengulphus

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Re: SLA share purchases

#203606

Postby PrefInvestor » February 24th, 2019, 10:35 pm

Well seems to me that SLA has been a bit of a disaster since the merger and the dynamic duo took charge. SP has plummeted from ~400 to ~230 now, lost the management of ~£100Bn of Lloyds assets, done a capital return which just gave investors their money back (and nothing else), biggest shareholder recently sold their £350M stake. Just a tale of woe. What’s to like ?. If ANY bonuses are being paid to anyone there it’s rather difficult to see how they are justified.

I guess an ardent HYPer might like the yield, but the dividends are far outweighed by the capital losses – so just a dividend trap in my book. Can only get better I suppose……definitely not on my shopping list.

Pref

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Re: SLA share purchases

#203610

Postby Dod101 » February 25th, 2019, 1:33 am

PrefInvestor is right, but it was a disaster well before the merger. Martin Gilbert was always a wheeler and dealer, not a manager of a mature business and Keith Skeoch is I think simply out of his depth with SLA. I hope that the recently appointed Sir Douglas Flint (and recently knighted) will bring some sense to the party. It does not directly affect me because I hold no shares in SLA but it should be a force in Scottish fund management,

Dod

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Re: SLA share purchases

#203613

Postby GoSeigen » February 25th, 2019, 3:08 am

pyad wrote:
Dod101 wrote:pyad assumes that buybacks are funded by debt. It is not as simple as that because buybacks could (and many would argue should) be funded by surplus cash on the Balance Sheet. It is most certainly not the case that buybacks are always funded by debt and even if they were, some debt is usual in any trading company. It is only if it becomes excessive (and that depends on the nature of the business, level of interest of the borrowings and such matters) that it becomes a problem.

I am no longer surprised, but it is a shame, that pyad is always so black or white when discussing investment matters. Investment is more often a shade of grey and picking a path which is appropriate to a business and the economic environment at the time.

Dod


Almost all major companies run net debt positions so that net cash is exceedingly rare. I'm very surprised you don't appear to know that. Consequently a buyback must, unavoidably, increase net debt compared with not having the buyback. There's no "grey" about it, it is black and white.


And exactly the same applies to dividend payouts so I really don't see what the point is here. If a company has excess cash the shareholders want to receive it, in whatever form.

GS

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Re: SLA share purchases

#203619

Postby Arborbridge » February 25th, 2019, 7:49 am

I'd say some of the past few posts have very little to do with HYP or HYPing. The virtue of HYP - which is for the unsophisticated investor who wants an income - is that we just buy and hold and do not endlessly worry about detailed factors or various changes which are constantly happening to most companies. All this teasing apart and speculating and comments on whether the capital changes have outweighed the dividends, whether one CEO is better than another, etc- it's all so unHYP.

I think some of us (including me!) could do well to go back and read the original inspirational articles by Stephen Bland to find out what HYP is about. Managing is one thing: endlessly worrying about every twist and turn is another.


Arb.

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Re: SLA share purchases

#203629

Postby Dod101 » February 25th, 2019, 9:14 am

Arborbridge wrote:I think some of us (including me!) could do well to go back and read the original inspirational articles by Stephen Bland to find out what HYP is about. Managing is one thing: endlessly worrying about every twist and turn is another.


I am sorry if this is going to sound pedantic but it is the Board Guidance that we need to read as things have moved on since the original articles by Stephen Bland.

The reason this thread has got to where it is is because I think he (Stephen Bland aka pyad) is much too black or white about investing and share buybacks in particular and that needs to be corrected or at least investors need to know that there is another angle to it. It has now played out I think so I will say no more.

Dod

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Re: SLA share purchases

#203643

Postby Arborbridge » February 25th, 2019, 9:51 am

Dod101 wrote:
Arborbridge wrote:I think some of us (including me!) could do well to go back and read the original inspirational articles by Stephen Bland to find out what HYP is about. Managing is one thing: endlessly worrying about every twist and turn is another.


I am sorry if this is going to sound pedantic but it is the Board Guidance that we need to read as things have moved on since the original articles by Stephen Bland.

The reason this thread has got to where it is is because I think he (Stephen Bland aka pyad) is much too black or white about investing and share buybacks in particular and that needs to be corrected or at least investors need to know that there is another angle to it. It has now played out I think so I will say no more.

Dod


Moved on in the sense that we have added a few management ideas and tools, but not in any essential way. We still follow the Pyad method here, and if the board guidance has strayed from that, then the board guidance is out of step, not I.
There is only one HYP and if a collection of people adopt different guidelines in any fundamental sense, then this board is falsely named "HYP pratical".

Arb.

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Re: SLA share purchases

#203671

Postby PrefInvestor » February 25th, 2019, 11:50 am

Well I am new to these boards (more used to ii) so apologies if my post here is any way off topic. I did mention HYP in passing, but only in passing…..

I had not encountered HYP before reading these boards, high yield investing yes (I do that myself) but HYP as an investing strategy aimed at non-sophisticated investors ?. Sounds like a possibly problematic combination to me. Investing in single stocks with high yields has the high probability of investing in dividend traps, resulting in good income (for a while) but also capital losses (as in the case of SLA covered in my earlier post). Repeated execution of such a strategy could be severely damaging to your capital and if the dividends are then cancelled or cut that could be very bad news indeed for your capital and hence your income.

Personally I feel that any investment strategy that I would call successful has to aim for capital growth (or at the very least capital preservation) as well as generating a useful income. But then I fully admit I am not fully versed in HYP and maybe it has elements designed to address these issues.

ATB

Pref

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Re: SLA share purchases

#203680

Postby Raptor » February 25th, 2019, 12:36 pm

Moderator Message:
This thread has gone way off topic for this forum. Can I point out that the "guidance" given at the top of the forum is what we, as moderators, are guided by. These and the general rules of TLF are what is important. Whether you follow blindly PYADs original method or a method of your own devices is immaterial as long as you abide by the guidance and rules. Please abide by this, a good discussion on HYP is always welcome but try to keep personal feelings out of it. Thanks for your understanding. Raptor.

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Re: SLA share purchases

#203693

Postby daveh » February 25th, 2019, 1:05 pm

PrefInvestor wrote:Well I am new to these boards (more used to ii) so apologies if my post here is any way off topic. I did mention HYP in passing, but only in passing…..

I had not encountered HYP before reading these boards, high yield investing yes (I do that myself) but HYP as an investing strategy aimed at non-sophisticated investors ?. Sounds like a possibly problematic combination to me. Investing in single stocks with high yields has the high probability of investing in dividend traps, resulting in good income (for a while) but also capital losses (as in the case of SLA covered in my earlier post). Repeated execution of such a strategy could be severely damaging to your capital and if the dividends are then cancelled or cut that could be very bad news indeed for your capital and hence your income.

Personally I feel that any investment strategy that I would call successful has to aim for capital growth (or at the very least capital preservation) as well as generating a useful income. But then I fully admit I am not fully versed in HYP and maybe it has elements designed to address these issues.

ATB

Pref


I am aiming for a future income, buying it now and reinvesting that income in buying more income until the day I need said income. I generally follow PYADs HYP philosophy with the addition of some high yield ETFs for foreign shares. I've generally done little or no trading* (I've top sliced SEGRO as it grew to be too high a % of the portfolio for my liking). I'm happy with the performance of my HYP viewtopic.php?f=56&t=15487

I started unitising from 31/09/03 at £1.00 per unit. Accumulation units have grown to £3.02 and income units to £1.48 and the income is 16.9p and 8.5p per unit respectively as of end of Dec 2018. I was not a sophisticated investor when I started and doubt if I am now. The start to the year has been pretty good - up 9% so far, which just about balance s the loses in the last 3 months of last year and the income is coming in as expected, slightly ahead of last year. I can't comment on others, but repeated execution of the strategy hasn't been severely damaging to income or capital for myself and there are a number of others on here who have also done reasonably well using variations of the HYP strategy, of course we could be self selecting for those who have done well and those who have done badly don't post.

* bar a fair bit of bed and ISAing in the last 2-3 years to get my un sheltered dividends below the dividend allowance.

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Re: SLA share purchases

#203705

Postby Arborbridge » February 25th, 2019, 2:00 pm

Raptor wrote:
Moderator Message:
This thread has gone way off topic for this forum. Can I point out that the "guidance" given at the top of the forum is what we, as moderators, are guided by. These and the general rules of TLF are what is important. Whether you follow blindly PYADs original method or a method of your own devices is immaterial as long as you abide by the guidance and rules. Please abide by this, a good discussion on HYP is always welcome but try to keep personal feelings out of it. Thanks for your understanding. Raptor.


There's nothing personal in it: it's just factual. HYP is well defined, so there's nothing to discuss in that sense. If people want to do something different, that is also fine, but don't call it "HYP Practical" if it doesn't follow the HYP guidelines. If the board guidelines and HYP guidelines are the near enough the same, I have no problem. If not, I can only conlude a mistake was made and the guideline are incorrect.


Arb.


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