I'm so glad....

[pyad]

I have to agree that in general one should ignore day to day fluctuations in share prices. Every now and then most of us will experience a catastrophic drop. Marconi was my first one, followed by British Airways in 2003.

Then we have to move on to 2009, when Mapeley was the first to suffer, then there was a whole string of them, as dividends were abandoned wholesale, and I jumped from DSGI, Trinity Mirror, Premier Foods and Rentokil. More recently we have had Cattles and Carillion, and perhaps Pearson.

2009 took a bit of sorting out, but the recovery came. I always like to repeat my table of dividend per income unit at such a time:

.            Ordinary 
Year to      Divs/unit
05-Apr-88         2.87
05-Apr-89         2.75
05-Apr-90         4.33
05-Apr-91         5.75
05-Apr-92         7.97
05-Apr-93         7.33
05-Apr-94         6.65
05-Apr-95         7.93
05-Apr-96         7.81
05-Apr-97         8.90
05-Apr-98         9.35
05-Apr-99         8.91
05-Apr-00        11.96
05-Apr-01        12.42
05-Apr-02        13.82
05-Apr-03        12.95
05-Apr-04        12.48
05-Apr-05        12.96
05-Apr-06        14.09
05-Apr-07        15.07
05-Apr-08        26.09
05-Apr-09        22.76
05-Apr-10        11.91
05-Apr-11        16.71
05-Apr-12        18.79
05-Apr-13        20.89
05-Apr-14        21.48
05-Apr-15        22.40
05-Apr-16        22.77
05-Apr-17        24.93

Here you can see the changes from time to time, particularly the 2009 and 2010 dips and the recovery. The big rise in 2008 was the result of moving into some of those high-yielding shares, to replace shares taken over, which let me and us down in the following year. Currently my yield is about 4.5%. Let's not write Carillion off too quickly.

TJH

Your long term record is fine but the performance during the late noughties recession is lousy for an HYP in dropping 54% over the two years from 08 to 10. That is so large that I suspect many HYPers would have abandoned the strategy in that situation. All HYPs will have suffered cuts back then due to widespread dividend slashing but I'd guess that yours is worse than most. The fault I suggest is tinkering.

Good that you hung in there in the face of that big setback but I suggest that it might have a lot to do with your not being a HYPer who depends upon the income and as a result can take a more relaxed view of the gig, experiment, mess around with tinkering etc.

This is quite untypical as most HYPers depend on the income, either now or will be doing so in future, and perhaps in that case need to consider their situation a little differently. They can't take the sort of extra risks that you can safely take on, though few here of the already few HYPers here seem to appreciate this point.

[Bouleversee]

Oh come on, Geng. There's a big difference between being prepared to sacrifice any significant capital growth in favour of a slightly higher than average income and being prepared to sacrifice a large proportion of your capital to provide a slightly higher than average income, especially when that higher income can be reduced or cancelled altogether. Ian (and I am sure this applies to others as well) has never worried about day to day fluctuations and has been more loyal to HYP than most but you can hardly describe Centrica's steady descent, albeit mildly fluctuating on the way, from 391 in July 2013 to 180 today in those terms. ...

Oh come on, Bouleversee. I didn't describe that descent over more than 4 years at all, in those or any other terms, nor did any previous post in the thread. And I responded to the comment by richfool that I quoted, not to Ian's OP or to you.

I've no problem at all about you broadening what this thread is about to take in the longer-term picture, but it would have come across much better if you'd done it straightforwardly, rather than as the above attempt to rebuke me for something I quite obviously hadn't done.

Gengulphus

I do apologise if I misunderstood your post. TBH I've now re-read it a couple of times but I've never been good at guessing games and I still don't quite understand what you were getting at. It did strike me as a rebuke for mentioning price variations in the context of previous comments about quite serious falls in shares which had been on a downward track for some time.

[tjh290633]

Pyad wrote:

The fault I suggest is tinkering.

The fault wasn't tinkering but going for very high yielders to replace shares which were taken over. It was the choice of a lot of shares which stopped paying dividends, either briefly or for longer that led to the fall in income. It was tinkering away the non-payers that gave the recovery.

Had I gone for some of the less high yields with bigger companies, then the fall in dividends might have been less.

TJH

[Dod1010]

But you haven't lost any capital. You still have the number of shares you had previously upon which you are getting an income stream..

Owning the same number of shares although the value of each has dropped means to most people that they have lost capital. What they have not lost is their share of the economic interest in the company; not the same thing at all. It is hardly worth saying but if you hold shares you might just want to exchange them for a new car. Try telling the car salesman that he can have the shares and that they are still valued at their price six months ago and besides they have this great income stream (which is not guaranteed by the way) You will soon know that you have lost some capital.

The same argument with buying an annuity. You have lost capital no doubt and in exchange for it you have bought an income stream, and if that income stream stops on your death, you have lost capital and income.

Capital may not matter too much provided the dividends keep rolling in but if a share drops in value you have certainly lost capital and that applies whether you sell or not.

Dod

[Bouleversee]

I'd be more than a little worried by the loss of so much of my capital

But you haven't lost any capital. You still have the number of shares you had previously upon which you are getting an income stream.

It's like looking at your retirement annuity and talking about the "lost capital" because the capitalisation value has changed over time - even though you can't sell any of it. It doesn't matter - you will still get X amount a year, same as before.

If Centrica or SSE get price capped then we may see a slowdown in the dividend, but that is no different than if the government had put tax rates on dividends up and done the redistribution to poorer people that way.

So the questions go back to the fundamentals of the businesses. Do they actually earn a turn sufficient to pay off their debts and leave something for the rest of us. Is the basis of capitalist exploitation of the masses still in place and does that still favour large companies with a near oligopoly.

Seems to me it still is and does.[/quote

It depends which of the losses you are talking about. Some of them have axed that income stream if only for the time being and if you have to sell for any reason you only get today's s.p.

As regards annuities, seems to me that how much if any capital you have lost depends on the rate you get and how long you live. I certainly wouldn't buy one today but having won a claim through the Ombudsman against Equitable Life on behalf of my husband, the only recompense available was to convert his drawdown into the annuity he could have bought instead of going into the drawdown. As it happens, he got a very good rate and lived for about 20 years and now I get two thirds of it so I am not complaining. At least it's something I don't need to worry about or spend time on. The downside is that if it had stayed in a drawdown it could be left to heirs IHT free whereas our ISAs can't. All those (including my self-employed sprogs, I regret to say) who have plumped for ISAs rather than pensions will be missing out on that benefit as well as tax relief.

[Arborbridge]

The fault I suggest is tinkering.

Pyad, you can suggest away but unless someone does a detailed study on TJH's HYP from that time and runs it forward, we will never know if your suggestion is correct. And running his HYP forward might well include making decisions which can only be guesses as to what he might have done at that time.

It would be an interesting exercise to support your case, so are you up for it? Otherwise, it's all just "hand-waving" with no basis in fact.

Arb.

[Arborbridge]

Dod's correct in saying: "but if a share drops in value you have certainly lost capital and that applies whether you sell or not."

Stop the clock, do a wealth count...your wealth has gone down. But maybe there is some confusion here: one has certainly lost capital, but that loss has not been crystalised. In that case, there's a chance of recovery: the loss may not be permanent.

[NeilW]

Capital may not matter too much provided the dividends keep rolling in but if a share drops in value you have certainly lost capital and that applies whether you sell or not.

Dod

I gain and lose capital in my house and my car all the time. But I don't worry about it because the housing services and the car services I receive remain roughly the same.

I don't stress about it because I'm interested in the services, not the things as tokens. And that is the HYP way. If you persist in seeing shares as trophies rather than what they are - a part ownership in an income generation enterprise, then really you should be on another board not this one.

In a world short of income streams, relying upon the greater fool theory to get you through assumes that the fools out there don't realise what you are doing. And the young are starting to wake up to the gaming of the system.

Never forget it is the young that work to provide you with the stuff you can buy with your income stream in retirement, and that you selling ever more expensive hot potatoes to them is a rip off. Expect them to have that stopped.

[Arborbridge]

NeilW,

The car isn't a great analogy. You don't worry about your car depreciating? Maybe because you cannot do anything about it, but you should. When the time comes, you cannot enjoy its "services" unless you pump in more capital via a newer car or more maintenance. This seems equivalent to maintaining an income stream by investing more capital as the previous companies turn into rusting hulks.

What Dod is attempting, is to buy cars (investments) which with keep on giving for ever with no maintenance. He's careful about the choice and advocates that we should be also, in order to avoid the rusting hulk. He has always been in it for the income not for TR, but by careful placement of capital.

This is perfectly good HYP strategy and it seems to me he's on the right board for it.

Arb.

[tjh290633]

NeilW,

The car isn't a great analogy. You don't worry about your car depreciating? Maybe because you cannot do anything about it, but you should. When the time comes, you cannot enjoy its "services" unless you pump in more capital via a newer car or more maintenance. This seems equivalent to maintaining an income stream by investing more capital as the previous companies turn into rusting hulks.

What Dod is attempting, is to buy cars (investments) which with keep on giving for ever with no maintenance. He's careful about the choice and advocates that we should be also, in order to avoid the rusting hulk. He has always been in it for the income not for TR, but by careful placement of capital.

This is perfectly good HYP strategy and it seems to me he's on the right board for it.

Arb.

Looking back over the decades, no matter how carefully you pick your shares, some will have temporary hiccups or will be taken over. ICI was the bellwether of the UK stock market for decades, and it begat Zeneca, which continues as AZN today. Hanson was the archtypical conglomerate, broke itself up and was taken over, leaving IMB as the one continuing component. To my mind take-over bids are the bigger hazard, as you then have to find a new suitable investment. If it's an all-share offer, do you want the new shares? Demerged shares in other currencies are a further hazard. I sold Cadbury to avoid Dr Pepper and Vodafone to avoid Verizon.

Many events are outside your control if you do nothing.

TJH

[Dod1010]

Neil W

I think it is obvious to anyone that I do not stress about fluctuating values on a day by day basis, or even month by month. My only issue is your claim that if a share drops in value 'You haven't lost any capital. You still have the same number of shares..........' as if the number of shares equates to their capital value'. I wish.

You are close to suggesting that 'capital does not matter' Well day to day fluctuations do not matter much but of course capital matters. It is that which provides the wherewithal to buy the income stream that we HYPers all crave.

Anyway I have made my point and will leave it there.

Dod

[DiamondEcho]

I think it is obvious to anyone that I do not stress about fluctuating values on a day by day basis, or even month by month. My only issue is your claim that if a share drops in value 'You haven't lost any capital. You still have the same number of shares..........' as if the number of shares equates to their capital value'. I wish.

Perhaps the point apparently causing confusion is the difference between a realised and unrealised loss? Apologies if that's not so , but just in case... http://www.investopedia.com/ask/answers/04/021204.asp That short summary concludes: 'but remember that a loss is a loss, whether it's been realized or not.'. And it certainly feels 90% 'real' to me even when yet unrealised. A parallel point is that an unrealised gain is equally as 'unreal' as a loss; though I expect there are HYPers who celebrate having a good day, week etc.

Some HYPsters have neither time nor interest to be more hands-on. But I agree with TJH that for those who can be more hands-on, even just following headlines on your investments it can save you some headaches. The example of VOD>Verizon is a good one and one I was glad to get out of the way of by prompt action.

[NeilW]

The car isn't a great analogy. You don't worry about your car depreciating? Maybe because you cannot do anything about it, but you should. When the time comes, you cannot enjoy its "services" unless you pump in more capital via a newer car or more maintenance. This seems equivalent to maintaining an income stream by investing more capital as the previous companies turn into rusting hulks.

What do you think companies do internally?

Try the car analogy again, but this time think of a taxi service. Turnover isn't your income. Some has to go on capital renewal.

You spend capital on a share which is then gone. You swapped it for an income stream. Same with the car in a taxi service. Nobody has any real idea what the residual value of the car will be in the future - as any personal leasing plan balloon payment quote will tell you. Same with shares. What the income stream is worth in the future relative to the other options is uncertain.

Companies are living things and are internally maintained. Let's stop thinking of them as Gold Bars, and the secondary market as arbiter of value. All Mr Market does is offer a quote. Somedays its a big quote and some days its a little one. Neither of those have necessarily any reflection upon the business of the company quoted.

[Arborbridge]

Try the car analogy again, but this time think of a taxi service.

Interesting one, Neil: I'd say that's like buying an annuity

[Gengulphus]

I do apologise if I misunderstood your post. TBH I've now re-read it a couple of times but I've never been good at guessing games and I still don't quite understand what you were getting at. It did strike me as a rebuke for mentioning price variations in the context of previous comments about quite serious falls in shares which had been on a downward track for some time.

I suppose it could be regarded as a rebuke about mentioning day-to-day price fluctuations, but my intended point was about the quote, in which richfool said "If HYP'ers were really only interested in the income, ...". Especially with the emphasis, that seemed to me to be expressing considerable doubt about whether that actually is the case. And I pointed out that since those who are really only interested in the income probably won't comment on day-to-day price fluctuations, and those with more interest in capital values are more likely to do so, what is said on the board is liable to give a misleading impression about what HYPers in general are interested in.

E.g. if hypothetically 90% of those who read this board were only interested in income and only 10% were interested in capital values, we would probably still get the impression from the board's posts that most HYPers were interested in capital values. (Not saying those are the percentages - the point is that I do not know what the percentages are, nor does anyone else, and they cannot be deduced from what is said on the board.)

As for your "context of previous comments about quite serious falls in shares which had been on a downward track for some time", if people want what they say to be read in that context, it would be a good idea to actually state it - otherwise they're relying on readers playing guessing games about whether they have that context in mind. Nobody in any of the six posts prior to my comment stated anything about that context - the closest anyone came was you with your "such large losses". I can now see that you may well have intended that to refer to previous losses over a prolonged period of time, but the natural interpretation that I saw at the time was just that the percentage drops mentioned in the OP are fairly large as day-to-day fluctuations go - which they are, though not to the point of being extremely unusual. Not that I spent a great deal of time looking for possible interpretations of your comment at that time, because as I said, I was replying to richfool's comment, not yours.

Anyway, hopefully that clears up the misunderstanding...

Gengulphus