Selling seems to be as important as buying

[Darka]

After this morning's little hiccup in Centrica's share price, I'm re-evaluating my sell rules for my HYP shares - I'm not convinced of holding forever (for obvious reasons), especially if it's clear a mistake has been made.

Do any of you have a maximum loss that you'll automatically sell at, I don't mean an actual stop loss, more of a I'll sell if I lose more than n% on a share, therefore potentially limiting losses - I know prices can drop fast so you can easily miss this 'stop loss' but I'm thinking of setting one as it would have saved me money over the last year on most of the big fallers.

I know you should keep your emotions out of investing, but still seeing Centrica (which I should have sold ages ago) drop like that is hard to ignore.

I know that one could argue that it's cheap now and the yield is high so we should be buying, but I think that's a high risk strategy that can so easily backfire.

regards,
Darka

[Paultry]

You are not alone.

I have on previous occasions purchased a share which I've had my eye on and bought in on a price drop, only to see it go progressively down, as with CNA, I was in at 240p and 200p.

I won't sell, just forget about it.

What irks me is that when a share goes down and I decide not to buy it, then watch it double up, as in RDSB, I kick myself.

But I decided sometime back that I have the investing skills of a headless chicken combined with wishful thinking.

And nothing has changed, as I've just purchased 300 NG. shares.

Paul

[YeeWo]

I know that one could argue that it's cheap now and the yield is high so we should be buying, but I think that's a high risk strategy that can so easily backfire.

That seems to be the guts of the issue.
My preferred modus-operandi is buy shares in XYZ plc, which is dividend paying, at 50p. Wait for the SP to reach a £1 and then sell half. A Yield is important, however so also is an adequate XIRR for my investment, a strategy I understand, a moat, a globally diverse revenue stream, a management narrative I like and so on! I have never been interested in UK only utilities however good the yield.

I hold : - AZN, BRK-B, BP, BATS, BLND, CCH, DGE, GFS, GSK, HSBA, IMB, INCH, IHG, JLT, RB, REL, RR, RDSB, SN, ULVR, VOD & WPP.

If you have no interest in topping-up one of your holdings which is bombed-out, then best to bite the bullet and Sell the lot! IMHO!!

Good Luck all........

[Lootman]

I have long suspected that the reason Pyad advised "never sell" is simply because he felt that he didn't understand what were valid criteria to sell in the same way that he believed he knew what and when to buy. So he sidestepped the entire issue by advocating holding everything forever.

This is hardly an unusual trait. Many investors find it much easier to come up with buy ideas than sell ideas, even though both are equally important. There are psychological factors at play - you love your winners but selling a loser is an admission that you were wrong, and that is hard for some folks. The problem is that Pyad went on to codify his (less than) strategic ignorance on the topic of selling, dressing it up as a feature rather than a limitation.

Most successful traders (and understanding that trading is different from investing) believe that knowing when to sell is crucial. The use of stop losses is common, along with an acceptance that even a successful trader is probably wrong 40% of the time.

I suffer the same reluctance to sell as well. So I have rules. If a position has fallen to the point where it is a trivial percentage of my portfolio then I sell it, partly for the tax loss, and partly because it won't make any material difference to my portfolio even if it turns around.

Given that high yield investing is a deliberate act of taking on more risk than average, I believe that a certain ruthlessmess is appropriate when you realise you got it wrong. On the other hand, I am happy to let my winners run. And run.

[jackdaww]

My preferred modus-operandi is buy shares in XYZ plc, which is dividend paying, at 50p. Wait for the SP to reach a £1 and then sell half.


Good Luck all........

=============================

would that it were that simple ......

[moorfield]

The problem is that Pyad went on to codify his (less than) strategic ignorance on the topic of selling, dressing it up as a feature rather than a limitation.

This has rankled with me also. I like the ideas of strategic ignorance and letting winners run, but only up to a point - readers of my Portfolio Management & Review thread will be aware that I am tackling this limitation by measuring my overall HYP income against a pre-determined target as my sell signal and a portfolio overhaul.

I have also recently settled on three other reasons for selling individual holdings, which are likely to be very infrequent in future:

1. I can replace a with a higher market cap AND higher yield share from the same ICB industry/sector
eg. UU. for SVT, WPP for INF
2. I can replace a preference share with a higher yielding ordinary share from the same ICB industry/sector
eg. LGEN for AV.A
3. The market cap of a share drops out of the "Sunday Times Top 200" table (what I should have done with CLLN but didn't)

[Dod101]

You need to ask yourself if there is something fundamentally wrong with a share or its sector, because if there is then you are looking at either a real or a potential cut in the dividend. In the true HYP philosophy that is all that really matters. That is the only time I consider selling. The HYP is designed to provide a high and rising income, and any capital gain is secondary.

For those 'building' a HYP and currently reinvesting the dividends that is quite different. They are using the HYP in effect as a long term savings mechanism and thus seeking total return, whether they acknowledge that or not. If I were in that category, I would not be holding Centrica anyway (I do not hold it in my own HYP either) but if I did I would have a stop loss probably but it is not something that I have focussed on because of course stop losses can also be triggered in a general market sell off when the better policy might well be just to sit it out. I expect there is a certain nervousness at the moment especially if you have been burnt by Carillion or the like.

So in a 'pure' HYP selling I do not think selling is as important as buying, and as always, it depends which category of investor you are.

Dod

[idpickering]

I agree that selling can be as important as buying. I went against my HYP rules and instincts this afternoon by dumping Centrica., as discussed here;
viewtopic.php?f=15&t=8585#p98160 Some may be surprised at my decision, but I think peace of mind is important. CNA are an unreliable HYP share full stop IMHO. I put the money into National Grid, whom I've always thought to be more reliable and resilient.

Ian.

[jackdaww]

centrica has two big attractions - high yield and low p/e .

the rest is all bad news.

i sold at around 230 in 2015 .

[Gengulphus]

I have long suspected that the reason Pyad advised "never sell" is simply because he felt that he didn't understand what were valid criteria to sell in the same way that he believed he knew what and when to buy. So he sidestepped the entire issue by advocating holding everything forever.

Suspect what you like, but the fact is that pyad's articles and posts about his Value strategy did frequently say he'd sold shares, explain why, give suggested criteria for a sale, etc. His advocacy of never voluntarily selling in the HYP strategy is therefore not the lack of understanding you hypothesise.

My belief is that it is instead that the two strategies were intended for different types of investor. The Value strategy was intended for investors who are prepared to take a fair amount of risk and put in a fair amount of effort following the shares they own and the market in general in the pursuit of outstanding performance (which can only be achieved through trading for capital gains - dividend income and the capital growth associated (very loosely) with dividend growth can only do so much on their own). The HYP strategy was intended instead for investors who want good performance and a decent income, at low risk (as share investment strategies go) and low effort, having other things they'd prefer to do with their time.

In any case, decisions whether to sell or not are covered by this board's topic, but whether pyad understands how to make such decisions is not. So please, if you disagree with his suggestion never to sell voluntarily, say why you disagree with it, suggest your preferred alternative, etc. But don't start trying to discuss what he understands, his motives, etc: that doesn't help readers of this board understand how to make practical decisions whether to sell. All that it does is provoke more off-topic discussion of personalities...

Gengulphus

[moorfield]

For those 'building' a HYP and currently reinvesting the dividends that is quite different. They are using the HYP in effect as a long term savings mechanism and thus seeking total return, whether they acknowledge that or not.

That's me certainly Dod. I'm working towards a specific level of income from 2031 onwards which I think is achievable through HYP 'building'. Ironically once I get there I will likely start to migrate away from HYP into ITs quite quickly to lessen any potential volatility of that income once I actually need to start drawing it. I want a much smoother retirement income than the graph I posted on pyad's HYP1 update: viewtopic.php?f=15&t=8409&start=40#p96058

[Dod101]

[
In any case, decisions whether to sell or not are covered by this board's topic, but whether pyad understands how to make such decisions is not. So please, if you disagree with his suggestion never to sell voluntarily, say why you disagree with it, suggest your preferred alternative, etc. But don't start trying to discuss what he understands, his motives, etc: that doesn't help readers of this board understand how to make practical decisions whether to sell. All that it does is provoke more off-topic discussion of personalities...

Firstly, I at least have given plenty of reasons why I think that pyad's suggestion of never selling voluntarily is nonsense and secondly, unless you are a mod, I am not sure it is helpful for you to take it upon yourself to start telling other posters what they should or should not be discussing.

Dod

[vrdiver]

[
In any case, decisions whether to sell or not are covered by this board's topic, but whether pyad understands how to make such decisions is not. So please, if you disagree with his suggestion never to sell voluntarily, say why you disagree with it, suggest your preferred alternative, etc. But don't start trying to discuss what he understands, his motives, etc: that doesn't help readers of this board understand how to make practical decisions whether to sell. All that it does is provoke more off-topic discussion of personalities...

Firstly, I at least have given plenty of reasons why I think that pyad's suggestion of never selling voluntarily is nonsense and secondly, unless you are a mod, I am not sure it is helpful for you to take it upon yourself to start telling other posters what they should or should not be discussing.

Dod

I have to disagree with you there: discussing PYAD's motives or commenting on his understanding is an attack ad hominem, and so not only off topic but against the general rules of these boards.

You've been pretty clear in previous posts that you don't tolerate divi cutters, and that's fine, but some of us are not as self-confident about figuring out which are dead ducks and which are temporarily discomfited, so tend to take the view that wait-and-see is probably our best option.

Each to their own

[Lootman]

pyad's articles and posts about his Value strategy did frequently say he'd sold shares, explain why, give suggested criteria for a sale, etc. His advocacy of never voluntarily selling in the HYP strategy is therefore not the lack of understanding you hypothesise.

Agreed, and I never said that his "never sell" idea applied to his value investing strategy. In fact I know for a fact that it did not, since I followed the value strategy he regularly talked about on TMF where he bet the farm with 70% in RBS and Aviva - something he persisted with for several years after the 2008 financial crisis, in the hope that a recovery would materialise. And in fact he did eventually sell out of those positions, albeit at a significant loss and opportunity cost, when they cut their dividends.

As such, the correct hypothesis could still be that he doesn't have a successful strategy for selling, even if technically it can be stated that he does have a strategy for selling.

My belief is that it is instead that the two strategies were intended for different types of investor. The Value strategy was intended for investors who are prepared to take a fair amount of risk and put in a fair amount of effort following the shares they own and the market in general in the pursuit of outstanding performance (which can only be achieved through trading for capital gains - dividend income and the capital growth associated (very loosely) with dividend growth can only do so much on their own). The HYP strategy was intended instead for investors who want good performance and a decent income, at low risk (as share investment strategies go) and low effort, having other things they'd prefer to do with their time.

I do not disagree with that characterisation, but I would maintain that there is nothing in that particular description of HYP's aim or target constituency that precludes selling, any more than in the value strategy. If HYP investors are considered to be smart enough to know what and when to buy, then why not what and when to sell?

In any case, decisions whether to sell or not are covered by this board's topic, but whether pyad understands how to make such decisions is not. So please, if you disagree with his suggestion never to sell voluntarily, say why you disagree with it, suggest your preferred alternative, etc. But don't start trying to discuss what he understands, his motives, etc: that doesn't help readers of this board understand how to make practical decisions whether to sell. All that it does is provoke more off-topic discussion of personalities...

I'm not sure I agree with your statement about scope. Perhaps only because Pyad is the architect of this system, and is so closely identified with it, I think it can be instructive to consider the basis of some of its features by looking at his stated approaches, attitudes and experience. It is, after all, something many of us do when selecting a fund manager. And if he or we are going to claim success for this method based on, say Pyad's accounting background and experience in preparing tax returns, then it's surely reasonable to seek to understand how his strengths and weaknesses inform other aspects of the methodology. Personally I would never exclude data.

Over the years he has told us enough about his personal work and investment experiences, through TMF articles as well as posts, for us to be able to make educated guesses as to why things are the way they are. Another, perhaps trivial, example might be that his focus on only UK shares might derive from the fact that he has never studied foreign shares (from memory, I believe he stated that once).

Now, whether such thought processes belong in the other HY board rather than this one is another matter. People here can and do debate such things seemingly endlessly. But I generally try and avoid such discussions, and if a moderator wants to move the thread to the other board, that's fine with me. I tend to view them both as a single entity anyway.

But either way I don't think with HYP we can ever completely divorce the method from the man. At least, not for as long as he visits here telling us how his original portfolio has "crushed" and "slaughtered" other approaches! Even the most fervent Pyadophile would probably admit that there is a fair amount of his ego and nature in this baby.

[BarrenWuffett]

I have long suspected that the reason Pyad advised "never sell" is simply because he felt that he didn't understand what were valid criteria to sell in the same way that he believed he knew what and when to buy. So he sidestepped the entire issue by advocating holding everything forever.

I suspect another reason would be avoiding the tacit admission that he made a mistake buying any particular share...far better to promote the 'no tinker' rule.

[Lootman]

I have long suspected that the reason Pyad advised "never sell" is simply because he felt that he didn't understand what were valid criteria to sell in the same way that he believed he knew what and when to buy. So he sidestepped the entire issue by advocating holding everything forever.

I suspect another reason would be avoiding the tacit admission that he made a mistake buying any particular share...far better to promote the 'no tinker' rule.

That might be true although I always took the view that was the purpose of the "capital doesn't matter" line. To discourage investors from feeling pain when holdings crash in value, as they sometimes do. Then again, that feeling of pain can happen regardless of whether you sell or not. It's just that selling abandons all hope and accepts defeat.

But again I see no problem with selling to buy a better prospect, a higher dividend or a more relaxed sleep at night. Or conversely because a share has done well and become top heavy. And, as stated before, how can any investor be smart enough to know how to buy, but be clueless about how to sell?

[Arborbridge]

I have long suspected that the reason Pyad advised "never sell" is simply because he felt that he didn't understand what were valid criteria to sell in the same way that he believed he knew what and when to buy. So he sidestepped the entire issue by advocating holding everything forever.

I really don't believe that. I accepted his idea was completely genuine, though novel. Essentially, his starting point was that the ordinary investor was likely to do more damage by selling and moving on than by sitting tight and letting the share recover. This seems to me a perfectly reasonable idea, though it has to be said it does not always work! This "Self healing" does not have to work every time, but only sufficiently often that it is better than jumping from the frying pan into the fire. Note that he also coupled this idea together with choosing the largest shares and the best in class, which would cut down the risk of complete wipe outs. This appears to be the case: my most notable failures have come from smaller shares, not the big ones.

His belief is that if a share is big enough, it will most likely not fail completely but either adapt and recover, or be taken over.

Anyhow, my point is not to say that I'm sure this works (I really do not have enough firm evidence) but rather to say that I believe Pyad was completely genuine in this belief, and I do not feel that it was an attempted to sidestep the issue.

Arb.

[NeilW]

The reason for buying large businesses is to gain advantage of the monopoly effect. A large operation will tend to bumble along being generally not very exciting, and generate a 'cash cow' payout.

Both Centrica and SSE will appear to decline as businesses until they end up with a pool of customers prepared to stick with the 'brand'. I still see an awful lot of British Gas vans turning up at houses, even though there are far cheaper and probably better competitive alternatives out there.

Investors are 'frustrated' with management according to the FT, so expect some heads to roll.

In terms of safety margins when selecting share, the assault on utilities suggests that dividend cover is increasingly important as a ratio to watch.

[Darka]

I never intended this post to cause yet another "have a go a pyad" conversation and to be honest, it's getting a little boring.

If you don't like someone on the boards or their views, then just ignore them - there isn't any need for personal attacks.

What ever you think of pyad, I applaud him for giving rise to the HYP and making us all think a little bit harder about our investments and retirement planning.

[Arborbridge]

I never intended this post to cause yet another "have a go a pyad" conversation and to be honest, it's getting a little boring.

If you don't like someone on the boards or their views, then just ignore them - there isn't any need for personal attacks.

What ever you think of pyad, I applaud him for giving rise to the HYP and making us all think a little bit harder about our investments and retirement planning.

Bravo, well said.