Why does HYP1's discussion seem to stir a rather emotional response?

[Lootman]

Moderator Message:
Moved fron HYP-P to here as this fork in the discussion had nothing to do with running an HYP in practice. - Chris

... And why does it's discussion seem to stir on the (odd occasion) seemingly a rather emotional response for something almost unheard of away from TLF and TMF before it? ...

I will take a shot at it. Most investment strategies have a life outside of TMF/TLF. There are books and articles about them in the public domain. There are funds that are run based on their principles. There are documented performance statistics that can be studied and tested.

HYP is more like the home-brewed beer that the landlord's son made sold alongside the beers from breweries. It doesn't have an existence outside of the two locations (TMF and TLF) where it was brewed. It stems from a one-time Fool writer who basically put together a set of pre-existing methods, permutated them in a certain way, and then marketed it aggressively, hoping to make money from both writings on TMF and a tip-sheet which he promoted.

It then developed a small but vociferous cult following, but without ever breaking out into mainstream. Those who follow it are fervent and emotional about it. Whilst the rest of the world looks at it and feel they are like the little boy who sees that the Emporer is wearing no clothes.

My sense is that the impetus behind it is winding down, and the fervency seems to originate from fewer and fewer souls these days. But nonetheless it generates a fair amount of debate and rancour here, and of course nowhere else. If you asked any professional fund manager what is HYP, he would shrug his shoulders and say he'd never heard of it. But for some, it is something to be defended to the end. And you can make almost any argument about it because, ultimately, every implementation is individual and different - the fact that it works for one person doesn't alter the fact that it will fail for another. It is all things to all people, and cannot be pinned down. And therein lies its ultimate cleverness.

I personally don't buy into it, but I do admire the way a mild-mannered accountant from the Home Counties with little professional investment experience actually parlayed it into at least something. I may not agree with its principles but I do give him credit for marketing himself, albeit within a small, closed community.

[Itsallaguess]

But for some, it is something to be defended to the end.

And you can make almost any argument about it because, ultimately, every implementation is individual and different - the fact that it works for one person doesn't alter the fact that it will fail for another.

It is all things to all people, and cannot be pinned down. And therein lies its ultimate cleverness.

And for some, it is something (and someone...) to be attacked to the end....

And you can make almost any argument against it because, ultimately, every implementation is individual and different - the fact that it might not work for one person doesn't alter the fact that it will succeed for another.

It's a simple, flexible, income-investment strategy. And therein lies it's ultimate appeal....

Cheers,

Itsallaguess

[Alaric]

It's a simple, flexible, income-investment strategy. And therein lies it's ultimate appeal....

Its adherents fail to consider the risks and vociferously attack anyone pointing them out.

In no particular order, these include

Selecting for high dividend yields also selects Companies whose share prices have fallen and may continue to fall. That's not always a bad thing as recovery is sometimes possible, but it can also indicate Companies in serious trouble.

Ignoring lower yielding stocks neglects to screen for Companies with modest dividend yields but where the dividend grows rapidly.

Companies can "sustain" dividends with accounting sleight of hand and borrowing, even where on more conservative reporting the dividend cannot be afforded.

(edit) My comments relate to "HYP" in general rather than "HYP1" in particular. Regarding HYP1 as an "invest lump sum and almost forget" portfolio, how well it does in the longer term is dependent on whether conditions for a lump sum investment in shares at the time of selection were with hindsight favourable and whether enough long term winners happened to be chosen. (/edit)

[XFool]

I personally don't buy into it, but I do admire the way a mild-mannered accountant...

That's a matter of opinion.



'You didn't see me! Right?'

[tjh290633]

Alaric, I think you miss the point that companies often fall out of favour with the market and then come back into favour. Look at Rio Tonto this year, for example. I had to trim my holding in April when it went overweight, by my criterion, yet added some more this month when it was underweight. I have several examples of shares where this has happened.

If only we had an infallible rule for determining when a company is heading for catastrophic failure. The company accounts are not always a reliable guide, but trading updates do give valuable information. Perhaps a study of the rise and fall of GEC/Marconi in the post Weinstock period would be instructive.

TJH

It's a simple, flexible, income-investment strategy. And therein lies it's ultimate appeal....

Its adherents fail to consider the risks and vociferously attack anyone pointing them out.

[Lootman]

I personally don't buy into it, but I do admire the way a mild-mannered accountant...

That's a matter of opinion.

'You didn't see me! Right?'

Well, it was a little tongue-in-cheek. But then those who are strident on the internet are not always so in real life. They may in fact be the opposite, and compensating?

To the main point, I sometimes see HYP as faith-based investing. Those who adopt it have an unshakeable confidence in its promise. So an emotional response to criticism is perhaps to be expected.

I give TJH some credit for having a relatively unemotional approach to a form of HYP, and he has the records to back it up. An honourable exception.

[Alaric]

Alaric, I think you miss the point that companies often fall out of favour with the market and then come back into favour

The problem comes as to how you tell the difference between those companies that are just out of favour and those that are out of favour because they are on their way out. There's a back catalogue of writings about HYP, much of which has failed to identify the dogs or even expressed concern about the risk of an out of favour share becoming a dog.

[IanTHughes]

It's a simple, flexible, income-investment strategy. And therein lies it's ultimate appeal....

Its adherents fail to consider the risks and vociferously attack anyone pointing them out.

In no particular order, these include

Selecting for high dividend yields also selects Companies whose share prices have fallen and may continue to fall. That's not always a bad thing as recovery is sometimes possible, but it can also indicate Companies in serious trouble.

Nonsense! The HYP Strategy clearly lays out the risks inherent when investing in equities in general and high yield shares in particular.

https://web.archive.org/web/20140219210 ... 01106c.htm

I wish to stress, though, that anybody considering this approach must be made aware that there are risks. Neither the income nor the capital is guaranteed. If you cannot live with that then, clearly, don't do it. I believe, however, that the risks are less than many people imagine.

Further, the HYP Strategy clearly lays out the importance of determining as best one can that any expected dividend appears sustainable. Amongst other things:

Stick to FTSE 100 companies and spread the holdings around sectors. I would do it by ranking the shares in the index by descending yield, then work down the list choosing one from each sector, but doing a bit of research on each potential candidate. You don't want excessive debt, for example. Another useful clue is to pick only those companies that have increased dividends regularly over the last few years.

As anyone who takes the trouble to read the HYP Practical board here on TLF will surely know, there are a multitude of ways that different HYPers attempt to determine dividend sustainability and to simply claim that they "fail to consider the risks and vociferously attack anyone pointing them out" is just more of your made up nonsense!

Ignoring lower yielding stocks neglects to screen for Companies with modest dividend yields but where the dividend grows rapidly.

If you believe that this would be a better strategy then don't follow HYP! Nobody is forcing you to do so! I happen to believe that you are wrong. I think that HYP will better deliver my primary aim of creating a portfolio of shares that gives me a high and growing income stream. But, if someone could demonstrate that there was a way to create such a portfolio using lower yields but achieving the same or better results, of course I would be interested, after all, I am not blinkered like you! Of course to date no-one, including you, has been able to do so.


Ian

[tjh290633]

Alaric, I think you miss the point that companies often fall out of favour with the market and then come back into favour

The problem comes as to how you tell the difference between those companies that are just out of favour and those that are out of favour because they are on their way out. There's a back catalogue of writings about HYP, much of which has failed to identify the dogs or even expressed concern about the risk of an out of favour share becoming a dog.

Your problem is that you regard any share, whose price has fallen, as being headed for failure.

Only a few fall by the wayside, and a small amount of collateral damage is to be expected. Do not ignore the selection criterion which specifies a high and rising dividend.

TJH

[Alaric]

is just more of your made up nonsense!

That response rather demonstrates the point being made in the thread title.

[IanTHughes]

is just more of your made up nonsense!

That response rather demonstrates the point being made in the thread title.

Nonsense! The thread title is not a point being made, it is a question.



Ian

[Lootman]

is just more of your made up nonsense!

That response rather demonstrates the point being made in the thread title.

Nonsense! The thread title is not a point being made, it is a question.

Ian, if you will indulge me, what do you consider to be the three biggest defects of HYP?

[dealtn]

But, if someone could demonstrate that there was a way to create such a portfolio using lower yields but achieving the same or better results, of course I would be interested, after all, I am not blinkered like you! Of course to date no-one, including you, has been able to do so.


Ian

I'm assuming it's the "rules" required to create such a portfolio that is missing for you, not the fact that such shares exist, and can over time "grow" from a low initial yield return to a substantially higher income?

[scrumpyjack]

It's a bit like Brexit isn't it? Everyone's mind is long since made up - it's either the ideal way to plan a retirement portfolio or a complete nonsense likely to end up in buying companies heading for insolvency.

No amount of debate or discussion will change people's views do there's not much point discussing it!

[Alaric]

I think that HYP will better deliver my primary aim of creating a portfolio of shares that gives me a high and growing income stream.

Unless you need the income to live off which if reinvesting you don't, that's a pointless exercise. Wouldn't a growing portfolio value be a better objective?

But to address the question in the title, why does criticism of "the HYP Strategy" meet with a response equivalent to a criticism of religion with quotes from what appear to be treated as the tablets of stone?

[Alaric]

I'm assuming it's the "rules" required to create such a portfolio that is missing for you, not the fact that such shares exist, and can over time "grow" from a low initial yield return to a substantially higher income?

In fairness, the "rules"" for selecting such Companies are missing for everybody although some of the managers of some of the more concentrated IT portfolios may have discovered a proxy for them.

How do you select Companies such as Unilever, Diageo, Compass? They have to do well in terms of future profits and also have a policy of distributing these profits by way of dividends. That such Companies may be in short supply is indicated by the observation that their share prices increase even faster than their dividends, resulting in dividend yields below the index average. A "Strategy" that sorts by yield and discards below the index average is not going to find them.

[Alaric]

it's either the ideal way to plan a retirement portfolio or a complete nonsense likely to end up in buying companies heading for insolvency.

Buying your future income in advance could be a sensible plan. But you don't want companies heading for insolvency and you should want Companies with lower yields but better dividend growth, Sorting by dividend yield will find companies heading for insolvency until they are forced to abandon their dividends and won't find Companies with the highest dividend growth.

[Hypster]

I think the passion that comes through in the discussion is also connected to the board in which the discussion is taking place.

If I recall correctly, the HYP-P board back in TMF spun off as a separate space so that those who accepted and believed in the methodology could discuss its practical application rather than the merits (or otherwise) of the strategy, just as a users of a “United Supporters” group would want to discuss their team without people posting in that space that they would be better off supporting City, or watching cricket instead.

[Lootman]

I think the passion that comes through in the discussion is also connected to the board in which the discussion is taking place.

If I recall correctly, the HYP-P board back in TMF spun off as a separate space so that those who accepted and believed in the methodology could discuss its practical application rather than the merits (or otherwise) of the strategy, just as a users of a “United Supporters” group would want to discuss their team without people posting in that space that they would be better off supporting City, or watching cricket instead.

Yes but that still doesn't address why HYP is the ONLY investment strategy discused here that claims it needs such special protection and immunity from criticism? It begs the question in the title.

Because at least in theory, you could apply that reasoning to every investment method that is discussed here, and have two boards for each. So a better question is what is special about HYP that requires that split? There is at least a reasonable argument that the split made things worse, because now we have all the "this place or that place" debates as well.

[scrumpyjack]

Perhaps we should have a GTRIP board?

Growing Total Return Investment Portfolio

I'm sure someone can come up with an amusing acronym?