Pseudo HYP - fully stocked

[Newroad]

Morning All.

As of a couple of days ago, my real-world pseudo-HYP experiment is now fully up and running. In simple terms, it takes two (ideally FTSE100) stocks from each of the GICS sectors, as noted below

Energy: BP, SHEL
Materials: GLEN, RIO
Industrials: MNDI, SMDS
Consumer Discretionary: BATS, TW.
Consumer Staples: KGF, SBRY
Health Care: GSK, SN.
Financials: LGEN, MNG
Information Technology: BA., SGE
Communication Services: BT., VOD
Utilities: NG., SSE
Real Estate: BLND, LAND

There are some minor compromises to make the sectors work - not all yield above the FTSE100 average and BA. is technically an industrial. However, as I'm sure you can see, it's a fair reflection overall. According to Dividend Data the weighted (see below) forward yield is 5.83%, the same trailing yield is 5.93%.

It has been constructed by adding between around £1,400 - £2,800 per investment roughly every month (occasionally two per month) but the actual amounts for each are "risk" (proxied by volatility) weighted. I am now moving into a mode where I propose to add £600 per month (roughly 1% in costs with stamp duty and the £3 brokerage). I may develop a slightly more nuanced method over time, a la TJH, but to start with, I will likely just top up the one most below its suggested risk weighting. To give some small/mid cap balance, I propose to add a couple of other stocks when the next bonus arrives: likely to be SCP and THRG. Also, there rates to be around three additional top ups per year (when the dividend income rolls up to £600).

So, back to the top-ups going forward.

I have an anecdotal feeling that I have been making a mild mistake in purchasing at the beginning of the month. I've done some research recently which suggests mid-month may be the best time to buy (and near the start of the month, the best time to sell). One theory on this is that regular investment money tends to hit early month, marginally bidding up prices during that period. Yes, most of these things should be arbitraged out, but against that, the date when monies arrive is structural, so maybe behaviours haven't/won't materially change in response. The good thing, by the way, is that II's regular investment for the rest (and much larger portion) of the portfolio is the 3rd Wednesday of the month, which should be fine.

There was also the suggestion historically that Monday is the best day to buy, though I have seen something else which suggests Thursday is better.
So, wrapping these two things together, I'm going to try topping up on the 2nd Thursday in the month or something like that and see if that proves better that what I have been doing in the past. Please note, this is not about timing the market in the classic sense - at least I don't think it is - but rather just trying to avoid very short term peaks.

Interested in any feedback on the "timing" thoughts in particular above. Comments on the pseudo-HYP also fine

Regards, Newroad

[Dod101]

Morning All.

As of a couple of days ago, my real-world pseudo-HYP experiment is now fully up and running. In simple terms, it takes two (ideally FTSE100) stocks from each of the GICS sectors, as noted below

Energy: BP, SHEL
Materials: GLEN, RIO
Industrials: MNDI, SMDS
Consumer Discretionary: BATS, TW.
Consumer Staples: KGF, SBRY
Health Care: GSK, SN.
Financials: LGEN, MNG
Information Technology: BA., SGE
Communication Services: BT., VOD
Utilities: NG., SSE
Real Estate: BLND, LAND

I have an anecdotal feeling that I have been making a mild mistake in topping up at the beginning of the month. I've done some research recently which suggests mid-month may be the best time to buy (and near the start of the month, the best time to sell). One theory on this is that regular investment money tends to hit early month, marginally bidding up prices during that period. Yes, most of these things should be arbitraged out, but against that, the date when monies arrive is structural, so maybe behaviours haven't/won't materially change in response. The good thing, by the way, is that II's regular investment for the rest (and much larger portion) of the portfolio is the 3rd Wednesday of the month, which should be fine.

There was also the suggestion historically that Monday is the best day to buy, though I have seen something else which suggests Thursday is better.
So, wrapping these two things together, I'm going to try topping up on the 2nd Thursday in the month or something like that and see if that proves better that what I have been doing in the past. Please note, this is not about timing the market in the classic sense - at least I don't think it is - but rather just trying to avoid very short term peaks.

Interested in any feedback on the "timing" thoughts in particular above. Comments on the pseudo-HYP also fine

I think your selection method has given you a good cross section of the market although I would find other shares than those in your Real Estate selection. Primary Health Props would be one but not sure of the other.

As far as timing your topping up is concerned, you should try the third day after a full moon. I have heard that that is the optimum time to buy. Any other time and possibly even that date is rife with other things interfering with the price.

Dod

[Itsallaguess]

Interested in any feedback on the "timing" thoughts in particular above.

On that particular point, I think that if you've 'seen' any evidence do support your timing proposal in the data that you've used, then it's likely to be both random and temporary, with no long-term beneficial basis.

If there were any real financial benefit to your proposal, then it would have been arbitraged out well before people like us have spotted it...

BUT - with the above said, and given that I think that any regular purchase date is likely to deliver more or less similar long-term results, then I do think the long-term benefits to a personal-investment approach and strategy of carrying out a process that an individual is most comfortable with over that long term, is one of the biggest influences on us maintaining and delivering the multi-year sustainable benefits of simply sticking with it, through thick and thin, and so on that basis and that basis alone, I think you should therefore carry on with your timing plan...

Cheers,

Itsallaguess

[kempiejon]

Interested in any feedback on the "timing" thoughts in particular above.

Well good luck with the pseud.
At 5.x% yield you're comfortably above the FTSE100 of 3.7%, my HYP is forecast at around 4.5%
BP, BT and VOD and perhaps a few others might not past my 5 years rising dividend history.
Mondi is interesting, a good pair with SMDS (the better income share in my opinion) what happened to MNDI in 2018? I see the income has been below that peak year for dividends and might not match it before next year.

I was sceptical when I read those 2 paragraphs about Thursday being better than Monday and mid month being better than early month. Are you sure those ideas are true? Any testing available as we could all use such a truth to make money. I've read somewhere that Sell in May and go away until October did make money on US markets.
If you're sure there is an edge why bother with a HYP, just trade to maximise those swings and in a few years (months) you'll have oodles of money.

You can have a material affect on charges by making 12 per year you're paying double to someone only making 6 per year. You're already fairly well diversified (your risk adjust weighting not withstanding) why not half your dealing costs by topping up at £1200 levels. That said the difference between the two is only £18 a year so very small potatoes.

[Newroad]

Hi All.

Thanks to Dod, ItsAllAGuess (IAAG) and KempieJon for their responses. To comment/answer where possible ...

On the Real Estate Sector, BLND was in the FTSE100 at time of purchase (PHP wasn't). At some point, it may be that they become a choice.

On the arbitrage point, IAAG, I noted that - but I think the timing of lump sums into the market is perhaps one "inefficiency" which might remain (others have called in the "payday effect"). It seems to me that I'm on a win to nothing - moving to what I'm proposing to will at worse have no effect on average.

You're quite right KempieJon - not all my shares are "Pyadic". I would have preferred them to be that way, but the sector mix desired and the effect of Covid (which I think can excuse various sins in a great many stocks) meant that I watered that down.

I've commented above on the time in the month consideration. On the day of the week one, I can't find the graph which suggested Thursday slightly ahead of Monday - so maybe its back to Mondays again

On the £1200 vs £600, I think it's much of a muchness. However, my current greatest underweight would need topping up by £243 to make it equal risk weight, so adding £600 would make it £357 overweight. In this context, £600 per top up feels about right.

If I think of anything else, I'll let you know.

Regards, Newroad

[kempiejon]

I think that any regular purchase date is likely to deliver more or less similar long-term results, then I do think the long-term benefits to a personal-investment approach and strategy of carrying out a process that an individual is most comfortable with over that long term, is one of the biggest influences on us maintaining and delivering the multi-year sustainable benefits of simply sticking with it, through thick and thin, and so on that basis and that basis alone, I think you should therefore carry on with your timing plan...

That's a better way of thinking about the timing proble. The unpredictable daily, monthly etc price moves I think are unknowable, the benefits of long term accumulation of regular deposits and compounding are more knowable. Investing through thick and thin helped my portfolio's especially post covid as I kept to my normal investment plan so was adding at a global, once in a decade opportunity.

[Itsallaguess]

On the £1200 vs £600 [top-up levels], I think it's much of a muchness.

Whilst I think that might be the case for the trading-cost impact, the problem I found with setting a relatively low top-up level was that as I'm still working and saving a regular amount of working-wages, and also as the size of my income-portfolio organically grew over the years as well, I found that a low-level top-up amount fairly quickly started to get triggered much too frequently for things to stay enjoyable in terms of what I always wanted to be a relatively 'hands-off' income-investment strategy.

Nowadays, I tend to wait for around 2 to 3 times that previous 'economic sense' level, so currently around the £2000 to £3000 mark, and I've found that I actually enjoy having a little more time to ponder things in a more leisurely way, and it all feels like much less of a 'chore' than things did with that much lower trigger-level. A good long-term investment strategy for me is where I feel like I'm running it, and not it running me...

I've also found that providing more time between top-ups also tends to allow the natural market ebbs and flows to perhaps expose 'opportunities' better, when compared to much more frequent inspections...

A very personal thing, no doubt, but all I'd say is that I'd perhaps be prepared to allow things to stretch a little in this area as time goes on, and where cash-inputs might begin to snowball a little faster over time...

Cheers,

Itsallaguess

[tjh290633]

Nowadays, I tend to wait for around 2 to 3 times that previous 'economic sense' level, so currently around the £2000 to £3000 mark, and I've found that I actually enjoy having a little more time to ponder things in a more leisurely way, and it all feels like much less of a 'chore' than things did with that much lower trigger-level. A good long-term investment strategy for me is where I feel like I'm running it, and not it running me...

I've also found that providing more time between top-ups also tends to allow the natural market ebbs and flows to perhaps expose 'opportunities' better, when compared to much more frequent inspections...

A very personal thing, no doubt, but all I'd say is that I'd perhaps be prepared to allow things to stretch a little in this area as time goes on, and where cash-inputs might begin to snowball a little faster over time...

Cheers,

Itsallaguess

It's funny that you should say that. For a long time my level for topping up was around the £1,000 mark. I haven't added any new capital for a good few years now, with occasional withdrawals to cover exceptional expenditure. The amount of dividends has risen considerably and the amount available for topping up has risen.

Consequently I eventually struck on the principle of topping up the next eligible share by 20%. That amount can obviously vary, but most eligible shares are well below median weight. This approach has reduced the number of occasions when I top up in each year to something like once per month. A top slicing of an overweight share increases the frequency, a 25% top slice of an overweight share (above 150% of median weight) usually allows for 2 or 3 top-ups, depending on the amount of accumulated dividends and the weight of the eligible shares.

TJH

[Dod101]

Hi All.

Thanks to Dod, ItsAllAGuess (IAAG) and KempieJon for their responses. To comment/answer where possible ...

On the Real Estate Sector, BLND was in the FTSE100 at time of purchase (PHP wasn't). At some point, it may be that they become a choice.

On the arbitrage point, IAAG, I noted that - but I think the timing of lump sums into the market is perhaps one "inefficiency" which might remain (others have called in the "payday effect"). It seems to me that I'm on a win to nothing - moving to what I'm proposing to will at worse have no effect on average.

You're quite right KempieJon - not all my shares are "Pyadic". I would have preferred them to be that way, but the sector mix desired and the effect of Covid (which I think can excuse various sins in a great many stocks) meant that I watered that down.

I've commented above on the time in the month consideration. On the day of the week one, I can't find the graph which suggested Thursday slightly ahead of Monday - so maybe its back to Mondays again

On the £1200 vs £600, I think it's much of a muchness. However, my current greatest underweight would need topping up by £243 to make it equal risk weight, so adding £600 would make it £357 overweight. In this context, £600 per top up feels about right.

If I think of anything else, I'll let you know.

Regards, Newroad

OOPs Sorry I overlooked the fact that you ideally had a requirement for a FTSE member. I think PHP is too secure an income to be ignored on that count. Better than B Land anyway.

Dod

[Newroad]

Hi Terry (and IAAG).

My plan is not to sell before draw-down phase and maybe not even then. Hence, for me, top-slicing doesn't come into it at present.

I agree with IAAG that it's somewhat personal. I actually quite like mucking about on a twice monthly basis with this sort of stuff (mid-month, the regular II investing, end of month, the IBKR pseudo-HYP). As we sit here now, we're talking 15-16 top-ups per year, which seems OK. However, if it gets annoying, £1000 is a nice round number, which if I went with that (but the same deposit rate) it would be 9 top-ups per year.

As noted earlier, I may take a more nuanced approach over time. One thing this will need to cater for is a complete swap-out/swap-in of a stock (a.k.a. "substitution"). My broad plan for this is to consider it once per year (end of June). A lot of the thinking behind it, like much of this pseudo-HYP, will be based on the thinking outlined in Carver's "Smart Portfolios" and in this case - Chapter Sixteen - "The Theory Of Rebalancing".

We'll see how it goes.

Regards, Newroad

[tjh290633]

Hi Terry (and IAAG).

My plan is not to sell before draw-down phase and maybe not even then. Hence, for me, top-slicing doesn't come into it at present.

For me my first top slice was in 1997, when LLOY surged to about 16% of my portfolio and Zeneca was about 13%. I got the wind up about being overexposed, and so cutting those two back below 10% was my first trimming of a share. LLOY was cut back by about a third, and Zeneca by a quarter.

It will happen to you at some time, the market is like that.

TJH

[Newroad]

Morning All.

Just an update on this thread.

I've added the (hopefully) final pieces into the puzzle: SCP for mid-cap and THRG for small-cap (there is some overlap) exposure. This, with the sale of SSE for UU. (discussed elsewhere) gives the following 24 holdings

Energy: BP, SHEL
Materials: GLEN, RIO
Industrials: MNDI, SMDS
Consumer Discretionary: BATS, TW.
Consumer Staples: KGF, SBRY
Health Care: GSK, SN.
Financials: LGEN, MNG
Information Technology: BA., SGE
Communication Services: BT., VOD
Utilities: NG., UU.
Real Estate: BLND, LAND
Mid & Small Cap: SCP, THRG

The final two new purchases were done Q4 last year - during November IIRC. I've also decided to make the January injection of funds the last one for the foreseeable future. The Pseudo-HYP experiment will run under it's own steam from here.

Based on Dividend Data, the Pseudo-HYP is showing a forward yield of 5.34% (trailing 5.36%). I've got a formula to determine the minimum top-up, based on the portfolio size etc - at time of writing, that's £485.93 or c£500. Based on that, I would expect to make just fewer than 5 top-ups per year.

Regards, Newroad

[Charlottesquare]

Nowadays, I tend to wait for around 2 to 3 times that previous 'economic sense' level, so currently around the £2000 to £3000 mark, and I've found that I actually enjoy having a little more time to ponder things in a more leisurely way, and it all feels like much less of a 'chore' than things did with that much lower trigger-level. A good long-term investment strategy for me is where I feel like I'm running it, and not it running me...

I've also found that providing more time between top-ups also tends to allow the natural market ebbs and flows to perhaps expose 'opportunities' better, when compared to much more frequent inspections...

A very personal thing, no doubt, but all I'd say is that I'd perhaps be prepared to allow things to stretch a little in this area as time goes on, and where cash-inputs might begin to snowball a little faster over time...

Cheers,

Itsallaguess

It's funny that you should say that. For a long time my level for topping up was around the £1,000 mark. I haven't added any new capital for a good few years now, with occasional withdrawals to cover exceptional expenditure. The amount of dividends has risen considerably and the amount available for topping up has risen.

Consequently I eventually struck on the principle of topping up the next eligible share by 20%. That amount can obviously vary, but most eligible shares are well below median weight. This approach has reduced the number of occasions when I top up in each year to something like once per month. A top slicing of an overweight share increases the frequency, a 25% top slice of an overweight share (above 150% of median weight) usually allows for 2 or 3 top-ups, depending on the amount of accumulated dividends and the weight of the eligible shares.

TJH

I would tend nearer to the £2.5-£3k top up level, however what I will do is take a look at timing of the dividends due re the prospective purchase, if the upcoming div covers the prospective purchase frictional cost (usually 11.95 on small HL purchases) I may buy earlier in smaller bites, if not I may wait to get the economies of scale of a bigger purchase.

[Newroad]

Hi CharlotteSquare.

My dealing costs with IBKR are £3 per transaction - so in context we aren't too far off the same relative order of magnitude.

Regards, Newroad