HYP1 is 17

[pyad]

A record smashing year.

Here is the data for the year ended 12 November 2017, the seventeenth year of this non-tinker portfolio.

........................................Dividends.....................Value

Anglo American              176.94              7,101
BA Tobacco                1,506.80             42,356
BT Group                    875.03             14,080
Dixons Carphone             139.61              1,894
InterCon Hotels             328.94             18,541
Ladbrokes Coral             104.96              3,587
Land Sex                    284.43              6,321
Lloyds                      156.05              4,107
Mitch & But                  51.83              1,848
Persimmon                 1,426.95             28,275
Pearson                     347.49              6,161
RD Shell B                  584.86              9,628
Rio Tinto                   949.68             19,046
RSA                          83.95              2,905
United Utilities            309.41              6,635

Total  £                  7,326.93            172,485

Cost                                           75,000

Gain                                           97,485    130.0%

FTSE100 at start                              6,274.8

Now                                           7,433.0

Gain                                          1,158.2     18.5%

HYP1 capital outperformance                               94.1%

Dividend History
2001                               3,451
2002                               3,474
2003                               3,197
2004                               3,205
2005                               3,546
2006                               4,131
2007                               4,452
2008                               5,040
2009                               3,187
2010                               3,297
2011                               3,843
2012                               4,289
2013                               5,828
2014                               5,601
2015                               6,093
2016                               6,124
2017	   	   		   7,327

Total to date     £               76,085

Events in year
There were returns of cash following share consolidations by InterContinental Hotels and Land Securities. In both cases the cash was reinvested in Lloyds being the optimum choice at the time based on a combination of good yield, greatest below average capital value and other selection criteria I use.

Income
This is what HYPs are all about and the £7,327 for this year was another record by a long way, up 19.6% on last year and therefore crushing inflation. From year one, the increase is 112.3%.

Total income thus far is £76,085 over the 17 years, averaging £4,476 per year which is 5.97% pa on the £75,000 cost. An interesting milestone is that this total income has now exceeded the original investment.

BA Tobacco remains, as it has for years, the single largest income contributor with 20.6% of total income but Persimmon is not far behind in contributing 19.5% followed by Rio Tinto third at 13.0%. At the other end, the smallest sums arose from Mitchells & Butlers on 0.7%, RSA 1.1% and Ladbrokes Coral 1.4%.

There were no zero payers.


Capital
This is irrelevant or secondary depending on your viewpoint.

As shown a new record value of £172,485 has slaughtered the FTSE100 over the 16 years, up 130.0% against an index up 18.5% and thus outperforming it by 94.1%. This is without reinvesting dividends.

In the last twelve months the FTSE100 index has risen 10.4% whilst HYP1 is up 12.2%, outperforming this year as it has so often in the past.

BA Tobacco remains the largest holding at 24.6% of portfolio value with Persimmon second at 16.4%. Smallest holdings are Mitchells & Butler at 1.1% and Dixons Carphone also at 1.1%.

[staffordian]

Many thanks for your continuing reports on HYP1.

To me it is both encouraging and worrying.

By most standards, a dividend return in seventeen years equal to the amount invested is reasonable (not great, but ok) and a 130% capital appreciation is not to be sniffed at.

On the other hand, eleven out of the fifteen shares are either slightly or significantly under water capital wise and the contribution to income very unequal.

Ok, thats what a porfolio is all about, you may say, and I agree. The worry is that when those fifteen were selected, an equally valid choice of shares might well not have included BATS or Persimmon, and where would that leave the portfolio?

I have an HYP and also a smaller portfolio of ITs, and essentially share your view on the benefits of an HYP, but would be concerned if my entire income depended on the HYP and it remained so unbalanced and reliant on such a small proportion of the portfolio.

[GoSeigen]

7.2% CAGR is not bad.

However, we could have bunged the £75,000 into 2.5% consolidated loan, forgotten about it and we'd now have enough cash to buy this entire HYP1 plus change.

Doesn't look quite so good in that comparison... valuations matter.


GS

[kiloran]

Ok, thats what a porfolio is all about, you may say, and I agree. The worry is that when those fifteen were selected, an equally valid choice of shares might well not have included BATS or Persimmon, and where would that leave the portfolio?

So true. Of course, we could apply the glass half-full view... what if the portfolio had included BVIC or ULVR which have been great for me. Among many others.

HYP is not the ultimate strategy, but it's absolutely ideal for me. Many thanks to pyad.

--kiloran

[ian56]

On the other hand, eleven out of the fifteen shares are either slightly or significantly under water capital wise and the contribution to income very unequal.

My bold, I could be wrong but I understood equal weighting at the start (ie £5000), to me it seems as if only 5 are therefore under water.

[PinkDalek]

On the other hand, eleven out of the fifteen shares are either slightly or significantly under water capital wise and the contribution to income very unequal.

My bold, I could be wrong but I understood equal weighting at the start (ie £5000), to me it seems as if only 5 are therefore under water.

I don’t hold the history of HYP1, whereas I’m sure some do. However, there was a substantial capital return in, from memory, 2006 involving Ladbroke/Hilton. I’d hazard a guess that your 5 may be only 4 but nor do I know what happened with the 2009 rights issue.

[staffordian]

On the other hand, eleven out of the fifteen shares are either slightly or significantly under water capital wise and the contribution to income very unequal.

My bold, I could be wrong but I understood equal weighting at the start (ie £5000), to me it seems as if only 5 are therefore under water.

My apologies, you are quite right. I had it in mind it was £15000 per share but fifteen times that is a tad more than £75000

[monabri]

£5k X 15 hence £75k initial sum.

Good to see that 2/3rds of the selection are > the initial £5k sum.

The question for me is " ok, which are the next stars like BATS"

The divis are progressing well.

[pyad]

...The worry is that when those fifteen were selected, an equally valid choice of shares might well not have included BATS or Persimmon, and where would that leave the portfolio?..

HYP1 is very significantly different from the original because of the substantial number of corporate events over the years. Several original shares have disappeared via bids and new shares chosen with the cash. On top of that there have been events such as cash returns, lapsed rights, demergers and so on which affect the portfolio. Persimmon for example that you mention was not one of my original selections but was a later purchase decision when cash was released from elsewhere in the portfolio.

Thus even an eternity portfolio will experience such changes over time, a process I've termed "market trading". On balance the market will trade for the investor in a way that is highly beneficial to a portfolio long term.

It's a common mistake for people to think that eternity holding means that no changes ever occur. They will, just that they are not instigated by the investor.

[BarrenWuffett]

I note that 53% of income is provided by just 3 holdings. This is a result of a 'no tinker' rule which has created an extremely unbalanced portfolio. I suggest the rules need to change if this is to provide a stable and sustainable income over the longer term.

[pyad]

I said

...Persimmon for example that you mention was not one of my original selections but was a later purchase decision when cash was released from elsewhere in the portfolio...

but omitted to add that neither was BATS that you mention an original selection, this share also came in later as a purchase decision by me. Both very good illustrations of how an HYP can change over time without any tinkering.

[Arborbridge]

I note that 53% of income is provided by just 3 holdings. This is a result of a 'no tinker' rule which has created an extremely unbalanced portfolio. I suggest the rules need to change if this is to provide a stable and sustainable income over the longer term.

When you say that, I assume you mean "if one were setting up a HYP for oneself" you would apply different rules.

The whole point of HYP1 is that it's being run in the way that it is to prove a point, or perhaps just to see what would happen. It wouldn't make sense to "change the rules" at this stage.
--00--

What a shame HYP1 exists as an orphan, and it siblings died. How much more information we would have if the other HYPs had been carried on. My own interest would be particularly in HYP4 which was founded just as I got going and furnished me with a couple of problem shares. Fruitless, but I wonder how that would have faired in comparison with my own HYP and with HYP1.

However, the HYP1 experiment does show the concept works - not that it's the best thing one could do - but that it works well enough for its intended purpose and audience.

[Itsallaguess]

I note that 53% of income is provided by just 3 holdings.

This is a result of a 'no tinker' rule which has created an extremely unbalanced portfolio. I suggest the rules need to change if this is to provide a stable and sustainable income over the longer term.

I've just updated the spreadsheet that I put together last year, showing the reliance on income and capital by the top-five holdings in HYP1 for each of the last 8 years -



So nearly 73% of all income from just five holdings, and nearly 71% of capital in the top five holdings by value.

Full data here for anyone interested -

https://i.imgur.com/Yg71fd7.png

It's 'market trading' like this that has led me to believe that a good dollop of Investment Trusts alongside a HYP containing many more holdings than the original 15 shares is much more preferable to my own investment personality.

Doris may well sleep at night not knowing what's going on 'under the hood', but I'm not sure I could personally....

Heck of an experiment though, and in it's own way it keeps on delivering. Hats off to Pyad for keeping it going.

Cheers,

Itsallaguess

[Lootman]

Income

This is what HYPs are all about and the £7,327 for this year was another record by a long way, up 19.6% on last year and therefore crushing inflation. From year one, the increase is 112.3%.

2008 5,040
2009 3,187
2010 3,297

If income "is what this is all about" then that near 40% drop in just one year would presumably have required somebody living off this portfolio to have withdrawn capital, which in turn would have depleted the subsequent performance. I mention this because you state below that dividends are not reinvested, so presumably are consumed by the holder:

Capital

As shown a new record value of £172,485 has slaughtered the FTSE100 over the 16 years, up 130.0% against an index up 18.5% and thus outperforming it by 94.1%. This is without reinvesting dividends.

As above, that assumes that the investor weathered that 40% drop in income with total insouciance and did not need to make up the difference from capital.

It seems that your portfolio passes the test on capital (which you say may be irrelevant) but not on income (which is the thing that "HYP is all about"). In that context terms like "crushed" and "slaughtered" seem like overstatements.

[Dod101]

For newcomers and for those who do not know the detailed history of HYP1 (that includes me), pyad's additional comments show that there is no such thing as a non tinker HYP. They also render comments like 'x number of shares are under water' meaningless as well because of course we do not know which were the original constituents nor do we know what the purchase price of later additions was.

Doris has had to use her market knowledge, or lack of it, to invest cash which evidently arose from time to time as a result of corporate actions other than the payment of dividends and so over time she would gain some experience and ought to put that to use in some tinkering to try to maintain some balance in the portfolio, if nothing else.

What the current HYP does show is that doing nothing about top slicing for instance may well let your winners run but it will in time produce a very unbalanced portfolio to the extent that it is positively high risk. This is supposed to be all about income and yet we have two shares producing 40% of the total income. The current yield on the portfolio is an unspectacular 4.2% and the growth in aggregate dividends has hardly been stellar.

The principal of a HYP is fine and works but I would certainly not advocate a so called 'no tinkering' policy. In fact I think that is just silly and rebalancing from time to time is essential on both the capital and particularly the income front.

I see a flurry of other posts but I will let mine stand.

Dod

[pendas]

Applying a target 3% year on year income increase as a modest figure to aim for, the portfolio misses on 8 occasions and a running total of the difference is negative every year until this where it has now become positive to the tune of £986. That's 16 years of retirement dipping into savings to make up the shortfall.

The capital has done much better, but it's not the purpose of the portfolio.

Is my plucked out of the air 3% annual increase on the initial sum too ambitious a target to aim for or was perhaps the first years income unrealistically high to base projections on ?

[kiloran]

If income "is what this is all about" then that near 40% drop in just one year would presumably have required somebody living off this portfolio to have withdrawn capital, which in turn would have depleted the subsequent performance. I mention this because you state below that dividends are not reinvested, so presumably are consumed by the holder:

Isn't that presuming that the investor needs all of the dividend to live off, and has no reserve? In a more real-world case, I suspect the investor would have some margin so the good years compensate for the bad years. A bit like annuities?

--kiloran

[CryptoPlankton]

Income

This is what HYPs are all about and the £7,327 for this year was another record by a long way, up 19.6% on last year and therefore crushing inflation. From year one, the increase is 112.3%.

2008 5,040
2009 3,187
2010 3,297

If income "is what this is all about" then that near 40% drop in just one year would presumably have required somebody living off this portfolio to have withdrawn capital, which in turn would have depleted the subsequent performance. I mention this because you state below that dividends are not reinvested, so presumably are consumed by the holder:

You are assuming that all of the dividends are withdrawn (i.e. no safety margin) and that there is no cash reserve. I think any prudent HYP holder will have considered the possibility of such events and these contingencies have been discussed quite a lot (though not sure I've seen much since the move from TMF?). I know that with my intended withdrawal strategy, even this extremely bad spell would not have come close to forcing me to eat into the capital.

Edit: Sorry, see the point has already been made...

[Arborbridge]

Both HYP1 and TJH HYP show large drops in income. With this to guide us, several of us apply mechanisms to reduce the pain a) but using and income reserve held in cash or near cash b) in not drawing down the full amount of income, but reinvesting it.

HYP1 + Terry have shown us the risks - it's up to us to learn from this, but as an experiment and demonstration, Pyad is to be commended in putting it all out there. Not many would keep an experiment going so long and with such commendable transparency.


Arb.

[Arborbridge]

You are assuming that all of the dividends are withdrawn (i.e. no safety margin) and that there is no cash reserve. I think any prudent HYP holder will have considered the possibility of such events and these contingencies have been discussed quite a lot (though not sure I've seen much since the move from TMF?). I know that with my intended withdrawal strategy, even this extremely bad spell would not have come close to forcing me to eat into the capital.

Maybe it's time to have a review and further discussion on that topic for more recent posters. I guess the reason it isn't discussed is that the "old timers" were in on those original discussions, and have just applied the ideas which came out.

Arb.

Sounds like a good subject for which Gengulphus could get the ball rolling with some analysis of choices and possible outcomes