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Value Board

Formerly "Lemon Fool - Improve the Recipe" repurposed as Room 102 (see above).
Gengulphus
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Re: Value Board

#162424

Postby Gengulphus » August 27th, 2018, 3:13 pm

Alaric wrote:I'd be inclined to suggest TRIP as a strategy. Total Return Income Portfolio. You look for stocks producing income but you also want the portfolio to maintain its value in real terms. If 6% is a target, you are looking for shares between 1% income and 5% growth and 5% income and 1% growth. 8% income and -2% growth is outside your target. You might live with it though, but need to be aware of the risk that it might flip to 8% income and -8% (or worse) growth. Worse than that it might go to 0% income and minus quite a lot growth. C***ll**n being a case in point.

I think some care is needed here about the difference between objectives, strategies and the actual process of running a strategy once chosen.

Objectives are what you want from your investments - for instance, one might want to take an income now, or to build them up to repay a specific capital sum (such as an interest-only mortgage) later, or to build them up now in order to take an income from them later. And there might be non-financial objectives as well, such as ones to do with how much of one's attention and effort need to be put into running the investments.

Strategies are how one goes about trying to achieve one's objectives. There can be a choice of different methods to try to achieve a particular objective - for instance, just looking at methods to build up one's investments to take an income later that use portfolios of individual shares, one might choose to try to build them up by actively trading them, hoping to realise good net capital gains in the process, or by buying and holding shares in fast-growing companies, hoping their growth will continue and you'll build up good unrealised capital gains, or by buying and holding shares in mature dividend-yielding companies, hoping to achieve good overall growth through a combination of some capital gains caused by general dividend growth and reinvestment of the dividends, or by various other methods. And there are some still quite significant variations within those methods: for the first, for instance, variations to do with the timescale of the trading and what it's based on. Day-trading based on technical analysis of short-term chart patterns and trading on few-months-to-few-years timescales based on cheap fundamental ratios are both trying to build up good net capital gains, but are very different strategies! And that isn't the end of it - for instance, the second of those (which incidentally was basically what the TMF "Value Shares" board was about) will split into different strategies according to which of the myriads of fundamental ratios it pays attention to. Ultimately, with the exception of investors who simply invest in a growing pile of units of a single fund and of investors who follow a totally mechanical system, every investor has their own individual strategy.

From the point of view of which investment boards the site should have (*), I think there are two basic categories of question posters want to discuss. One is "What should my strategy be?". The other is "I know what my strategy is, but please can I have some assistance/advice on dealing with this situation that's arisen in line with it?". There is the major difference between them that discussing the pros and cons of various strategies is very much what the poster of the first type of question wants, and very much a distraction from it for the second type of question. And when a strategy is at all controversial (and IMHO all strategies are liable to be controversial at times, especially when going through a period of doing poorly), there is a tendency for people to reply to the second type of question with "Well, why on earth are you using that strategy?" type answers (often more strongly worded than that!), especially (as often happens) if the "I know what my strategy is" part of the question is implicit rather than explicitly stated.

For the first type of question, the Investment Strategies board is the basic place to go. If one has already decided upon some aspects of the strategy, a more specialist strategies board might be appropriate, such as High Yield Shares & Strategies. For the second, an individual-strategy (**) board called something like Running XXX Strategies in Practice would be appropriate (which with XXX = HYP is what the TMF HYP Practical board was supposed to be about - they didn't use a longer, more descriptive board name than that because their board software didn't support board names that long), and there's the key question of how narrow or broad the set of strategies covered by such a board should be: make it too narrowly-defined and it won't get enough users whose strategies are covered by it, make it too broadly-defined and it will bring together users of such different strategies that they're likely to get into "which strategy is best?" arguments with each other, quite possibly rather inadvertently just by answering another poster's question on the basis of a completely wrong impression of what they're trying to do and things escalating from there...

Anyway, how all of that is relevant to your suggestion of "TRIP" as a strategy is that IMHO your description of it falls somewhere between being a description of an objective and one of a sufficiently well-defined class of strategies. It's implicit in the name and the type of shares it's looking for that its objective is income, and it certainly fits the topic of Investment Strategies. It might well be discussable on High Yield Shares & Strategies, but I can't be quite certain about that: a TRIP strategy that had an overall portfolio yield of 4% would qualify as a high-yield strategy, one that had an overall portfolio yield of 2% would not - and what the overall portfolio yield of a TRIP strategy as you've described it would turn out to be will depend on strategy details you haven't mentioned, such as how it goes about finding the type of shares it's looking for and how it selects from among those it finds. I am however pretty certain that a Running TRIP Strategies in Practice board would be a non-starter without quite a bit more about the general approach taken to things like what sort of level of income is wanted from the portfolio, whether it goes for a small, concentrated portfolio, a large widely-diversified one or something inbetween, how actively it trades, whether it goes for looking at the numbers, at the general impression given by how the company operates, at what the market seems to be saying about the company, at something else, or at a mixture of those things (and roughly what mixture) when deciding on which shares to buy and sell and when, etc, etc, etc. Note I'm not saying that all of those need to be covered by the definition, just that quite a bit more is needed - basically, enough to mean that users of different strategies within its remit aren't likely to get into too many arguments about the differences between them.

Something I will observe is that HYP strategies do generally fit within your description of a TRIP strategy or reasonably close to it. For instance, my purchases of Carillion were between late 2012 and early 2016 at yields in roughly the 4.5-6% range, with dividend growth in the 1-3% range and turnover and earnings growth above that. And I was aware of the risk of it flipping to negative growth - the problem is that I mis-assessed that risk! Not saying that all HYP strategies fit within your description of TRIP strategies - I've seen some described on the HYP Practical board in terms that would make me doubtful about that (***) - but most do IMHO.

But equally, I can well imagine strategies that would fit your description that are so far removed from HYP strategies that I think major disagreements would be likely to arise on a board devoted to 'practical' questions about both. E.g. a Value strategy that used your total-return criteria to pick out shares likely to be unreasonably under-valued and then traded them fairly actively, reckoning to pick up some dividend income along the way and supplement it if needed from the trading profits. So I reckon that your description doesn't say enough about TRIP strategies to be a suitable subject for an individual-strategy board.

Which leads me on to my last but probably most important point. When TLF was set up near the end of 2016 because of the closure of the TMF boards, one of the big things stooz and Clariman did was whittle the huge list of TMF boards to the ones they thought would attract a reasonable amount of traffic, I suspect partly based on how much traffic the TMF board had had (there were quite a lot that had gone months or even years without a new post!) and partly on what people said they wanted. (And even so, there are a few that have become pretty moribund - a quick scan through the site's home page says the worst is Catastrophe Corner, with just 3 threads posted in its entire history and last posted to in December last year.) I'm pretty certain that they're not going to want to create more such boards!

So anyone who wants a new board probably stands a much better chance of getting it if they can point to a good deal of existing traffic about its subject and expressions of interest in it. And that means that if I wanted a new board created, the way I would go about it would be to start some threads about its subject somewhere where their on-topicness would not be a problem, publicise them with a few judiciously-placed crossposts, and see whether they get a good response. If they did, and especially if others turned out to start additional threads about it there to show that it's not just one person's hobby horse, I would have a much better case for asking for a board specifically about that subject - and to bolster it a bit more, I would probably run a poll asking about people's interest in the subject, with options like "No, I'm not interested", "Yes, I'm interested, but I would probably mostly read about it and seldom or never post" and "Yes, I'm interested, and would both read and post about it regularly".

If on the other hand my threads got little response, I would give up, because no matter how good an idea a board is, it will be a non-starter if no-one's interested in it.

In the case of your TRIP idea, I would post it to Investment Strategies and crosspost to High Yield Shares & Strategies and maybe HYP Practical, unless you want a currently-unspoken "reasonably high portfolio yield" component to it, in which case I would instead post to High Yield Shares & Strategies and crosspost to Investment Strategies and maybe HYP Practical. Either way, I would focus on what it is and not what it is not, and try to keep the resulting discussions focussed on it: if they evolve into being primarily criticisms of HYP strategies, the threads won't demonstrate interest in discussing TRIP strategies! And I would expect some tightening-up to happen about just what a TRIP strategy is, because it really is IMHO a bit too ill-defined at present to be able to say anything much about them in general.

If that all sounds as though it's likely to be quite a bit of work with no guarantee of success, that's because it is! But I see almost no chance of success without someone doing it - and because it's quite a bit of work, it really needs to be someone with quite a bit of interest in having the board...

And that brings me back to the actual subject of this thread: all of that stuff about demonstrating interest in a new board and it being quite a bit of work applies equally well to a board about Value strategies. So I don't really see the idea getting anywhere unless someone gets some Value strategy discussions going, almost certainly on the Investment Strategies board, and shows that they're attracting interest.

(*) Which I'll gently remind posters to this thread is one of the things the Biscuit Bar should be about, while having discussions that belong on those boards isn't. So for instance, please note that I only say that the 'active trading', 'buy and hold fast-growing companies' and 'buy and hold mature dividend-yielding companies' approaches to building up investments for a later income exist, without saying anything about which of them I think is best for the purpose. That's both because I don't want to address that question and because if I did want to address it, I know that which of them is best is a matter for the Investment Strategies board and so would post there.

(**) "Individual-strategy board" is a poor description in my view, since it suggests that it will cover just one strategy - and as I hope the above makes clear, I think such a board would be far too narrowly-defined! But I can't think of anything better offhand...

(***) Though the only ones I can think of offhand that I'm certain would not fit it are the "highest yield no matter what" caricatures so beloved of posters who seem to feel it necessary to say that they're not running a HYP strategy - goodness knows why, because all it does is invite reports and "well, what on earth are you doing posting here?" responses and tell moderators who deal with reports of the post being off-topic that the poster agrees it's off-topic! Far better IMHO to post without the comment and let people decide for themselves whether they think it's off-topic, and if it is, whether they think it bad enough to be worth reporting - especially as I've seen a fair number of such cases where I've seen nothing I thought was off-topic about the post!

Gengulphus

Alaric
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Re: Value Board

#162477

Postby Alaric » August 27th, 2018, 8:47 pm

Gengulphus wrote:
Something I will observe is that HYP strategies do generally fit within your description of a TRIP strategy or reasonably close to it.


Apart from the part of HYP that says ignore market value and pray. Examples of stocks you might want to identify and hold are Diago and Unilever. Both would be rejected for a new purchase in the HYP as the inconsiderate management and markets have grown the share price faster than the dividend. The ones you want to reject are the junk equity like Carillion. These are Companies with a high risk of default. You probably wouldn't want their bonds, not matter how high the yield, so why seek out the equity?

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Re: Value Board

#162577

Postby Clariman » August 28th, 2018, 11:59 am

Thanks for the suggestion and discussion. I have created a poll regarding this and one other suggested board ...

viewtopic.php?f=21&t=13388

TUK020
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Re: Value Board

#163774

Postby TUK020 » September 2nd, 2018, 6:36 pm

Gengulphus did a very good job of describing the essence of the Value Board on TMF, and emphasizing that the venn diagram of Value Investing and HYP have a strong overlap, and that often the differences are a matter of intent/strategy on the subject of looking for capital gain and realising it.

From Wikipedia:
Value investing is an investment paradigm which generally involves buying securities that appear underpriced by some form of fundamental analysis,[1] though it has taken many forms since its inception. It derives from the ideas on investment that Benjamin Graham and David Dodd began teaching at Columbia Business School in 1928 and subsequently developed in their 1934 text Security Analysis. As examples, such securities may be stock in public companies that trade at discounts to book value or tangible book value, have high dividend yields, have low price-to-earning multiples or have low price-to-book ratios.

Underpriced
Often companies that are unloved (=undervalued by the market?) are priced such that they are running at a high yield; when they are a 'value play' or a 'value trap' is often a matter of perspective as to whether they are going to crate (e.g. Carillion) or hold out, maintain their dividend until market conditions improve, and the city re-rates them ( e.g. RDSB 2015-2018).
Many candidates for one or other label often are often found in Luni's "Danger Zone".


Buy and hold forever/Tinkering/Trading for Capital Gain
TJH boosts his returns from his HYP by not sticking to a Dorisian buy and hold forever methodology, but by regular re-balancing around equal weighting, using market 'noise' to ratchet up his gains.
A further move on this spectrum would be target companies that are felt likely to be re-rated at some point in the future, i.e value plays, that also happen to be high yield stocks that would fit within an HYP. Any discussion about these stocks would entail an assessment of risk versus likely return (a big chunk of which would come from top-slicing at some future point to realise a chunk of capital gain).


Board Fit
This sort of discussion is likely to be received as an unwelcome variation on the HYP (PYADic) strategy and create grief for the poor moderators.
Does this fit on the HY Strategies Board? Open to suggestion here, but my instinctive feel is that the Strategies board operates at a higher level, covering discussions of asset allocation, using ITs to get additional geographic/sector diversification, re-balancing strategies and so on.
I guess that I am hoping for some Value Board (Practical), where we could see topics covered where folks are wondering whether an overweight bet on a particular company would pay off in capital gain as well as yield. Off the top of my head, some example topics:

Examples
1. BT's yield is well into the danger zone. Big worries are the level of debt, and more particularly, the level of pension fund deficit in relation to the total dividend. Is the Dividend going to get cut? If you look at the pension fund, it is massive - the deficit is the delta between two very large numbers, which could disappear on actuarial recalculations - if interest rates were to rise for example. Is the risk involved versus the potential capital payoff worth while?

2. MARS yield also stratospheric. Total sector struggling to make decent margins. Larger competitor GNK has some major debt overhang worries. Has MARS been unfairly tarred with the same brush? Their debt seems to be more manageable, and it is largely secured against property. Worry here is if the property values are not realisable, if they need a change of use planning permission. Does this property backing create a low risk for their current yield, and therefore a one way bet in capital value? If so, why is their share price on the down escalator?

I've thrown up a couple of examples, not as reasoned or informed commentary, but as the sort of topic I would like to see reasoned and informed views on, and engage in discussion.
Feedback welcome
tuk020

Gengulphus
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Re: Value Board

#164190

Postby Gengulphus » September 4th, 2018, 3:30 pm

One point I will add is that Value strategies might well see value in a share with no dividend yield at all - for instance, a share with tangible assets that include a good amount in freehold properties that haven't been revalued for years. If the market doesn't seem to have 'caught on' to that extra value, an investor using a Value strategy might well be very interested in buying it as an asset play, especially if they see prospects of the company realising it in some way - for example, they're centralising their operations at one of their sites and others will be sold, possibly for residential development. An investor using a HYP strategy wouldn't be interested - no yield, and quite possibly a company with a declining business (after all, that's certainly one possible reason for centralising operations...) makes it anything but a HYP candidate!

Not a choice for all Value strategies - it wouldn't have fitted into pyad's PYAD strategy on the TMF "Value Shares" board, for instance, given what the "Y" in that acronym stood for! But I saw quite a few such shares discussed on that board over the years.

Gengulphus

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Re: Value Board

#164193

Postby Lootman » September 4th, 2018, 3:36 pm

Gengulphus wrote:One point I will add is that Value strategies might well see value in a share with no dividend yield at all - for instance, a share with tangible assets that include a good amount in freehold properties that haven't been revalued for years. If the market doesn't seem to have 'caught on' to that extra value, an investor using a Value strategy might well be very interested in buying it as an asset play, especially if they see prospects of the company realising it in some way - for example, they're centralising their operations at one of their sites and others will be sold, possibly for residential development. An investor using a HYP strategy wouldn't be interested - no yield, and quite possibly a company with a declining business (after all, that's certainly one possible reason for centralising operations...) makes it anything but a HYP candidate!

Not a choice for all Value strategies - it wouldn't have fitted into pyad's PYAD strategy on the TMF "Value Shares" board, for instance, given what the "Y" in that acronym stood for! But I saw quite a few such shares discussed on that board over the years.

For that matter I have seen FaceBook presented as a Value share on the basis that, at various points in time anyway, its P/E ratio was less than its annual growth rate expressed as a percentage. It has never paid a dividend.

So yes, conflating yield and value is dodgy.

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Re: Value Board

#164317

Postby Walrus » September 5th, 2018, 8:43 am

TUK020 wrote:Gengulphus did a very good job of describing the essence of the Value Board on TMF, and emphasizing that the venn diagram of Value Investing and HYP have a strong overlap, and that often the differences are a matter of intent/strategy on the subject of looking for capital gain and realising it.

From Wikipedia:
Value investing is an investment paradigm which generally involves buying securities that appear underpriced by some form of fundamental analysis,[1] though it has taken many forms since its inception. It derives from the ideas on investment that Benjamin Graham and David Dodd began teaching at Columbia Business School in 1928 and subsequently developed in their 1934 text Security Analysis. As examples, such securities may be stock in public companies that trade at discounts to book value or tangible book value, have high dividend yields, have low price-to-earning multiples or have low price-to-book ratios.

Underpriced
Often companies that are unloved (=undervalued by the market?) are priced such that they are running at a high yield; when they are a 'value play' or a 'value trap' is often a matter of perspective as to whether they are going to crate (e.g. Carillion) or hold out, maintain their dividend until market conditions improve, and the city re-rates them ( e.g. RDSB 2015-2018).
Many candidates for one or other label often are often found in Luni's "Danger Zone".


Buy and hold forever/Tinkering/Trading for Capital Gain
TJH boosts his returns from his HYP by not sticking to a Dorisian buy and hold forever methodology, but by regular re-balancing around equal weighting, using market 'noise' to ratchet up his gains.
A further move on this spectrum would be target companies that are felt likely to be re-rated at some point in the future, i.e value plays, that also happen to be high yield stocks that would fit within an HYP. Any discussion about these stocks would entail an assessment of risk versus likely return (a big chunk of which would come from top-slicing at some future point to realise a chunk of capital gain).


Board Fit
This sort of discussion is likely to be received as an unwelcome variation on the HYP (PYADic) strategy and create grief for the poor moderators.
Does this fit on the HY Strategies Board? Open to suggestion here, but my instinctive feel is that the Strategies board operates at a higher level, covering discussions of asset allocation, using ITs to get additional geographic/sector diversification, re-balancing strategies and so on.
I guess that I am hoping for some Value Board (Practical), where we could see topics covered where folks are wondering whether an overweight bet on a particular company would pay off in capital gain as well as yield. Off the top of my head, some example topics:

Examples
1. BT's yield is well into the danger zone. Big worries are the level of debt, and more particularly, the level of pension fund deficit in relation to the total dividend. Is the Dividend going to get cut? If you look at the pension fund, it is massive - the deficit is the delta between two very large numbers, which could disappear on actuarial recalculations - if interest rates were to rise for example. Is the risk involved versus the potential capital payoff worth while?

2. MARS yield also stratospheric. Total sector struggling to make decent margins. Larger competitor GNK has some major debt overhang worries. Has MARS been unfairly tarred with the same brush? Their debt seems to be more manageable, and it is largely secured against property. Worry here is if the property values are not realisable, if they need a change of use planning permission. Does this property backing create a low risk for their current yield, and therefore a one way bet in capital value? If so, why is their share price on the down escalator?

I've thrown up a couple of examples, not as reasoned or informed commentary, but as the sort of topic I would like to see reasoned and informed views on, and engage in discussion.
Feedback welcome
tuk020


This is the type of thing I am interested in also, although I would add in addition to high yielding candidates I personally view Apple as a reasobable value share, not on the bombed out area of the market at all.

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Re: Value Board

#164323

Postby tjh290633 » September 5th, 2018, 9:19 am

I agree with the points made by Gengulphus in viewtopic.php?p=164190#p164190 about Value shares with no dividend. Post 2008 I held on to LLOY and TW., on the grounds that there was loads of value there at their depressed prices, and I held for the eventual recovery.

TJH

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Re: Value Board

#164574

Postby pyad » September 6th, 2018, 9:43 am

As I founded the Value Board on the old TMF, I commented about a possible VB here if anyone's interested.

viewtopic.php?p=164361#p164361

Somehow, I don't think it will work out though because value is such a minority style and too few have the investment personality to run it successfully. Extreme patience and perserverance, the guts to against the crowd, the inevitable shares that don't perform, a contrarian mindset, these are the typical traits of a value player. You have to know yourself and understand whether you possess this personality.

Are youse lot prepared to take this on and stick with it for very many years, keeping going even when some plays make losses because you have an unshakeable belief that you are right?

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Re: Value Board

#164588

Postby Lootman » September 6th, 2018, 10:31 am

pyad wrote:Somehow, I don't think it will work out though because value is such a minority style and too few have the investment personality to run it successfully. Extreme patience and perserverance, the guts to against the crowd, the inevitable shares that don't perform, a contrarian mindset, these are the typical traits of a value player. You have to know yourself and understand whether you possess this personality.

Are youse lot prepared to take this on and stick with it for very many years, keeping going even when some plays make losses because you have an unshakeable belief that you are right?

I seem to recall from TMF that you "stuck with" some real dogs like RBS and Aviva as they continued to fall after the sub-prime events, only to then bail when they finally cut their dividends, just in time to miss their (partial) recovery.

Whereupon you stopped posting there.

Is that the kind of patience and perserverance (sic) you are suggesting is not present here?

And yes, those two might have been examples of "inevitable shares that don't perform". Except that those two were about 75% of your portfolio and represented your "bet the farm" best ideas.

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Re: Value Board

#164632

Postby Clariman » September 6th, 2018, 12:49 pm

Having read the whole discussion on the New Boards Poll again and having read this "Value Board" discussion, I feel that there are other boards where "Value Shares" can be discussed as topics (mainly "Share Ideas") and I don't see that creating a new board would outweigh the risks of creating board overlap (and more moderation) or having a board with little traffic. That is my view at the moment. That is not a "no" forever. It is a current "I'm not convinced".

Many thanks for the suggestion. Feel free to argue with me .... or bring it up again in the future - perhaps when I am less concerned about the issues and challenges that the moderators have had to deal with recently. :)

Thanks again. I will continue to follow the thread.
Clariman


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