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The history of HYP4, and the possibility of reviving it

Practical discussions about equity High-Yield Portfolios (HYP) for income
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Arborbridge
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Re: The history of HYP4, and the possibility of reviving it

#245578

Postby Arborbridge » August 19th, 2019, 8:29 pm

monabri wrote:Since HYP4 has morphed into a son of HYP1....

Ignoring DSGI and looking at just 15 selections - a very rough estimate would indicate a dividend pot of ~£41k has been returned and that the original capital input of £75k is now worth ~£100k.

The quantity of shares was roughly calculated by £5k/average purchase price (where this price included costs). The "£ value" is the value of the shares today. There have been some shares that have had a few consolidations - these have not been taken into account. Instead, I've used the raw data (option)for dividends as presented by dividenddata.


Calculating the dividends for all those years looks like hard work - well done.

Arb.

MDW1954
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Re: The history of HYP4, and the possibility of reviving it

#245601

Postby MDW1954 » August 19th, 2019, 10:04 pm

IanTHughes wrote:
Luniversal wrote:PS: RBS was bought on a trailing 4.7% when the All-Share Index yielded c. 2.7%. Hence it was well into my 'danger zone' (ratio >=160) at ~175.

Which, apart from it being High Yield, tells us absolutely nothing, then and now, as to whether it was a suitable HYP candidate.

Ian


Well, it tells me loads. Ditto Dod, it appears (to no great surprise).

HYP, in terms of this board's guidelines, is a broad church.

Why you seek to narrow it is beyond me.

MDW1954

Dod101
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Re: The history of HYP4, and the possibility of reviving it

#245605

Postby Dod101 » August 19th, 2019, 10:17 pm

monabri wrote:Since HYP4 has morphed into a son of HYP1....

Ignoring DSGI and looking at just 15 selections - a very rough estimate would indicate a dividend pot of ~£41k has been returned and that the original capital input of £75k is now worth ~£100k.


Thanks monabri but at the risk of incurring the Wrath of Arb once again, so what? None of us knows or could know what the trading HYP might have traded in the intervening years so although your (mechanical) exercise is interesting it is no help really in telling us what might have happened. You have given us the results of a 'purist' HYP.

Dod

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Re: The history of HYP4, and the possibility of reviving it

#245608

Postby IanTHughes » August 19th, 2019, 10:27 pm

MDW1954 wrote:
IanTHughes wrote:
Luniversal wrote:PS: RBS was bought on a trailing 4.7% when the All-Share Index yielded c. 2.7%. Hence it was well into my 'danger zone' (ratio >=160) at ~175.

Which, apart from it being High Yield, tells us absolutely nothing, then and now, as to whether it was a suitable HYP candidate.


Well, it tells me loads. Ditto Dod, it appears (to no great surprise)

What does it tell you?

MDW1954 wrote:HYP, in terms of this board's guidelines, is a broad church.

I was talking from the point of view of the HYP Strategy, not this or any other board guidelines.

Why you misunderstand that is beyond me.


Ian

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Re: The history of HYP4, and the possibility of reviving it

#245613

Postby Alaric » August 19th, 2019, 11:11 pm

monabri wrote:Since HYP4 has morphed into a son of HYP1....


Compass and Rentokil to the rescue.

But does that illustrate another principle? Pick 15 different stocks, they don't have to be notionally high yield and Rentokil certainly wasn't when it suspended the dividend. Wait ten or more years, a couple of them will have done really well.

Arborbridge
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Re: The history of HYP4, and the possibility of reviving it

#245614

Postby Arborbridge » August 19th, 2019, 11:14 pm

Dod101 wrote:
monabri wrote:Since HYP4 has morphed into a son of HYP1....

Ignoring DSGI and looking at just 15 selections - a very rough estimate would indicate a dividend pot of ~£41k has been returned and that the original capital input of £75k is now worth ~£100k.


Thanks monabri but at the risk of incurring the Wrath of Arb once again, so what? None of us knows or could know what the trading HYP might have traded in the intervening years so although your (mechanical) exercise is interesting it is no help really in telling us what might have happened. You have given us the results of a 'purist' HYP.

Dod


No wrath here, but I see an interesting result for RTO. This has grown to be one of the biggest shares, yet a tinkering portfolio would have ditched it when it stopped paying dividends, as I did. Well, one cannot generalise from the particular, but it's just an example of how one might sometimes be better off hanging in there rather than selling out. I'd guess, had we been corresponding at the time, you would have advocated selling moving on, as your did for Lloyds, for example.

As regards your "so what" comment, Dod, the more information the better, I'd say. I never did quite understand your ability to make decisions through some sort of intuition rather than observed facts - or at least that's how it appears to many here.

Arb.

Dod101
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Re: The history of HYP4, and the possibility of reviving it

#245617

Postby Dod101 » August 19th, 2019, 11:32 pm

Well, I have no answer to your comment about intuition. I certainly do not comb through Annual Reports, although I read most of them. That is usually to get a 'flavour' of the company though and certainly not to analyse the numbers. They to me are not very important because any good accountant can make them say what his masters want.

Lootman wrote of this a few weeks ago and said he and I utilise the right side of our brain (I think it was) anyway the 'arty' side rather than the 'analytical' side. Strangely enough as a very mature student I successfully completed a maths degree through the Open University. It was the only subject at school that I never bothered to study for and did each exam paper from first principles and passed my Highers with no problem. I see investing as much more art than science, and that is why it may look like intuition. Maybe it is.

Dod

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Re: The history of HYP4, and the possibility of reviving it

#245650

Postby pendas » August 20th, 2019, 8:46 am

You can see why my performance has been mediocre with a similar startup. I disposed of both Compass and Rentokil early on.

2008 was terrible year for my investments. At the start of the year I'd invested £72k of life savings in HYP4 picks, added £6k during the year and the year end value was just £40.7k and I had retired with no way of making up the money.

Compass was the one share showing a gain. I was panicking and sold to bank the gain.

Demo portfolios don't show the emotion.

PinkDalek
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Re: The history of HYP4, and the possibility of reviving it

#245658

Postby PinkDalek » August 20th, 2019, 9:15 am

idpickering wrote:... Let’s move on.


I'm never sure what that means but you often say "Each to their own", so why doesn't that catch phrase of yours also apply in this situation? After all, it is very easy to ignore Topics in which one has little interest.

Arborbridge
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Re: The history of HYP4, and the possibility of reviving it

#245665

Postby Arborbridge » August 20th, 2019, 9:29 am

Dod101 wrote:Well, I have no answer to your comment about intuition. I certainly do not comb through Annual Reports, although I read most of them. That is usually to get a 'flavour' of the company though and certainly not to analyse the numbers. They to me are not very important because any good accountant can make them say what his masters want.

Lootman wrote of this a few weeks ago and said he and I utilise the right side of our brain (I think it was) anyway the 'arty' side rather than the 'analytical' side. Strangely enough as a very mature student I successfully completed a maths degree through the Open University. It was the only subject at school that I never bothered to study for and did each exam paper from first principles and passed my Highers with no problem. I see investing as much more art than science, and that is why it may look like intuition. Maybe it is.

Dod


Thanks for that Dod. I agree with the comments about accounting and accountants, and we've seen several examples over the years.
I'm "arty" but also have spent my life as an engineer in optics - which can be a bit arty too! I do analyse something to death (i.e. when choosing a new phone, as I've just done) and it very often doesn't get me anywhere at all - so I can fully empathise.
It is said that we make decisions largely emotionally and then if challenged, make post hoc rationalising arguments as to why we did. I can quite believe it. We have seen a massive example of this amongst the public in the past few years, though I wouldn't dare mention what the subject is ;)

As ever, I am fascinated by your ideas about suitable shares, and I imagine I am not alone on this board in finding them useful.

Arb.

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Re: The history of HYP4, and the possibility of reviving it

#245667

Postby idpickering » August 20th, 2019, 9:32 am

PinkDalek wrote:
idpickering wrote:... Let’s move on.


I'm never sure what that means but you often say "Each to their own", so why doesn't that catch phrase of yours also apply in this situation? After all, it is very easy to ignore Topics in which one has little interest.


Each to their own.

Ian.

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Re: The history of HYP4, and the possibility of reviving it

#245798

Postby Luniversal » August 20th, 2019, 5:13 pm

MDW1954 wrote:
IanTHughes wrote:
Luniversal wrote:PS: RBS was bought on a trailing 4.7% when the All-Share Index yielded c. 2.7%. Hence it was well into my 'danger zone' (ratio >=160) at ~175.

Which, apart from it being High Yield, tells us absolutely nothing, then and now, as to whether it was a suitable HYP candidate.

Ian


Well, it tells me loads. Ditto Dod, it appears (to no great surprise).

HYP, in terms of this board's guidelines, is a broad church.

Why you seek to narrow it is beyond me.

MDW1954


it depends whether you accept that for the large caps in which HYP deals the market efficiently absorbs information and accurately evaluates prospects.

Obviously analysts often err in price-movement predictions, which are highly random due to exaggerated mood swings among investors. But dividend rates are relatively non-stochastic. An income investor is only concerned about pinning down a rising future stream which is reasonably priced and will not go wrong.

Three-quarters of the time among HYP-able companies-- according to my research into about 200 dividend records between 2000 and 2016-- divis rose or were static from year to year in real terms. Freezes, cuts, passes and subinflationary increases were exceptional.

Even during the ravaging of income in 2009-12, at worst half of HYPable companies were raising dividends in real terms. The damage was heavily concentrated in banks, insurance, property and retail, so it was less of a threat to carefully diversified portfolios.

Most payout histories are not volatile over longer periods either, except in recognised cyclical trades; distributions are smoothed by board decisions on cover. Therefore yields represent an appraisal of income sustainability, embodying known information, which seems broadly reliable. From the end of the global financial crisis bear market in early 2009 until 2016, I identified fewer than thirty cases of companies making 'bombshell' announcements about the dividend which disappointed consensuses of analytical opinion.

A running yield markedly and persistently above the market average is a warning indicator. Not infallibly so, but my weekly plots of HYPables from 2013 to 2016 found that a yield at least half as high again as the market's posed a significant risk to future payouts, to be suffered within a year or two. Once impaired, the setback would probably take years, if ever, to make good in real terms.

Typically about one in ten companies would be yielding at this level. Not all would come to grief (conversely, a smaller fraction of safe-seeming yields would be hit too) but around seven in ten did. These are poor odds for a HYPer who seeks a steadily rising overall inflow. At best it conduces to bumpiness.

However, the market always offered a spread of shares yielding 90-150% of the average: my 'optimal zone'. Within it, enough carried a reasonably robust payout history. A 25-sector HYP could be compiled without betting that ultra-high-payers would defy pessimistic expectations.

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Re: The history of HYP4, and the possibility of reviving it

#245804

Postby dspp » August 20th, 2019, 5:34 pm

Luniversal wrote:
Three-quarters of the time among HYP-able companies-- according to my research into about 200 dividend records between 2000 and 2016-- divis rose or were static from year to year in real terms. Freezes, cuts, passes and subinflationary increases were exceptional.

.....A 25-sector HYP could be compiled without betting that ultra-high-payers would defy pessimistic expectations.



Thank you Luni. A couple of comments if I may:

1. I would suggest that this shows that three quarters of these HYP-able companies were run by senior management teams that were heavily incentivised to deliver rising dividend streams during their tenure, irrespective of the consequences for the longer term future beyond their tenure. Just a thought.

2. I would suggest that over the medium term (which I think is the appropriate period, correct me if I am wrong), then on a Total Return basis such a 25-share (presumably you mean share, not sector) HYP would return a TR fairly close to the TR of the pool which you selected the HYP candidates from (e.g. FTSE 100, or FTSE 350, or whatever). Are you able to give numbers from your records for this ? If you were to look at my annual reviews, especially for the FF-portfolio, then you'd see viewtopic.php?f=56&t=4396 something akin to this. And if I am correct then what this suggests is that a 25-share HYP is a proxy for the (say) FTSE-100 except with additional risk concentration.

regards,
dspp

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Re: The history of HYP4, and the possibility of reviving it

#245815

Postby Alaric » August 20th, 2019, 5:59 pm

dspp wrote:And if I am correct then what this suggests is that a 25-share HYP is a proxy for the (say) FTSE-100 except with additional risk concentration.


Possibly also the total return would approximate to the universe from which the shares were drawn. More of it would take the form of dividends, which could make sense for those looking for an annuity style income.

One thing you don't know for sure, although sometimes it's obvious, is to what extent dividends are being financed from retained earnings, or even where the retained earnings are represented by assets on paper such as goodwill, that the Company is using its borrowing powers to finance the dividend payouts.

MDW1954
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Re: The history of HYP4, and the possibility of reviving it

#245834

Postby MDW1954 » August 20th, 2019, 7:49 pm

dspp wrote:And if I am correct then what this suggests is that a 25-share HYP is a proxy for the (say) FTSE-100 except with additional risk concentration.



There are an awful lot of low-yielders in the FTSE 100, so (if I understand this correctly) then I don't think that I agree with it.

A proxy for the FTSE 100's higher yielders, maybe, but otherwise no.

Don't forget that the initial starting point would be shares yielding higher than the FTSE average.

Apologies if I have misunderstood the point being made.

MDW1954

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Re: The history of HYP4, and the possibility of reviving it

#245847

Postby dspp » August 20th, 2019, 8:38 pm

MDW1954 wrote:
dspp wrote:And if I am correct then what this suggests is that a 25-share HYP is a proxy for the (say) FTSE-100 except with additional risk concentration.



There are an awful lot of low-yielders in the FTSE 100, so (if I understand this correctly) then I don't think that I agree with it.

A proxy for the FTSE 100's higher yielders, maybe, but otherwise no.

Don't forget that the initial starting point would be shares yielding higher than the FTSE average.

Apologies if I have misunderstood the point being made.

MDW1954


I am making the point that TR is not yield. Some, albeit not all, of those low yielders will be high growth. TR is the right metric as total value of our investments is what matters. Over-focussing on just yield leads to additional risk without corresponding additional return, imho.

regards, dspp
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This board is called High Yield Portfolios (HYP) - Practical. It is specifically reserved for people that wish to discuss practical matters concerning HYP portfolios as loosely defined by the board guidance. TR has absolutely nothing to do with HYP as defined therein. Whether TR is the right metric for investments is entirely off-topic for this board. Discussion about whether HYP based on the guidelines is fruitful or not is not allowed on this board which, especially as a moderator, you know full well.

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Re: The history of HYP4, and the possibility of reviving it

#263133

Postby Gengulphus » November 8th, 2019, 11:25 pm

I have just rediscovered this thread, it somehow having come off my reading list very early on after I'd seen the initial reply by Dod101 (#245239) but no further replies. The only explanation I can think of is that I must have inadvertently misclicked something without noticing that I'd done so.

I.e. I abandoned the thread unintentionally, not deliberately, for which I apologise to everyone who asked questions of me and failed to get answers. However, sorry, but I am not going to try to go through the thread to rectify that failure, firstly because the reasons behind my statement that "I won't tackle it right now, but maybe (no promises!) I'll take it on over time." still apply and are now reasonably certain to continue to do so for at least a few more months, and secondly because of the amount of tedious repetition of stuff that I have seen many times before and that aren't actually about the subjects of the thread - i.e. the factual history of HYP4 and the possibility of reviving it. A quick skim says that there is certainly stuff that is about those subjects, but wading through everything else to identify it all is simply too daunting and unpleasant a job, so I'm not going to do it.

I did note pyad's objections to the exercise and if I ever do it (which seems highly doubtful the way I currently feel after that skim) I will take care (a) to make it very clear that pyad was only responsible for how it was run up to early 2008 and that running it in a completely untinkered way after that was not what he intended; (b) not to call it "HYP4", but some other name to distance it suitably from him. I do think though that it was a perfectly reasonable choice of HYP when viewed only in terms of what was known at the time - it's only with hindsight of a financial crisis that surprised a lot of investors at the time that a number of its selections look very poor.

And with that, I'm basically signing off from this thread - if I ever attempt the project, I will start a new thread for it.

Gengulphus


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