HYP1 is 17

[pyad]

It was me what done it, Pyad, but I rather lazily quoted a yield figure with Dod had posted:) But even so, that statement I made defending HYP was valid, though the yield is significantly higher than I said.

It does remind me of discussions on the TMF boards about "what sort of yield" people are quoting! They did not always compare apples with apples.

Agreed the general comment is valid.

As for the old TMF board, I vaguely recall that many people used to make the same silly mistake when quoting what they thought were historical yields. It is perhaps surprising that this is being perpetuated here by people who were on the old Fool.

[Lootman]

latest review of HYP1 and its yield because 4.2% would be the income of £7,327 on the closing value of £172,485. However that is an elementary math error because the yield on any portfolio is the income on the opening capital value, not the closing.

As last year's closing value was £153,721, the historical yield for 2017 is therefore 4.8%. That is significantly better than the 4.2% mentioned by whoever or whyever it was stated.

When you say that "the yield on any portfolio is the income on the opening capital value, not the closing", you are presumably talking only about a historic yield. The writer of the statement you quoted was presumably more interested in the current yield.

As a general rule I am not interested in what my portfolio used to yield (or be worth). I'm only interested in its current yield, value and so on. So the 4.25 yield is more meaningful for any decision I am planning to take now.

You can't have it both ways, i.e. show the large capital gains of the last 12 months AND cite the yield from a year ago when lower capital values would obviously flatter the yield!

[Arborbridge]

As a general rule I am not interested in what my portfolio used to yield (or be worth). I'm only interested in its current yield, value and so on. So the 4.25 yield is more meaningful for any decision I am planning to take now.

You can't have it both ways, i.e. show the large capital gains of the last 12 months AND cite the yield from a year ago when lower capital values would obviously flatter the yield!

You can't have it both ways? - why not? provided it is clear what you are quoting.

It depends what you are looking for, and that's where all the discussions used to circle round. There are many ways of quoting yield, as you know. In this case, it is fair enough to quote the yield for comparison with other forms of investment: i.e. if I dumped £nk in my account at the beginning of the year, what yield have they produced on that capital. It's perfectly valid and it's what I used to call the "true yield". It what you would look at with fixed interest for comparison.

On the other hand, for planning purposes I'd rather have a forecast yield which is likely to be roughly correct, though not reliable, but then again other people prefer the historic yield which is based on a factual happening.

In the end it doesn't matter much, provided we know what is being quoted, and as long as we compare apples with apples.
Arb.

and let's hope this doesn't drag on to a long circular argument, as in the old days

[Itsallaguess]

On the other hand, for planning purposes I'd rather have a forecast yield which is likely to be roughly correct, though not reliable, but then again other people prefer the historic yield which is based on a factual happening.

Which is based on 'factual happening' in the past......

As someone who prefers to use the Digital Look 'Forecast Yield' figures, which I find really useful for an overall portfolio level view of potential future income, it does make me laugh a little when I hear anyone with strong views against that, proclaiming that using historical yields is to be 'preferred'.

It doesn't seem to occur to them that projecting historical payouts into the future is still a 'Forecast', which may or may not actually happen....

So then we're at a point where we've got two sets of 'Forecasters' - one which is a bunch of brokers with daily access to company information and guidance about the companies they are paid to monitor on a very close basis, and the other being an owner of a portfolio of shares.....

I know which one I prefer to trust with making the most appropriate income forecasts!



Itsallaguess

[Arborbridge]

So then we're at a point where we've got two sets of 'Forecasters' - one which is a bunch of brokers with daily access to company information and guidance about the companies they are paid to monitor on a very close basis, and the other being an owner of a portfolio of shares.....

I know which one I prefer to trust with making the most appropriate income forecasts!



Itsallaguess

Absolutely - you and I are one over this aspect of "which yield should I use?".

[Dod101]

pyad's latest comment about yield is typical of him. He quotes his definition of yield as though it is the only one and is categorically 'correct'. Of course in quoting yield we should have a common definition if we are comparing yield but as long as we know what definition we are quoting it does not matter. I usually quote yield based on year end values because I want to compare it with what I could get on alternatives available now, not what might have been 12 months ago.

Obviously if you want to show how successful you are in investing in shares against other forms of investment (such as a term deposit) you quote the yield based on the beginning of the year values (especially when term deposit yields are so modest) Not much of a test really and that it is why I treat comments from posters with a point to prove with a lot of scepticism.

Dod

[tjh290633]

So then we're at a point where we've got two sets of 'Forecasters' - one which is a bunch of brokers with daily access to company information and guidance about the companies they are paid to monitor on a very close basis, and the other being an owner of a portfolio of shares.....

I know which one I prefer to trust with making the most appropriate income forecasts!



Itsallaguess

Absolutely - you and I are one over this aspect of "which yield should I use?".

I'm of the opposite persuasion, as I prefer to assume that the dividends will be the "same again", unless the company advises differently. This gives me a prudent estimate of what is to come, which may be an over- or under-estimate, like in 2009-10.

I don't agree with using the start of the year valuation, as that is a year behind the final outcome. However, because of the possibility of adding or withdrawing capital, or reinvesting dividends, I think that using a unitised model is the only sensible approach.

TJH

[Arborbridge]

However, because of the possibility of adding or withdrawing capital, or reinvesting dividends, I think that using a unitised model is the only sensible approach.

TJH

Bravo, hear, hear!

I wish I had learnt about this from day one, and I mean even years before I had a HYP. How good it would be to look back on my unitised investments from 1987 when I first bought shares*.

Arb.

*OK, one might say, ultimately pointless, but as an "interest" it's less harmful and more fulfilling than smoking or dog strangling. Although I haven't interviewed many of those other practitioners to compare notes.

[TwmSionCati]

... 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.

True, but not being clairvoyant we wouldn’t have known that the consols, and all the other 'perpetuals' then available, were going to be redeemed. There were at the time only three sufficiently-long redeemables to be had, and HYP1 seems to have done far better than any of them, both inc-wise and cap-wise

:
ID	Rdm	13Nov00	Qty	Inc	16Nov17	Cap gn	Tot rtn
HYP1	----	1.0000	75000	76085	2.29980	97485	173570
 8%	2021	1.4397	52094	70848	1.26093	-9313	 61535
 6%	2028	1.2439	60294	61500	1.47543	13960	 75460
4¼%	2032	0.9797	76554	55310	1.33759	27398	 82708

Still, to have forgotten about it ... definitely tempting!

TSC

[Gengulphus]

Anyway, looking briefly through the large volume now there was one comment that caught my eye, merely because it's arithmetically wrong. However the thread has become so confused with nested responses and so on that I cannot trace who said it or why or in what context. It's this:

We all have different POVs, but I'd say a current yield of 4.2% for relatively little work would improve the lot of many a Doris or Joe whose alternative might be to grumble about low interest rates or lousy annuity rates

Arborbridge in viewtopic.php?f=15&t=8409&start=20#p95893. Easily found if you use the right technique for TLF, namely searching forward from the start of the thread for a word in the quote that isn't likely to appear too often in the thread (I used "POVs"). Not at all easily found by "who was this replying to?" backtracking through the thread, which often worked on TMF but is basically completely unsupported by the TLF software... :-(

As I can't trace the origin of the comment, I'm assuming it refers to my latest review of HYP1 and its yield because 4.2% would be the income of £7,327 on the closing value of £172,485. However that is an elementary math error because the yield on any portfolio is the income on the opening capital value, not the closing.

As last year's closing value was £153,721, the historical yield for 2017 is therefore 4.8%. That is significantly better than the 4.2% mentioned by whoever or whyever it was stated.

A bit of care is needed about that - it depends on what purpose one wants the historical yield for. If for the purpose of assessing how something has done in a past year, yes, it's the dividend income for the year concerned divided by the price at the start of the year concerned. If on the other hand it is for the purpose of deciding whether it would be a good idea to buy that something now, it's the historical dividend divided by the current price.

The context of this thread is assessing how HYP1 has done over the last year, and given that context, you're right - especially as I don't think anyone here is at all likely to be contemplating buying a copy of HYP1 as it currently stands! But we do fairly often get threads discussing the merits of shares as HYP purchases, in which some talk about yields based on past prices, most typically their own purchase price, and that's also an error... Essentially, there's an overriding principle that any yield used for a purchase decision (or a sale decision) should be calculated using the current price, and what you say could easily be misunderstood as contradicting that. So it seems worth pointing out that it doesn't!

Gengulphus

[moorfield]

I'm of the opposite persuasion, as I prefer to assume that the dividends will be the "same again", unless the company advises differently. This gives me a prudent estimate of what is to come, which may be an over- or under-estimate, like in 2009-10.

Completely agree TJH, this is the approach I use too for my income forecasts and yields.

[Arborbridge]

... 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.

True, but not being clairvoyant we wouldn’t have known that the consols, and all the other 'perpetuals' then available, were going to be redeemed. There were at the time only three sufficiently-long redeemables to be had, and HYP1 seems to have done far better than any of them, both inc-wise and cap-wise

:
ID	Rdm	13Nov00	Qty	Inc	16Nov17	Cap gn	Tot rtn
HYP1	----	1.0000	75000	76085	2.29980	97485	173570
 8%	2021	1.4397	52094	70848	1.26093	-9313	 61535
 6%	2028	1.2439	60294	61500	1.47543	13960	 75460
4¼%	2032	0.9797	76554	55310	1.33759	27398	 82708

Still, to have forgotten about it ... definitely tempting!

TSC

All well and good, GoSeigen, but it's a fine piece of hindsight bias. It is always (well, almost always!) possible to find something that would have been a better investment. Your pointing that out is not a terribly useful observation, and won't help us decide if the phenomenon would be repeated in the next 17 years:) Well, I thank you for making us think about it, anyway.

Speaking personally, that type of investment wouldn't have been on my radar 17 years, whereas HYP was (in 2006) and has fulfilled its purpose reasonably well, so I'm happy with that.

Arb.

[GoSeigen]

... 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.

All well and good, GoSeigen, but it's a fine piece of hindsight bias. It is always (well, almost always!) possible to find something that would have been a better investment. Your pointing that out is not a terribly useful observation, and won't help us decide if the phenomenon would be repeated in the next 17 years:) Well, I thank you for making us think about it, anyway.

Speaking personally, that type of investment wouldn't have been on my radar 17 years, whereas HYP was (in 2006) and has fulfilled its purpose reasonably well, so I'm happy with that.

Arb.

And a fine piece of selective quoting on your part Arb. Dd go back and read my entire post.

Hindsight was irrelevant to the point, which was about valuation and subsequent return. i.e. don't expect great returns from equities if valuations are stretched.

GS

[dredd0]

I would just like to thank pyad for provoking the usual storm of axe-grinding and pomposity. Very amusing.

And for inspiring so many of us to think hard about our aims and strategies for investment and retirement.

dredd0

[Bubblesofearth]

A HYP works and is no more high risk than any other share investment strategy provided it is managed. Hands off (except when proscribed by corporate actions) is a potentially disastrous strategy. That appears to be the definition of no tinkering according to the pyad bible and it leads almost inevitably to the totally unbalanced portfolio illustrated by the said pyad in the first post of this thread.

Dod

A few comments on risk;

1. The risk inherent in HYP is primarily determined by the number of shares.

2. Any sensible investor will have considered asset allocation ahead of HYP portfolio selection. Which is to say they will only have a fraction of their overall wealth in HYP or any other share strategy. Which, in turn, means that any capital and income volatility from their HYP will be diluted by that fraction, i.e. looking only at HYP risk is misleading and should, instead, be looked at in the context of the whole of a persons wealth. For the majority it's almost certain to be the highest risk fraction compared to property, cash, fixed interest and pension. Context is key.

3. It has been pointed out many times on TLF, and previously on TMF, that HYP1 was lucky because it got BAT. Not really true. Back in 2014 I looked at FTSE 100 performances since 2000 and noted 7 9-baggers or better. This means that the chance of missing all of these multi-baggers in a 15-share portfolio would have been about 1/3. Expand the portfolio to 30 shares (a far more sensible diversification IMO) and the chance of missing all multi-baggers falls to around 1/10. So you would basically need to have been pretty unlucky to avoid any.

Hats off again to PYAD for the update. Dorisian (or as close as you can get) share portfolio records are rare.

BofE

[Lootman]

Any sensible investor will have considered asset allocation ahead of HYP portfolio selection. Which is to say they will only have a fraction of their overall wealth in HYP or any other share strategy. Which, in turn, means that any capital and income volatility from their HYP will be diluted by that fraction, i.e. looking only at HYP risk is misleading and should, instead, be looked at in the context of the whole of a persons wealth. For the majority it's almost certain to be the highest risk fraction compared to property, cash, fixed interest and pension. Context is key.

Yes, I made a similar point earlier, i.e. the HYP1 numbers are flattered by the assumption that one would be 100% invested in it, with no safety margin. In reality you might need perhaps 15K in cash as well to smooth out any dividend drops such as in 2008. So the performance numbers should then be based on 90K and not 75K

And yes, HYP offers no advice on asset allocation i.e. how much it is prudent to allocate to HYP versus funds, other equity investments, bonds, cash etc. There are implications that it is all you need but it prudently stops short of formally asserting that. To me, investing in UK dividend shares is just one of several strategies and inadequate/too risky on its own.

[Arborbridge]

A few comments on risk;

1. The risk inherent in HYP is primarily determined by the number of shares.

2. Any sensible investor will have considered asset allocation ahead of HYP portfolio selection. Which is to say they will only have a fraction of their overall wealth in HYP or any other share strategy. Which, in turn, means that any capital and income volatility from their HYP will be diluted by that fraction, i.e. looking only at HYP risk is misleading and should, instead, be looked at in the context of the whole of a persons wealth. For the majority it's almost certain to be the highest risk fraction compared to property, cash, fixed interest and pension. Context is key.

3. It has been pointed out many times on TLF, and previously on TMF, that HYP1 was lucky because it got BAT. Not really true. Back in 2014 I looked at FTSE 100 performances since 2000 and noted 7 9-baggers or better. This means that the chance of missing all of these multi-baggers in a 15-share portfolio would have been about 1/3. Expand the portfolio to 30 shares (a far more sensible diversification IMO) and the chance of missing all multi-baggers falls to around 1/10. So you would basically need to have been pretty unlucky to avoid any.

BofE

2. Yes context is the key, and for many (including me) HYP is seen as an alternative to an annuity. Very nice if you happen to have an occupational pension too, but my choice was annuity or DIY - and a decreasing number of people have occupational pensions: their choice will be the same as mine. So as regards asset allocation, one's pension fund is probably the biggest chunk of wealth, and most of that would have to be invested in income equity in order to generate enough income, given lousy annuity rates.

3. It would be interesting to see your list of 9-baggers from the FTSE. I seem to have managed to avoid them all, as far as I can tell - BAT isn't on track to be a ten bagger in 14 years either. Therefore, I'm inclined towards the view that HYP1 was lucky, or maybe just lucky in the epoch that it started. It would interesting to have TJH's experience on this point.

Arb.

[monabri]

For me, a better question would be "what will be the next BATS 10 years from now?" (in terms of both dividends and value enhancement).
Looking in the rear view mirror is not useful going forward.

Here's HYP1 retabulated in the form of "bagging ratio" (!) - It does show that Pyad got lucky 10 out of 15 times in terms of maintaining the original capital (not the original purpose of course) but "2 out of 3 ain't bad" as the song goes (yes, this doesn't factor in for inflation).



It would also be interesting to discuss how we can avoid the likes of M&B or DC in terms of selection in the first place!

[PinkDalek]

For me, a better question would be "what will be the next BATS 10 years from now?" (in terms of both dividends and value enhancement).
Looking in the rear view mirror is not useful going forward.

Here's HYP1 retabulated in the form of "bagging ratio" (!) - ...



It would also be interesting to discuss how we can avoid the likes of M&B or DC in terms of selection in the first place!

Perhaps you missed the comments from Gengulphus on this:

viewtopic.php?f=15&t=8409&start=20#p95949

Which includes (amongst other relevant matters):

However, one of the original 15 was Bass, which became Six Continents and then demerged into Intercontinental Hotels and Mitchells & Butlers. So those two should be counted together ...

So Mitchells & Butlers were not an original selection.

Similarly, I haven't checked the history as to how they arrived in HYP1 but Dixons Carphone only came into existence in 2014.

[Arborbridge]

Similarly, I haven't checked the history as to how they arrived in HYP1 but Dixons Carphone only came into existence in 2014.

Possibly bought as DSG international, or whatever it was called. I also bought and sold this later. It should be one of the shares in my tinkering study I'm working on, but I do not have a clear picture of the history, so I might well leave it out!

Arb.