A Cobham tinker.

[IanTHughes]

To me, simply put, an HYP Strategy is one where the primary aim is to produce an income stream out of dividends from a portfolio of direct holdings in suitably diverse high-yielding equities, with the intention of using that income stream, now or at some point in the future, to cover living costs, whether basic or luxury.

So if you leave out the words "direct holdings in suitably diverse high yielding equities", you are an apostate and barred from contributing to the Practical HYP board?

That question you must direct at the owners and/or moderators of this site. I am neither.

You answer your own question though. If you want an income stream at some time in the future , the rate at which it grows may be as important to you as how high it is when the share was first purchased. That's a reason why you might buy a stock with a 3% yield rather than a 6% one.

Only if the dividend from the share with the 3% yield grows substantially better than the dividend from the 6% yield. And that is far from guaranteed at the outset, as I am sure even you would agree!

So what about my challenge?

viewtopic.php?f=31&t=18353&p=240436#p240436

….but for most of the last ten years, investors in Unilever, Compass, Diageo and even just FTSE 100 trackers would have done much better than VOD investors despite the higher yield of the latter.

If you are so sure that the above is correct and of course will continue to be true, why do you not set up a test portfolio, reported on these boards, so that in future we can make a comparison between your Income Portfolio and those HYP's, both virtual and real, that are already reported. It really does not take much effort once the initial selections have been made.

Are you going to take on HYP with your own Income Portfolio or continue to rely on hindsight as you do now?


Ian

[AJC5001]

I was asking the question based on someone who follows the HYP Strategy not board guidelines for this or any other blog site! And the question I was asking remains: why would an HYPer select a lower yielding share such as Cobham (COB) when such a decision would mean first rejecting what was, to my mind at least, a perfectly acceptable substantially higher yield alternative such as BAE Systems (BAE) - substantially higher Forecast as well as Historical yield you understand?

That question is of interest and has as yet not been answered.


Ian

A number of HYP holders have 'pairs' of shares in the same sector - GSK and Astra, Shell and BP, BAT and Imperial, BHP and Rio to name some of the more common. Luniversal had twin holdings as part of one of his selections on TMF IIRC. May I suggest that a holding of Cobham to go alongside BAe would therefor be a valid reason, providing the lower yield was acceptable.

Adrian

[IanTHughes]

I was asking the question based on someone who follows the HYP Strategy not board guidelines for this or any other blog site! And the question I was asking remains: why would an HYPer select a lower yielding share such as Cobham (COB) when such a decision would mean first rejecting what was, to my mind at least, a perfectly acceptable substantially higher yield alternative such as BAE Systems (BAE) - substantially higher Forecast as well as Historical yield you understand?

That question is of interest and has as yet not been answered.

A number of HYP holders have 'pairs' of shares in the same sector - GSK and Astra, Shell and BP, BAT and Imperial, BHP and Rio to name some of the more common. Luniversal had twin holdings as part of one of his selections on TMF IIRC. May I suggest that a holding of Cobham to go alongside BAe would therefor be a valid reason, providing the lower yield was acceptable.

Well, in this case at least, we know that that was not the reason.

... but I will say that I would not have bought British Aerospace in any case because I do not believe in buying armaments

But to answer you point more fully I would say no, do not split in two what is in effect an investment within a particular Business Sector, unless the yields on offer are broadly on a par with each other - shall we say no more than 0.5% difference.

The reason I say so is that, although one does definitely halve the impact of one single failure within that Business Sector, it doubles the risk that one failure will be experienced, again within that one Business Sector. Not much gain in my view for the price of maybe a quarter or more of the income that one might achieve when going for the highest yielder alone. What you might call a false sense of security that comes with a price attached. If you are so unsure as to the sustainability of the high yielder, don't buy it at all!

Just my opinion


Ian

[Gengulphus]

I was asking the question based on someone who follows the HYP Strategy not board guidelines for this or any other blog site! And the question I was asking remains: why would an HYPer select a lower yielding share such as Cobham (COB) when such a decision would mean first rejecting what was, to my mind at least, a perfectly acceptable substantially higher yield alternative such as BAE Systems (BAE) - substantially higher Forecast as well as Historical yield you understand?

That question is of interest and has as yet not been answered.

On the contrary, it has been answered: ethical considerations. You may not accept or even understand those ethical considerations, but the question you've asking is why a HYPer would select the lower-yielding share, not why you should select the lower-yielding share. So it's not whether the substantially higher-yield alternative is perfectly acceptable to your mind that matters, but whether it is perfectly acceptable to the mind of the HYPer concerned - and the answer is that it's unacceptable for ethical reasons they understand and accept even if you don't.

By “ethical considerations”, I must assume that you mean:

... but I will say that I would not have bought British Aerospace in any case because I do not believe in buying armaments *

* I am assuming that what was meant was “I do not believe in buying shares in armament manufacturers” rather than the armaments themselves!

And you are right, I do not understand this reason based on my brief exploration of Cobham PLC (COB) from which is gleaned:
...

FWIW, I don't understand Dod's ethical position either - but then, there are lots of people whose ethical positions I don't understand, and doubtless lots of people who don't understand mine (I've certainly had a fair number of comments along "I don't understand how you can ethically object to tobacco companies without also ethically objecting to booze companies" lines in the past). But ethical considerations are highly personal, which at least IMHO means that differences on them basically just need to be accepted as information about the HYPer, not understood, agreed or disputed.

It would seem that there are bad “armaments manufacturers” and good “armaments manufacturers” or maybe “ethical investing” in theory and “ethical investing” in practice. Of course it could also be that it was not understood what COB’s business was, but that I find hard to believe.

About all the understanding about that I see as relevant to this board's business is that if I find myself suggesting an Aerospace & Defence share to Dod in the future (which is probably unlikely) and if I remember (ditto), I'll put some sort of "if of course you find it ethically acceptable, which I'll have to leave you to judge" proviso on it.

And speaking of unanswered questions, when are you going to answer the question of exactly what you mean by the singular phrase "the HYP Strategy"? You've told people that they should read up on it on numerous occasions, but different descriptions of HYP strategies differ on numerous details, so that doesn't answer the question - you need to tell people which descriptions you're referring to. The most obvious possibility is pyad's articles on TMF and his posts both on TMF and here - but there are various discrepancies between them as well, so you can't be referring to them, or at least not all of them...

To me, simply put, an HYP Strategy is one where the primary aim is to produce an income stream out of dividends from a portfolio of direct holdings in suitably diverse high-yielding equities, with the intention of using that income stream, now or at some point in the future, to cover living costs, whether basic or luxury.

So, conversely, any Strategy that prioritises Capital growth is not an HYP Strategy in my view. Also, any Strategy that abandons individual equities in favour of handing all decision-making to a fund manager, is not an HYP Strategy in my view. Nothing wrong with either you understand, it is just that they are not HYP Strategies in my view.

I fully appreciate that some people, whilst still maintaining that income priority, believe that the selling off of part of an over-weight holding will lessen the impact of a single holding catastrophe. I would merely point out to them that without the capability of knowing precisely when the peak of capital or income was achieved, the almost inevitable outcome of such a strategy is to lessen the income and/or overall return. So, not a method that I would practice, nor indeed advocate, but I do understand the reasoning behind it.

Others may also try to improve income by selling off low-yielding holdings and re-deploying the capital into a higher yield. I do have some sympathy with that idea but personally I am as yet not convinced as to its success in practice. A low yield may be simply a pre-cursor to future dividend growth which might mean future regrets as to the decision to sell, bearing in mind that none of us have a functioning crystal ball.

Thanks for the answer. So if I understand you correctly, you agree with me that there is a range of strategies that qualify as HYP strategies, rather than a single "the HYP Strategy"? And whether a strategy is a HYP strategy is defined by various properties, such as the portfolio directly holding individual shares, those shares not being 'wrappers' for a portfolio of such shares managed by someone else, those shares having high yields and safe-looking (*) dividends, those shares being well-diversified, and the portfolio being run with an income stream as the primary aim (**). I would add "long-term" somewhere in the list, either as a separate "LTBH" item or as a some sort of extra clause in the item about the income stream, and would not agree with the requirement for the income stream to be wanted for living expenses - I don't think it matters why the HYPer wants the income stream, just that they do want it. But those are minor disagreements at worst, and may just be unintentional omissions, etc.

Also if I understand you correctly, you believe the investors you describe in your last two paragraphs are running HYP strategies - it's just that in your view, they're poorly-chosen, non-optimal HYP strategies. If so, no problem - I am of the opposite view about trimming back overweight holdings and do it from time to time, but that's just me choosing a somewhat different risk/reward point to you: trimming back over-weight holdings will I think tend to reduce income somewhat on average, but it also reduces the risk of a large income drop caused by a single company hitting a bad patch (***). I.e. I've still got a primary income aim, but it's differently nuanced to your income aim.

(*) "Safe" would be better than just "safe-looking", of course, but in practice only the latter is knowable at the time of purchase...

(**) Yes, I'm aware that the last one is not in the board guidelines, though it was in the TMF board guidelines. I too regard it as an important defining property of a HYP and have commented to the effect in the past on the Biscuit Bar, to no avail. My attitude to that omission now is that either it will end up causing trouble because someone finds and persists in discussing a primarily capital-growth-oriented strategy that meets the requirements that are stated in the guidelines, in which case hopefully the omission will be remedied, or it won't, in which case the omission doesn't matter in practice.

(***) I'll pose a 'HYP trivia' question that illustrates that point: which HYP1 company (see list here) made the biggest contribution to its major income drop in the financial crisis, from £5,040 in 2008 to £3,187 in 2009? (I have posted the answer to that in the past, certainly on TMF and I think also on TLF, so some readers may remember the answer from that - but I don't think I've posted it for quite a long time.)

All of which brings me back to my original question about rejecting a 6+% yield in one armaments manufacturer in favour of a 3+% yield in another, which I still maintain is a legitimate question, assuming of course that the investor in question is prioritising income as any HYP Strategy should.

My general answer to such questions is that there are more aspects to income than just its amount, and so prioritising income does not necessarily just mean aiming to obtain the maximum amount of income. As far as I am concerned, it also means aiming to keep the income risk due to my own mistakes in assessing the safety of my HYP's holdings' dividends down (hence the fact that I trim overweight holdings), and aiming to obtain the income from activities I find reasonably ethically acceptable (hence my ethical considerations). Having multiple income aims does of course mean sometimes having to make trade-offs between them, ethical considerations are many, and how HYPers weight all their income aims in the trade-offs is very much a personal decision.

But in this specific instance, I can't answer your question, which boils down to being about why Dod reckoned BAE Systems was so much worse ethically than Cobham that it outweighed the 3 percentage point yield advantage BAE Systems had. Only he can, and the signs are that he's not going to.

Gengulphus

[Dod101]

Gengulphus

Thanks for your interesting comments. I am as you correctly guessed taking this discussion no further. It is water under the bridge now and I cannot see any advantage for anyone for the discussion be extended least as far as my motives are concerned anyway (in the purchase of Cobham)

Dod