Arb's HYP 13th year

[Arborbridge]

Arb's HYP 12th year can be seen here:
viewtopic.php?p=190982#p190982

13th year:

Income

Total income provided by all equity investments is 2.17x my pension drawdown (2018 2.0x, 2017 1.88x, 2016 1.75x). Looking across those numbers, it seems I am gaining a little ground as regards safety margin.
The capital mix between my three income streams is as follows: HYP:incITs:incOEICS = 11:9:2. The IT basket is slightly bigger with respect to the HYP compared with previous years. Years ago it was almost 2:1, now it's nearer 1.25:1.

Income per unit

Calculated on the basis of (total income/year end number of units) in pence:

2019 | 2018 | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010
7.39 | 6.76 | 6.15 |  6.2 | 6.27 | 5.66 | 5.75 | 5.68 | 4.88 | 3.29

Income per unit has increased by 9.4% a year since unitising in 2010 or 5.3% pa over 5 years. Since 2010, this increase amounts to a factor of 2.23x whareas RPI has amounted to 1.27x. This is all very satisfactory.

Capital

Here's how the capital value has changed. Values are pence per unit (income units) at the year end:

2019 |   2018 |   2017 |   2016 |   2015 |   2014 |   2013 |   2012 |   2011 |   2010
135.68 | 120.24 | 138.65 | 140.41 | 139.16 | 137.76 | 138.50 | 126.09 | 106.66 | 110.62

On the capital side, my HYP is really struggling, being lower now than seven years ago. The Boris bounce only helped redress a little of the problem. TR as calculated by XIRR is 8.36% since Jan 1st 2010 compared with the IT basket which achieved 9.68% from May 2009.

Tinkering, portfolio changes

May: disposal of Centrica
August: disposal of Morrisons
August: trimmed Greene King
November: Green King bought out

Buys

April: added full unit of D S Smith.

In addition a number of top-ups have taken place across the board in accordance with HYPTUSS rankings, less any I've vetoed.

Charges

The following shows how total charges have varied. This includes all account and dealing charges. The right hand column shows the number of trades each year, which is lower than ever. The central column shows the charges as a percentage of income generated.


Due to my trading half as much this year, the charges are agreeably low.

Income forecast

The forecast for 2019, made on 1st December 2018 was for the range 7.1p-7.3p per unit. This was exceeded slightly with an actual results of 7.39p.
The forecast for 2020, made on 7th December 2020 is rather problematic, because it is coming in at 7.25p - that is less than 2019. Even in my usual pessimistic state I can hardly believe that will happen, but given a sensible error range, I'd settle for 7.25-7.50p as being reasonable. Here's my usual chart showing how price and income, both per unit, vary. The last point is today showing income forecast as 7.22 - that's without any correction for "funnies" which usually raises the forecast slightly.



Conclusion

Although the capital value has increased sensibly over the years, I am quite sanguine about this as I hope (ever hopeful!) that poor choices made in the past my have worked their way out. The important fact for me is that the income overall has been more than good enough to pay my pension requirements: I have set my new regular "salary" as a 4% increase on 2019. My IT basket also goes from strength to strength and is catching up my HYP in terms of size. This is partly deliberate due to additional investment, but it is also because the competent share prices have grown faster than HYP.

I will post the HYP itself in this thread, but separately.

Arb.

[Arborbridge]

Here's the list of shares in my HYP listed in order of income %:-



And here are the sector sizes:-



These are raw figures straight from HYPTUSS with no corrections or amendments. I note from the above sector list that the Financial sector is rather too well represented at 30%. It's been the story of the past few years that financials of one sort of another are a hunting ground for high yield. It's also true in severla professionally managed ITs. I must keep an eye on that in 2020 as the sector is quite big enough - but it remains true that companies such as CSN, AV and SLA are still near the top of the rankings for topping up.

Arb.

[monabri]

With the margin of safety increasing yearly, is there scope to relax your percentage income limit from any one share (5%)? This relates to your discussion with ITH on selection of IMB as a top up? In addition, you have income from "ARBIT" - hence a divi cut from a high yielder ( IMB) would not be that onerous.

[tjh290633]

My reason for setting limits on weight, share of cost and contribution to dividend income is to avoid overexposure to any one share. Safety margins did not come into the thought process.

It came about when, despite several top ups, the same share kept the ranking of No.1 for topping up. That share was Mapeley, but nowadays it could apply to IMB or TW. I views this as an undesirable outcome and so the limits were set. Reductio as absurdum, one could see one share providing 50% of dividend income. Far too risky.

TJH

[moorfield]

The central column shows the charges as a percentage of income generated.



Due to my trading half as much this year, the charges are agreeably low.

I like this way of measuring charges and have adopted the same, for comparison mine were 1.0% and 9 trades last year.

It’s a good habit to keep count of your trades and 11 looks much more sensible that 53. Imho HYPsters shouldn’t need more than 12 – one purchase/top-up per month (on a cheap dealing day), and no sales – which is what I aspire to each year but never achieve!

[SDN123]

Thanks Arb, I enjoyed reading your report.

I'm curious about the reduced number of trades in 2019. Did you simply make 11 "big" trades in 2019 compared to 24 "half sized" trades in 2018 or did less money get invested/reinvested in 2019?

I ask because its interesting to see how a HYP evolves over time when its part of mixed investment strategy. For example in my personal situation I treat my HYP as part of a much bigger portfolio and
- my HYP outperformed the overall portfolio in 2019;
- I'm keen to keep the size of the HYP at around 10% of the whole; and
- I currently use top-ups and new investments to re-balance (rather than selling or top-slicing anything).

Therefore I'm not likely to make many HYP top-ups in 2020 (unless the HYP falls back significantly or the rest of the world jumps forwards significantly).

I realize that disadvantages of this approach, if taken to far, could be that my HYP imbalances may get wider and I may miss out on topping up "bargains" as they appear throughout 2020.

Thanks,

SDN

[Arborbridge]

With the margin of safety increasing yearly, is there scope to relax your percentage income limit from any one share (5%)? This relates to your discussion with ITH on selection of IMB as a top up? In addition, you have income from "ARBIT" - hence a divi cut from a high yielder ( IMB) would not be that onerous.

Just to add a little to TJH's comments - my own 5% idea came about after BP scrapped its dividend. At that time it was giving me around 4% of my income and I felt the loss - not so much physically, but emotionally. The 5% limit was born from knowing what it feels like to lose it! I'm not saying it is set in stone, but I have gone above the 5% but only rarely or temporarily. Actually, you make a good point about the income from ARBIT - 5% on the HYP is really much less than 5% of the total income.

IMB was passed over this month, but it may not be next month - we'll have to see.

Arb.

[Arborbridge]

I'm curious about the reduced number of trades in 2019. Did you simply make 11 "big" trades in 2019 compared to 24 "half sized" trades in 2018 or did less money get invested/reinvested in 2019?



SDN

I've gone back to check on this, and find that comparing 2016 with 2019, the average buy size last year was up about 40%. I guess I wasn't "finessing" the account so much for whatever reason. I also invested over twice as much in 2016 so the difference is a bit of both.

There may be fewer trades from now on simply because the capital I want to invest has been used up. That is - unless I decide to release some more from some other form of investment.

Arb.

[Arborbridge]

It’s a good habit to keep count of your trades and 11 looks much more sensible that 53. Imho HYPsters shouldn’t need more than 12 – one purchase/top-up per month (on a cheap dealing day), and no sales – which is what I aspire to each year but never achieve!

The 53 trade year (and the 38 trade year, to a lesser extent) was an except. It was caused by a one-off re-organisation transferring shares from one account to another. At that time I ended up with split holdings across different broker accounts - that was crazy, so I started to rationalise them.

Once a month is a good disciplime, but life happens sometimes! A bargain, finding some more cash somewhere, selling off a unit trust.... one's investment evolves.


Arb.

[Bubblesofearth]

Just to add a little to TJH's comments - my own 5% idea came about after BP scrapped its dividend. At that time it was giving me around 4% of my income and I felt the loss - not so much physically, but emotionally. The 5% limit was born from knowing what it feels like to lose it!

Arb.

You might find this interesting as IMO it explains why so many people feel the need to top-slice;

https://en.wikipedia.org/wiki/Prospect_theory

BoE

[Arborbridge]

Just to add a little to TJH's comments - my own 5% idea came about after BP scrapped its dividend. At that time it was giving me around 4% of my income and I felt the loss - not so much physically, but emotionally. The 5% limit was born from knowing what it feels like to lose it!

Arb.

You might find this interesting as IMO it explains why so many people feel the need to top-slice;

https://en.wikipedia.org/wiki/Prospect_theory

BoE

Actually, the conversation was more about not topping up than top-slicing. I've rarely needed to do it, although it's true I have on two (three?) occasions.

I'll read it, anyhow, thanks.

[tjh290633]

Just to add a little to TJH's comments - my own 5% idea came about after BP scrapped its dividend. At that time it was giving me around 4% of my income and I felt the loss - not so much physically, but emotionally. The 5% limit was born from knowing what it feels like to lose it!

Arb.

You might find this interesting as IMO it explains why so many people feel the need to top-slice;

https://en.wikipedia.org/wiki/Prospect_theory

BoE

I've just had a swift look at it and the function displayed indicates that people pay more attention to losses than to gains.

Rather than explaining top slicing, it seems to to explain why people cut their perceived losses. They are happy with their gains and let them run.

This fails to recognise the often cyclical behaviour of share prices, and ignores the ages old exhortation, buy low and sell high. This is the real logic behind trimming overweight shares and adding to those which are underweight.

TJH

[Arborbridge]

Just to add a little to TJH's comments - my own 5% idea came about after BP scrapped its dividend. At that time it was giving me around 4% of my income and I felt the loss - not so much physically, but emotionally. The 5% limit was born from knowing what it feels like to lose it!

Arb.

You might find this interesting as IMO it explains why so many people feel the need to top-slice;

https://en.wikipedia.org/wiki/Prospect_theory

BoE

I've just had a swift look at it and the function displayed indicates that people pay more attention to losses than to gains.

Rather than explaining top slicing, it seems to to explain why people cut their perceived losses. They are happy with their gains and let them run.

This fails to recognise the often cyclical behaviour of share prices, and ignores the ages old exhortation, buy low and sell high. This is the real logic behind trimming overweight shares and adding to those which are underweight.

TJH

Unfortunately, triming and topping also tends to fly in the face of the adage: "Run your winners and cut your losers". We trim shares which have risen in price instead of holding on to them - the winners. We topup shares which have fallen in price instead of cutting them - the losers. HYP procedure is very much at odds will conventional wisdom, because we do not seek high TR.

Arb.

[IanTHughes]

You might find this interesting as IMO it explains why so many people feel the need to top-slice;

https://en.wikipedia.org/wiki/Prospect_theory

I've just had a swift look at it and the function displayed indicates that people pay more attention to losses than to gains.

Rather than explaining top slicing, it seems to to explain why people cut their perceived losses. They are happy with their gains and let them run.

This fails to recognise the often cyclical behaviour of share prices, and ignores the ages old exhortation, buy low and sell high. This is the real logic behind trimming overweight shares and adding to those which are underweight.

Unfortunately, triming and topping also tends to fly in the face of the adage: "Run your winners and cut your losers". We trim shares which have risen in price instead of holding on to them - the winners. We topup shares which have fallen in price instead of cutting them - the losers. HYP procedure is very much at odds will conventional wisdom, because we do not seek high TR.

I think you must be talking about a non-HYP strategy.

First of all, HYP Procedure does not include trimming at all. Secondly, with regard to Top-Ups, HYP advocates topping up the highest available yield - buying low - where the required diversification is maintained and the dividend is considered sustainable.


Ian

[Arborbridge]

I think you must be talking about a non-HYP strategy.

First of all, HYP Procedure does not include trimming at all. Secondly, with regard to Top-Ups, HYP advocates topping up the highest available yield - buying low - where the required diversification is maintained and the dividend is considered sustainable.


Ian

As you well know (you are trying to be provocative again ) I am not talking about a non-HYP policy, but a HYP policy with the modifications practiced and promoted by TJH. He publishes his activity every so often and you can hardly have failed to notice it, but I don't think I've ever noticed you characterise what he does as being a non-HYP strategy. So why be picky about me?

Arb.

[IanTHughes]

I think you must be talking about a non-HYP strategy.

First of all, HYP Procedure does not include trimming at all. Secondly, with regard to Top-Ups, HYP advocates topping up the highest available yield - buying low - where the required diversification is maintained and the dividend is considered sustainable.

I am not talking about a non-HYP policy, but a HYP policy with the modifications practiced and promoted by TJH.

So, why did you not make that clear? What you actually said was:

Unfortunately, triming and topping also tends to fly in the face of the adage: "Run your winners and cut your losers". We trim shares which have risen in price instead of holding on to them - the winners. We topup shares which have fallen in price instead of cutting them - the losers. HYP procedure is very much at odds will conventional wisdom

No mention of any modification by anyone in that statement, so it was natural to believe that when you said "WE" you meant "WE HYPers", not one individual. Or was it the royal we?

The "HYP Procedure", as you put it, is a "never sell" strategy, unless forced by market action - Return of Capital, Takeovers and the like.

Buy low and never sell


Ian

[Arborbridge]

I think you must be talking about a non-HYP strategy.

First of all, HYP Procedure does not include trimming at all. Secondly, with regard to Top-Ups, HYP advocates topping up the highest available yield - buying low - where the required diversification is maintained and the dividend is considered sustainable.

I am not talking about a non-HYP policy, but a HYP policy with the modifications practiced and promoted by TJH.

So, why did you not make that clear? What you actually said was:

Unfortunately, triming and topping also tends to fly in the face of the adage: "Run your winners and cut your losers". We trim shares which have risen in price instead of holding on to them - the winners. We topup shares which have fallen in price instead of cutting them - the losers. HYP procedure is very much at odds will conventional wisdom

No mention of any modification by anyone in that statement, so it was natural to believe that when you said "WE" you meant "WE HYPers", not one individual. Or was it the royal we?

The "HYP Procedure", as you put it, is a "never sell" strategy, unless forced by market action - Return of Capital, Takeovers and the like.

Buy low and never sell


Ian

I'm not going to engage with you in when you are in this mood of spraying blood around the screen. People are quite well informed on here and can judge for themselves.

Arb.

Moderator Message:
No more discussion of this issue of trimming and topping-up and HYP purity, please. Let's get back to discussing Arb's HYP, if there's anything to add. -- MDW1954