MDW1954 wrote:Gengulphus wrote:With quote nesting corrected to make replies quote the stuff they're replying to, rather than the other way around:
I've probably committed the same
faux pas again with this reply, as I'm not really sure what you're driving at. I'm working remotely, under some technology limitations at the moment, but I suspect the problem is that I'm just doing whatever it is wrongly. Please elucidate.
Just to note that I have responded to this request of MDW1954's, but by PM rather than posting as my response doesn't just 'drift' outside of this board's topic - it charges well outside that topic! In the meantime, I see that TJH has sorted out the issue in the post I'm replying to and added a brief explanation of what the problem was.
MDW1954 wrote:Gengulphus wrote:I currently own just six of the HYP4 companies - BP, Lloyds, United Utilities, BT, Tate & Lyle and GlaxoSmithKline. I have owned another six in the past: DSGI (which has since renamed to Dixons Retail and then merged into Dixons Carphone), Aviva, RBS (which has since renamed to NatWest Group), Persimmon, Pearson and Land Securities. ...
As for my decisions to get rid of the six I have got rid of, I greatly regret getting rid of Persimmon - I actually managed to get rid of it at an overall loss by giving up on it before its recovery from the financial crisis was visibly under way! But that's a hindsight judgement, of course. The others I don't regret getting rid of - though in the cases of Aviva and Pearson, that's because I've done so too recently to have much idea what I have or haven't missed out on. In any case, the reason I disposed of them was that I've recently decided that my HYP is a bit too 'sprawling' and complex for me to want to continue running it as it stands for all that much longer as I get older - so I've started on some simplifications, the initial step of which was reducing its number of holdings (which was 40ish a few years ago, had eroded to 35ish at the start of this year, and I've now taken it down to 30 by getting rid of some long-term poor performers). The next and more important step is to simplify its account structure: it's currently in three unsheltered broker accounts (one of which also holds most of my smallcap holdings), two ISA accounts and one SIPP account. That structure grew over the years rather than being properly designed, and I'm intending to reduce it to two unsheltered accounts (neither of them shared with my smallcaps portfolio), one ISA account and one SIPP account. (Some might still regard that as one unsheltered broker account too many, but I wouldn't be happy with such a large fraction of my overall wealth being in that single account as that would entail.)
It's a long time since I've bothered to count the holdings that would be admissible as HYP shares on this board. 50-ish, at a guess. I do dive quite deeply into the FTSE350, mainly to hoover up REITs of interest. ...
There are actually two numbers of shares admissible as HYP shares on this board: those that are admissible as current HYP purchase candidates, and those that are admissible for discussion on the board because they're currently in HYPs and were acceptable HYP purchase candidates when they were purchased. My guess about the first of those numbers agrees with your 50-ish, but I think the second number is quite a lot bigger - it wouldn't surprise me if it was over 100.
MDW1954 wrote:... I'm fast approaching 67, but see no need to start simplifying things just yet. One ISA, and one SIPP. Former posters such as Valuemargin seemed to manage with many more, so I'm not especially exercised by the issue. Several other brokerages/ accounts, but not HYPable.
I'm fast approaching 65, so a couple of years younger than you. About the amount of simplification I'm doing, I too don't see any current
need to start simplifying, but if I wait for such a
need to develop, actually doing the simplifying is liable to be a pretty daunting task by then. Much better to do at least some simplifying while I'm not under pressure to get it done quickly. And especially to tackle the cases where the complications are there for historical rather than any significant current reasons - the big example of that is that the vast bulk of my unsheltered investments are currently held in four accounts: currently, one has holdings in 29 of my 30 HYP shares and some of my 'smallcaps' shares; a second has holdings in 21 of the HYP shares; a third has holdings in 20 of the HYP shares; the fourth has holdings in a somewhat different set of my 'smallcaps' shares. The historical reasons why they're that way are complex, but the basics are that I started both of those strategies at a time that I only had the first account, so they had to share that account. As I gained confidence in those strategies and put more of my total wealth into them, I added the second and third accounts to distribute my wealth between different providers - an essential precaution against major broker problems IMHO when one is as financially dependent on one's investments as I am, however unlikely such problems might be, and one that isn't really solved by tax-sheltered ISA and SIPP accounts when the restrictions on contributions to them have limited me to getting only very roughly 20% of my equity investment capital into them so far. The second account is a Halifax ShareBuilder account which at one stage also held both HYP and 'smallcaps' investments, but I simplified the job of tracking the two strategies many years ago by getting Halifax to open a second ShareBuilder account and transfer the 'smallcaps' investments to it - that account is the fourth one. Apart from that bit of simplification, though, I've mostly let inertia drive things. In recent years, I've occasionally reduced the number of separate holdings of a HYP share that I've decided to top-slice by selling the entirety of one of the separate holdings of it (usually the smallest), but not done anything more active to reduce the number of number of separate holdings, like transferring them between brokers to merge them. Those are the main historical reasons why there is complexity in the way I currently hold my shares. (There are other more minor ones that I won't go into, one of which triggered my current review and bout of simplifications, but isn't actually a major factor in them - it set off a train of thought, but hasn't actually featured much in that train of thought.)
So the situation I'm currently facing with regard to my HYP shares is that I've got 30 of them, but distributed among 70 separate unsheltered holdings with three different brokers (plus a total of 55 ISA and SIPP holdings, but that will only be reduced by 1 when I merge the two ISA accounts). And I've decided to shake off my inertia and do some merging of the unsheltered accounts, specifically by transferring the HYP holdings I've got in the first account to the second and third (about half of them going to each) and transferring the 'smallcaps' holdings in the fourth account to the first account (followed by closing the fourth account). It will cost me a few hundred in transfer charges, but otherwise have no effect on my overall investments, and I'll recoup those charges within a few years in terms of less time spent on tracking my investments, ensuring that the totals in my tax return are correct, etc, even if I value my time only at minimum-wage rates - which I most certainly don't! ;
-) And of course, there's a chance that it will be recouped faster than that, if something happens to me that forces my financial affairs to be placed in someone else's hands - charges for that are at
far more than minimum-wage rates...
To sum up, the simplifications I'm doing now to how I hold my HYP (as opposed to the reduction in my number of holdings - see below) are basically to get rid of some complexities that were there for historical reasons but are no longer necessary or even mildly desirable in my view. Getting rid of them has a trivial cost in the context of the size of my HYP and the admin work I tend to end up doing on it, and importantly no effect on which shares my HYP selects or their weightings. I.e. they're basically much more a matter of practical efficiency than investment strategy.
MDW1954 wrote:There is a view on this board that that 15 shares is about the "right" number of shares in terms of diversification, even though many people seem to hold more. This view is often associated with pyad, although I also recall an influential post from you which also came up with the number 15. If I trawl through my PDF archives, I may find it, but then again, I may not. To me that seems far too concentrated for a retirement income, so no thanks.
I've made a number of posts over the years that essentially say that - but in particular contexts, and they do generally also say other things. From memory, typical main points that they've made are:
* Various academic studies have concluded that numbers in the region of 15 are good numbers of shares for a portfolio from the point of view of getting most of the diversification benefit available - one does get further bits of it for each further share held (provided one sizes the added holdings appropriately) but they're increasingly small bits, so that it quite quickly ceases to be worth bothering.
* Those academic studies need to be taken by HYPers with at least a pinch of salt, due to mismatches with practical realities and HYP preferences. The ones I've seen tend to recommend a portfolio that changes quite a lot from year to year, so their rates of return need to be downgraded by a good fraction of the 0.5%+ charges cost of moving to other shareholdings - and the 'optimality' of those portfolios compared with others is generally a matter of a tiny fraction of a percentage point in return rate. It seems entirely plausible to me that a more diversified portfolio that is reasonably close to all of them would lose less to its 'non-optimality' than it would gain due to lower trading costs.
* In practice, I've found that if one tries to select a "lump sum all at once" HYP from the FTSE350, the process of finding good candidates (i.e. with high yield and safe-looking dividends, and in different sectors from all the already-selected candidates) tends to run out of steam at around 15 shares. But of course, many HYPs are built up over many years, and experience shows that many more than 15 shares will turn up as 'good candidates' at one point or another over periods of many years. (Of course, many of those will cease to still be 'good candidates' after being bought - if they didn't, there would be a steadily-increasing number of 'good candidates' over the years. But ceasing to be a 'good candidate' can happen for good reasons as well as bad - and picking all of one's shares at once doesn't magically protect one from the risk of picking 'good candidates' that turn out badly: HYP1 can be seen to have chosen such shares.)
* Even if a lower level of diversification is in principle better due to the increased diversification benefit being outweighed by the increased costs (probably mostly in time rather than money), it won't be by much, and the HYPer may well regard their own peace of mind as more important than the slightly worse returns. Having over 10% of one's HYP income coming from a single share is a level of income imbalance that can very easily develop in a 15-share HYP, and the possibility of a single-company disaster causing a loss of that much of one's HYP income can be very worrying if the HYP is one's main income source. As a result, a HYPer's circumstances and preferences can push their preferred number of holdings above a theoretical 'optimum', even if the latter is genuinely an optimum on purely financial considerations.
As far as I'm concerned, my recent reduction to 30 holdings from 35ish is a deliberate reconsideration of what I need for my own peace of mind, and the earlier slow reduction over a period of several years from 40ish is more just a drifting down due to takeovers outnumbering the number of new candidates I've considered sufficiently good. I don't see myself reducing it much more in future, because that would run into my own "so no thanks" point.
MDW1954 wrote:Persimmon: 2009/2010 was extraordinarily difficult to play. Most people will have got something wrong. If that's your only mistake, then "well done"!
I'm afraid that it isn't my only mistake - not by a long way! It's just the result of looking at the six HYP4 shares I have owned and no longer do, and with the benefit of hindsight identifying the one where my decision to no longer own it is clearly a matter of regret. RBS is also clearly a matter of regret - but regret that I held it as long as I did, not that I eventually decided to longer to own it. And more generally, I've held a lot more HYP shares than six over the years, and it isn't really worth spending any real time on deciding whether one regrets a decision - it's just a feeling that sometimes strikes one when looking back on things one has done in the past. Whether things one has done in the past were a
mistake is a different matter, and both one that can be worth spending some time on if one can learn from the mistakes, and also one that can be a lot more difficult to determine than whether one feels regret.
Gengulphus