Beginners HYP: selling shares

[TopOfDaMornin]

I have decided to trim some shares to raise capital to invest in other areas that are off-topic for this board.

I find it difficult to decide what to sell and / or trim. I have decided to trim those shares that have risen the most in value above the average and also those that have 2 shares per sector. Diageo remains un-trimmed even though it is well above the average due to its long term dividend record.

I suspect there is no best answer to this.

In 14 years, I have only tinkered once before, approximately 4 months ago, and sold about 5 shares that had stopped dividend. They have since collectively risen by about 75% in value.


TDM

[Gengulphus]

Are you proposing to sell the percentages of the holdings indicated in the "% to Sell" column and wanting people's feedback in case it causes you to change your mind, or are you reporting that you have sold those percentages and so just wanting to let people know what's happened to the portfolio? No problems either way, but it does rather change what sort of replies are likely to be useful!

Gengulphus

[dealtn]

Are you proposing to sell the percentages of the holdings indicated in the "% to Sell" column and wanting people's feedback in case it causes you to change your mind, or are you reporting that you have sold those percentages and so just wanting to let people know what's happened to the portfolio? No problems either way, but it does rather change what sort of replies are likely to be useful!

Gengulphus

Agreed.

Although my initial thoughts were drawn to the reference to "Beginners HYP" (sic), after 14 years!

[idpickering]

Hi TDM. We all have our different methods obviously. I try to not go above 10% in capital value weighting in any given sector, and 5% per each of my 25 holdings in my 25 share HYP, which discussed recently here; viewtopic.php?f=15&t=27334&p=377098#p377098

As no new shares interest me currently I'm gradually raising the value of each of my holdings, starting with the highest yielding shares first, as penned by Stephen Bland in his HYPersavers item here;https://web.archive.org/web/20071231131948/http://www.fool.co.uk/news/investing/high-yield/2007/02/14/hypersavers.aspx

As for selling, I have previous for being draconian, but am happy with my HYP balance as of now. In short though, I'm trying to not be overly fickle nowadays, and prefer to let things be. Should a share become overly large in my HYP, I'd obviously trim ii back to the average value weighting. I have no plans on doing this currently. In effect, similar to your tactic mentioned in your OP. Good luck with whatever you decide.

Ian.

[TopOfDaMornin]

Are you proposing to sell the percentages of the holdings indicated in the "% to Sell" column and wanting people's feedback in case it causes you to change your mind, or are you reporting that you have sold those percentages and so just wanting to let people know what's happened to the portfolio? No problems either way, but it does rather change what sort of replies are likely to be useful!

Gengulphus

I have sold these shares and was just reporting to the group as various users on this group have helped me over the years.

I shall, in the near future, be going thru another selling exercise and will open it up to discussion first.

TDM

[TopOfDaMornin]

Are you proposing to sell the percentages of the holdings indicated in the "% to Sell" column and wanting people's feedback in case it causes you to change your mind, or are you reporting that you have sold those percentages and so just wanting to let people know what's happened to the portfolio? No problems either way, but it does rather change what sort of replies are likely to be useful!

Gengulphus

Agreed.

Although my initial thoughts were drawn to the reference to "Beginners HYP" (sic), after 14 years!

Yes, I was aware of that!
My initial posts over the years were titled Beginners HYP https://www.lemonfool.co.uk/viewtopic.php?f=15&t=22929&hilit=Beginners+portfolio+2018

I am not sure at what point a person outgrows the beginner status but I suspect 14 years is long enough.


TDM

[moorfield]

I have decided to trim some shares to raise capital to invest in other areas that are off-topic for this board.

I have been thinking about this lately as I expect to face a similar problem in 10-15 years time when I might want to start selling down a big chunk of my holdings to release a cash lump sum from my SIPP - that might be something on-topic here for SIPP/HYPsters. Not sure how I plan to do it just yet.

[Dod101]

Selling from a HYP is not usually a discussion for this Board but I find it refreshing that it is recognised that it does happen.

You have sold so whatever I comment is not going to change anything but I feel you have sold (or at least part sold) the better HYP shares. I would certainly have had BAE and British Land at the top of my sell list. RSA will presumably disappear soon anyway. Astra or Glaxo? Glaxo would have been my choice to sell.

Then maybe Vodafone and Sainsbury.

Interesting though to see your choices. Thanks for posting.

Dod

[Dod101]

I have decided to trim some shares to raise capital to invest in other areas that are off-topic for this board.

I have been thinking about this lately as I expect to face a similar problem in 10-15 years time when I might want to start selling down a big chunk of my holdings to release a cash lump sum from my SIPP - that might be something on-topic here for SIPP/HYPsters. Not sure how I plan to do it just yet.

It does seem a bit premature to start thinking 10-15 years ahead. Who knows where the market will be then?

Dod

[moorfield]

It does seem a bit premature to start thinking 10-15 years ahead. Who knows where the market will be then?

Not at all, as you know I like to plan/extrapolate ahead, it makes many decisions I make now much easier. Ideally I want to avoid having to sell down multiple holdings at a point in time, as TDM has just done. I wonder if other SIPP/HYPsters have thought about this also, here might the right thread.

[Dod101]

It does seem a bit premature to start thinking 10-15 years ahead. Who knows where the market will be then?

Not at all, as you know I like to plan/extrapolate ahead, it makes many decisions I make now much easier. Ideally I want to avoid having to sell down multiple holdings at a point in time, as TDM has just done. I wonder if other SIPP/HYPsters have thought about this also, here might the right thread.

Think what the investment world has done since 2005? Are you serious?

Dod

[moorfield]

Are you serious?

Yes.

How I plan ahead is probably O/T here and has been explained elsewhere.

Selling shares from a SIPP/HYP, to echo your post, is not usually a discussion for this Board, but would be refreshing that it is recognised that it can happen.

[Gengulphus]

Are you proposing to sell the percentages of the holdings indicated in the "% to Sell" column and wanting people's feedback in case it causes you to change your mind, or are you reporting that you have sold those percentages and so just wanting to let people know what's happened to the portfolio? No problems either way, but it does rather change what sort of replies are likely to be useful!

I have sold these shares and was just reporting to the group as various users on this group have helped me over the years.

I shall, in the near future, be going thru another selling exercise and will open it up to discussion first.

Thanks. Having looked at your sales in more detail now, I see little I would have done differently. On the assumption that the "Value as % of Total" column shows the percentages before the sales (please correct me if that assumption is wrong), I calculate that the forecast income from the Imperial Brands holding is now over 8% of the total forecast income of the portfolio - I would definitely be uncomfortable about a single holding contributing that heavily to the income, and so would have top-sliced it as well.

On the same basis, Regional REIT is now contributing about 6.9% of forecast portfolio income, British American Tobacco about 6.2%, and even after the sale you've done, Rio Tinto is contributing about 6.5%. Those percentages are also straying away from my comfort zone, though not so far that I would definitely top-slice the holdings - but I would definitely be thinking about it. Don't take those as clear suggestions for your next selling exercise - share prices and forecast dividends might change significantly! - but they're the first holdings I would look at.

The only other point I noticed is that I would probably have trimmed Legal & General by rather less and trimmed Aviva as well to achieve similar overall trimming of the Life Insurance sector. It would have balanced the two holdings less well within the sector, but I would have felt that Legal & General's dividend growth record is so much better than Aviva's that giving it a rather higher weighting is justified. That's very much a question of how much weight one wants to place on dividend growth records as indicators of dividend safety - something on which I know HYPers' opinions vary quite a lot!

Gengulphus

[Gengulphus]

I have decided to trim some shares to raise capital to invest in other areas that are off-topic for this board.

I have been thinking about this lately as I expect to face a similar problem in 10-15 years time when I might want to start selling down a big chunk of my holdings to release a cash lump sum from my SIPP - that might be something on-topic here for SIPP/HYPsters. Not sure how I plan to do it just yet.

As Dod has indicated, 10-15 years ahead is far too far in advance to be able to give any specific recommendations about what to sell - but I very much doubt that that's what you're after! Hopefully that's just a general approach to releasing a large sum from a HYP (which one might want to do for quite a few reasons besides yours, e.g. a move to a more pricey house without taking on too much mortgage debt). The approach I would suggest is:

1) Think about just how important the HYP is going to be in your overall finances compared with how important it is now. If it's going to become sufficiently less important, you might for instance want to reduce its level of diversification a bit - a slightly bigger percentage risk to a reduced amount of money isn't necessarily any bigger a real risk...

2) Bearing the answer to step 1) in mind (because it might mean that you want to shed a few holdings entirely), think about how you might want to do an ordinary rebalancing of the portfolio if you weren't wanting to raise the large sum. Don't actually do any of the sells and buys that involves, but do work out what the portfolio would look like if you were to do them (include its cash balance in that working-out).

3) Work out the additional sum you would need to raise beyond what step 2) would do - this is the large sum minus the cash balance of the portfolio step 2) would leave you holding, plus a bit to allow for trading costs and share price fluctuations while you're working all this out. Determine what that additional sum is as a percentage of the capital value of the shareholdings in the portfolio step 2) would leave you holding. Reduce every holding in that portfolio by that percentage to arrive at your "target portfolio".

4) The sales (and possibly buys, though that's unlikely if the large sum you want to raise is a large fraction of your HYP's value) that you want to do are those needed to change your current portfolio into your target portfolio. Work out what they are, and sanity-check them. Adjust as necessary for any sanity failures! Examples of sanity failures are unreasonably small trades or raising less than or much more than the large sum you want (most likely to be due to having performed an incorrect calculation somewhere).

5) Once one is happy with the results of step 4, actually do the sales (and possibly buys).

Gengulphus

[moorfield]

I have decided to trim some shares to raise capital to invest in other areas that are off-topic for this board.

I have been thinking about this lately as I expect to face a similar problem in 10-15 years time when I might want to start selling down a big chunk of my holdings to release a cash lump sum from my SIPP - that might be something on-topic here for SIPP/HYPsters. Not sure how I plan to do it just yet.

As Dod has indicated, 10-15 years ahead is far too far in advance to be able to give any specific recommendations about what to sell - but I very much doubt that that's what you're after! Hopefully that's just a general approach to releasing a large sum from a HYP (which one might want to do for quite a few reasons besides yours, e.g. a move to a more pricey house without taking on too much mortgage debt). The approach I would suggest is:

1) Think about just how important the HYP is going to be in your overall finances compared with how important it is now. If it's going to become sufficiently less important, you might for instance want to reduce its level of diversification a bit - a slightly bigger percentage risk to a reduced amount of money isn't necessarily any bigger a real risk...

2) Bearing the answer to step 1) in mind (because it might mean that you want to shed a few holdings entirely), think about how you might want to do an ordinary rebalancing of the portfolio if you weren't wanting to raise the large sum. Don't actually do any of the sells and buys that involves, but do work out what the portfolio would look like if you were to do them (include its cash balance in that working-out).

3) Work out the additional sum you would need to raise beyond what step 2) would do - this is the large sum minus the cash balance of the portfolio step 2) would leave you holding, plus a bit to allow for trading costs and share price fluctuations while you're working all this out. Determine what that additional sum is as a percentage of the capital value of the shareholdings in the portfolio step 2) would leave you holding. Reduce every holding in that portfolio by that percentage to arrive at your "target portfolio".

4) The sales (and possibly buys, though that's unlikely if the large sum you want to raise is a large fraction of your HYP's value) that you want to do are those needed to change your current portfolio into your target portfolio. Work out what they are, and sanity-check them. Adjust as necessary for any sanity failures! Examples of sanity failures are unreasonably small trades or raising less than or much more than the large sum you want (most likely to be due to having performed an incorrect calculation somewhere).

5) Once one is happy with the results of step 4, actually do the sales (and possibly buys).

Gengulphus

I know exactly the sum I want. £268275, which is 25% of a portfolio value of £1073100 (*). That's the _ballpark_ size my target income curve is aimed at currently. Probably I will just sell 25% of each future holding when the time comes, we'll see!


(*) The rules may all change again, of course ...

[tjh290633]

With 27 shares, I think that I would treat twice the median weight as the guideline for overweightedness.

If wanting to get rid of holdings for another purpose, I would consider selling the lowest yield shares first. That would lead to Diageo, Segro, Pearson and AstraZeneca. That is currently 15% by weight. Shell, DS Smith and Unilever are next in line, giving another 10%.

I have taken no account of your present trimming back.

TJH

[Arborbridge]

I have decided to trim some shares to raise capital to invest in other areas that are off-topic for this board.

TDM

What an interesting change you are planning: could you possibly put a link on here to another board if ever you decide to discuss or report what you will re-invest in, please?

Arb.

[TopOfDaMornin]

If wanting to get rid of holdings for another purpose, I would consider selling the lowest yield shares first.
TJH

Thank you, TJH. I shall consider that.

By the way, that is similar to the approach I took at the beginning of September 2021 where I sold shares that had recently stopped their dividend: BT Group (BT-A.L), Compass Group (CPG.L), Lloyds Banking Group (LLOY.L), Marston's (MARS.L) and Royal Mail (RMG.L). This was my only selling in 14 years of doing a HYP. They have since collectively risen by 81%.

I realise HYP is about dividend, but they were sold to enable me to buy an investment (with low yield but long term rising dividend), hence the capital to me did matter.

I ask myself what lessons can I learn from the above and I can’t think of one, except to think that at the time it was the correct decision.

TDM

[TopOfDaMornin]

What an interesting change you are planning: could you possibly put a link on here to another board if ever you decide to discuss or report what you will re-invest in, please?

Arb.

Arb,
Yes, I will post on another board and provide a link here. The decision for me to do the above boils down to the question:
“Am I successful at creating and running an HYP?”
I have to humbly answer, with my tail between my legs, not exactly.

My understanding of the HYP principle is to have, ideally a rising yield, and also ideally a rising capital. This can then be considered as an annuity replacement.

Whilst my HYP annually beats the FTSE100 on yield, I feel that it is not as ‘successful’ as I would like it e.g. capital IRR over 14 years with dividend reinvested is 5%. This seems low.
Is the dividend annually rising above the RPI? I do not know but I suspect the answer is ‘sometimes’. The reason I do not know is because until recently I was annually contributing to the HYP so unitizing the dividend is difficult.

TDM

[Arborbridge]

What an interesting change you are planning: could you possibly put a link on here to another board if ever you decide to discuss or report what you will re-invest in, please?

Arb.

Arb,
Yes, I will post on another board and provide a link here. The decision for me to do the above boils down to the question:
“Am I successful at creating and running an HYP?”
I have to humbly answer, with my tail between my legs, not exactly.

My understanding of the HYP principle is to have, ideally a rising yield, and also ideally a rising capital. This can then be considered as an annuity replacement.

Whilst my HYP annually beats the FTSE100 on yield, I feel that it is not as ‘successful’ as I would like it e.g. capital IRR over 14 years with dividend reinvested is 5%. This seems low.
Is the dividend annually rising above the RPI? I do not know but I suspect the answer is ‘sometimes’. The reason I do not know is because until recently I was annually contributing to the HYP so unitizing the dividend is difficult.

TDM

I'm sure you meant to write "rising dividends" not yield?
5% IRR is not great, similar to my own, actually. I found my HYP started to become noticeably lacklustre around the time of the dreaded referendum and has never really got into gear since, and covid hasn't helped. Dividends per unit were rising faster than RPI pre covid, so it's doing what I expected from that POV.

Shame you didn't unitise from the beginning

Good luck, and I look forward to hearing of developments.

Arb.