Variations on PYADs HYP strategy

[Alaric]

There's been a bit more revealed.

viewtopic.php?f=15&t=16868&start=60#p211168

Since the first posting, the price of vodafone has dropped from 148 to 138.

[Dod101]

Not sure why this is a separate thread but never mind. As you know SB does not take any notice of share prices, but see the main thread.

Dod

[Alaric]

Not sure why this is a separate thread but never mind.

I would have thought that obvious.

Vodofone has an interesting price history over the last five years. No growth for four of the last five and a collapse in the most recent. Presumably that's down to uncertainties as to how it finances its latest proposed acquisition. Prior to that it seemed to oscillate, I could guess that with the high dividend payout, that was a cum div/ ex div effect.

If tipping the share for a long term buy and hold, shouldn't you look behind the dividend yield if it has gone out of line with the market? Even out of line within the same Company as the corporate bonds stand over par with a yield to redemption in the 2.5% to 3.0% range. Even if you ignore the 20% loss at redemption, it's not much more than 4%.

[Dod101]

Not sure why this is a separate thread but never mind.

I would have thought that obvious.

Vodofone has an interesting price history over the last five years. No growth for four of the last five and a collapse in the most recent. Presumably that's down to uncertainties as to how it finances its latest proposed acquisition. Prior to that it seemed to oscillate, I could guess that with the high dividend payout, that was a cum div/ ex div effect.

If tipping the share for a long term buy and hold, shouldn't you look behind the dividend yield if it has gone out of line with the market? Even out of line within the same Company as the corporate bonds stand over par with a yield to redemption in the 2.5% to 3.0% range. Even if you ignore the 20% loss at redemption, it's not much more than 4%.

On the pyad thread I have made my views clear on Vodafone (and of course I sold it in January this year) pyad is guilty of chasing yield in my book and it is quite likely that he may come a cropper with at least one of his very high yielders. Vodafone will I think struggle with its dividend and I doubt that I am the only one that thinks that.

Dod

[Alaric]

it is quite likely that he may come a cropper with at least one of his very high yielders.

One test might be to go back five years, make much the same selection (as probably would be the case for at least some of the stocks) and see whether today you were happy with the original selection or for that matter where you would be if the whole investment had been put in a FTSE 100 tracker. That does require looking at total return though.

[kempiejon]

it is quite likely that he may come a cropper with at least one of his very high yielders.

Yes, I'd say any eternity portfolio will have individual that stumble or even wipe out but hopefully the effect will be mitigated by having more than a dozen other shares contributing to the income and when one of the picks comes a cropper the total effect on the portfolio won't be catastrophic. My HYP has had a number of bummers but still churns out my paycheck.

[jackdaww]

of the PYAD selections shown here so far , only IMPS, BHP and RDSB are rock solid picks for me.

others would be L&G , GLAXO , PHOENIX, RIO, SDRC , ASTRA, BATS .

[jackdaww]

it is quite likely that he may come a cropper with at least one of his very high yielders.

Yes, I'd say any eternity portfolio will have individual that stumble or even wipe out but hopefully the effect will be mitigated by having more than a dozen other shares contributing to the income and when one of the picks comes a cropper the total effect on the portfolio won't be catastrophic. My HYP has had a number of bummers but still churns out my paycheck.

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

if you are happy with "bummers" fine , i would not be happy at all if i had held carillion , interserve, kier , provident , BT , centrica etc.

[Itsallaguess]

it is quite likely that he may come a cropper with at least one of his very high yielders.

Yes, I'd say any eternity portfolio will have individual that stumble or even wipe out but hopefully the effect will be mitigated by having more than a dozen other shares contributing to the income and when one of the picks comes a cropper the total effect on the portfolio won't be catastrophic. My HYP has had a number of bummers but still churns out my paycheck.

if you are happy with "bummers" fine , i would not be happy at all if i had held carillion , interserve, kier , provident , BT , centrica etc.

I think the above demonstrates the classic HYP situation really quite neatly....

One the one hand, we've got kempiejon 'accepting' that a HYP dividend-income-portfolio that both contains a wide selection of high-yielding individual stocks, and is also held for a lifetime, is highly likely to experience issues that might even turn out to be terminal on what hopefully will be a very small sub-set of those individual HYP holdings.

On the other hand, we've got jackdaww, who states that he would not be happy at all if he'd held any of the most recent memorable shares that have developed chronic issues on an individual-share basis.

I think it's pretty clear to me, having started out with, and lived with, a HYP Portfolio myself for many years, and also experienced the huge range of views given to the strategy on both the Motley Fool board and now here, that the vast majority of people that come into contact with the HYP strategy, either through first-hand experience or simply reading and posting about it, sit in one or the other of these two camps.

It also seems pretty clear that if, like me, you sit in the 'not happy' camp, and just cannot see a situation where you can't simply 'ignore' the fact that individual holdings will stumble, often quite catastrophically, then the HYP strategy, on it's own, is unlikely to sit well with you over a lifetime of investment, in my opinion.

I really don't think there's anything that's likely to change that situation. Some people may even be happy with the HYP strategy at the moment, and not even realise that they're likely to be exposed, at some point in the future, to an issue or a number of issues with their holdings that go on to open their eyes to these types of situations, which might well completely change their outlook on the strategy.

I imagine HYP Portfolios can be 'lucky' for very long periods, and often dodge the stumbling-inevitability that this strategy exposes single-holdings to, and that's great if that's the case, but it's likely that at some point, HYP-investor sentiment will be tested in this specific area, and levels of relative comfort are often likely to be re-assessed when it does....

What it basically boils down to, in my view, is whether an individual investor can treat their single-holdings HYP Portfolio as an Investment Trust, and ignore the internal mechanisms and convolutions, and simply concentrate on the black-box performance for both income and capital.

Investment Trusts will, inevitably, suffer the same 'single-company-issues' that HYP Portfolios suffer from over long periods of time, but I'm fairly sure (and certainly sure in my own individual case...) that the vast majority of income-related Investment Trust owners don't give those holdings anywhere near the same level of internal-scrutiny that owners of single-company HYP Portfolios do, and in my opinion, this single issue is at the heart of the vast majority of problems that investors often have with HYP as a strategy....

This is why I often try to point out that one of the biggest things we can do as individual investors is to find out just what our own sensibilities are, and making sure that we find investment-strategies that suit us, rather than trying to 'force-fit' a particular strategy into an investment-personality that might simply be incompatible with it.....

Cheers,

Itsallaguess

[IanTHughes]

Yes, I'd say any eternity portfolio will have individual that stumble or even wipe out but hopefully the effect will be mitigated by having more than a dozen other shares contributing to the income and when one of the picks comes a cropper the total effect on the portfolio won't be catastrophic. My HYP has had a number of bummers but still churns out my paycheck.

if you are happy with "bummers" fine , i would not be happy at all if i had held carillion , interserve, kier , provident , BT , centrica etc.

I think the above demonstrates the classic HYP situation really quite neatly....

One the one hand, we've got kempiejon 'accepting' that a HYP dividend-income-portfolio that both contains a wide selection of high-yielding individual stocks, and is also held for a lifetime, is highly likely to experience issues that might even turn out to be terminal on what hopefully will be a very small sub-set of those individual HYP holdings.

On the other hand, we've got jackdaww, who states that he would not be happy at all if he'd held any of the most recent memorable shares that have developed chronic issues on an individual-share basis.

I think it's pretty clear to me, having started out with, and lived with, a HYP Portfolio myself for many years, and also experienced the huge range of views given to the strategy on both the Motley Fool board and now here, that the vast majority of people that come into contact with the HYP strategy, either through first-hand experience or simply reading and posting about it, sit in one or the other of these two camps.

It also seems pretty clear that if, like me, you sit in the 'not happy' camp, and just cannot see a situation where you can't simply 'ignore' the fact that individual holdings will stumble, often quite catastrophically, then the HYP strategy, on it's own, is unlikely to sit well with you over a lifetime of investment, in my opinion.

In point of fact, the not happy camp should stay out of equities all together. If you cannot accept the possibility of even one single 100% loss, equities are not for you.


Ian

[moorfield]

What it basically boils down to, in my view, is whether an individual investor can treat their single-holdings HYP Portfolio as an Investment Trust, and ignore the internal mechanisms and convolutions, and simply concentrate on the black-box performance for both income and capital.

Yes your black-box description is on point, to me this is what it boils down to too, indeed in his latest reincarnation on Stockopedia, Stephen writes:

But remember the P in HYP.

and

It follows that the long term success of the strategy is measured by the pattern of annual portfolio income over many years, not by its capital values.

https://www.stockopedia.com/content/how ... ment=10#10

A next logical step builders can take from here is to define the pattern of annual portfolio income that will work for them and extrapolate, which they can use as a target to measure how well or badly their strategy is performing overall. Those who find a target that works for them may well find before too long that they stop sweating the internal mechanisms and convolutions, as you put it, too much. I know I have.

[Dod101]

In point of fact, the not happy camp should stay out of equities all together. If you cannot accept the possibility of even one single 100% loss, equities are not for you.

Surely no one would be happy to have a loss, of income for the purists, and of total return for others. Putting oneself in the line of fire seems a bit short sighted, not so much the 'jam tomorrow' camp as jam today and never mind tomorrow. Personally I like to keep out of the line of fire if possible and try to dodge the bullets if I find myself involuntarily in the line of fire.

Relating that to the stockmarket, I do not chase high yields and jackdaww has produced a list of what I would regard as much more reliable shares which still give a good yield and which seem to be more reliable performers. With investing there is of course no 'correct' choice, at least we cannot tell until well after the choice is made.

As I have repeatedly said, the stock market is usually telling us something and shares which yield in some case nearly twice the FTSE100 have clearly lost the confidence of the market. Ignore that signal at your peril.

Dod

[Alaric]

It follows that the long term success of the strategy is measured by the pattern of annual portfolio income over many years, not by its capital values.

If you never have to sell it, your executors or inheritors will.

It's a complete delusion to think that a 10% running dividend yield is "better" than a 5% yield if the former share drops in capital value by 5% or more and the other stays unchanged.

[Itsallaguess]

In point of fact, the not happy camp should stay out of equities all together.

If you cannot accept the possibility of even one single 100% loss, equities are not for you.

I'm sorry Ian, but I can't agree with that at all, but I think it raises a very important side-point which I'll return to later on in this post....

On your main point, I can only speak from my own experience, of course, but I was most definitely in the 'not happy' camp when my income-investments consisted solely of a 'classic' HYP Portfolio, but rather than 'walk away from equities', thinking that I just can't 'accept' the inherent risks associated with equity-investing, I simply realised that the main issue was nothing at all to do with 'accepting equity risk', but being visually exposed to it in a way that was very difficult to avoid.....

So rather than give up with investment, which is what you seem to be proposing that I should have done, I simply found an alternative strategy that I wasn't constantly 'visually exposed to', which led me on the path to income-related Investment Trusts....

I can say with absolute 'hand-on-heart' honesty, that since taking that path towards income-related Investment Trusts, my capability to live with such income-investment exposure has risen considerably, and whilst that fact alone justifies my own position on this subject, it should also be considered that during that transition from 'classic' HYP into a more IT-related income-investment exposure, the value of my portfolio has risen considerably at the same time too, so not only has such a path enabled me to live the big issues that I had when owning much smaller capital holdings, it's also enabled me to live with this improved strategy as I have become more exposed to equity-risk over the same period......

Coming back to your point regarding 'equities not being for me', I think this is an absolutely crucial reason why it's sometimes important to pop our heads into the HYP Practical room now and again, and to perhaps remind people, who themselves may often be struggling with similar 'investor sensibility' issues, that there are alternative income-related investment paths that might well be more compatible with them as individuals....

You've almost made the point for me that without people poking their heads into the HYP Practical room and raising this important point, some poor souls, that might only hear the echo-chamber inside the room, might well be convinced that no, equity-investment simply 'isn't for them', and that they should go away and think of something else to do......what a sad state of affairs that would be, given that I've been in the same situation in the past, and have found a way out of it that is equally as rewarding, but ultimately more compatible with me as an individual investor.....

Echo chambers really are dangerous things, and I think you've quite nicely highlighted one of the issues with them when it comes to HYP Practical......

Cheers,

Itsallaguess

[moorfield]

If you never have to sell it, your executors or inheritors will.

If the overall portfolio yield is greater than the FTSE100 at the time it's sold, what's the problem ?

[Alaric]

If the overall portfolio yield is greater than the FTSE100 at the time it's sold, what's the problem ?

That you or your executors may be making a thumping loss on what you paid for it.

My point being that a dividend yield of 4% and a capital gain of 2% is much the same as a yield of 6% and no gain or a yield of 8% and a loss of 2%. So don't be self congratulatory on the yield of 8% unless your gain or lack of loss is no worse than market averages after allowing for the increased dividends.

[kempiejon]

It follows that the long term success of the strategy is measured by the pattern of annual portfolio income over many years, not by its capital values.

If you never have to sell it, your executors or inheritors will.

It's a complete delusion to think that a 10% running dividend yield is "better" than a 5% yield if the former share drops in capital value by 5% or more and the other stays unchanged.

Do executors have to sell though, why can't the recipients keep the portfolio and use its income? To be honest though I won't care what happens to my HYP post mortem, Whilst still running my HYP I expect to see both my income and capital value fluctuating over the shorter term but over the longer term think the stock market is a better place for my savings. Like all stock investing remember the warnings.

The value of shares can fall as well as rise. Dividend payments can fall as well as rise. Any information relating the to past performance of an investment or investment service is not a guide to future performance. Share prices may go down as well as up and we may not get back the original amount invested. You should not buy shares with money you cannot afford to lose.

[Alaric]

Any information relating the to past performance of an investment or investment service is not a guide to future performance.

I'm not so sure about that as applied to individual Companies. Their business models, market place and management don't necessarily change from one year to the next and neither does their dividend distribution policy. Indeed is it not an implicit assumption on the stock selection process, that a stock with a dividend yield of 8% this year won't have a 2% yield next year if the management cut the dividend to a quarter of its amount?

[IanTHughes]

In point of fact, the not happy camp should stay out of equities all together. If you cannot accept the possibility of even one single 100% loss, equities are not for you.

Surely no one would be happy to have a loss

Which of course is NOT what I said!

Putting oneself in the line of fire seems a bit short sighted, not so much the 'jam tomorrow' camp as jam today and never mind tomorrow.

So, go HYP and it's jam today and even more jam tomorrow!

Personally I like to keep out of the line of fire if possible and try to dodge the bullets if I find myself involuntarily in the line of fire.

Jammy dodgers presumably!

Relating that to the stockmarket, I do not chase high yields and jackdaww has produced a list of what I would regard as much more reliable shares which still give a good yield and which seem to be more reliable performers.

So what? PYAD has produced a list of what he regards as much more reliable shares which still give a good yield and which seem to be more reliable performers.

Oh dear me, two opinions ….. two opposing opinions ….. what to do, what to do?
Seriously, why should anyone accept that your opinion is any more valid than anyone else's opinion?

As I have repeatedly said, the stock market is usually telling us something and shares which yield in some case nearly twice the FTSE100 have clearly lost the confidence of the market. Ignore that signal at your peril.

Of course and you have also been told, just as repeatedly, that the HYP Strategy is not solely about buying the highest yield. The fact that you ignore that argument is simply because it does not jibe with the decision that you have already made, which is that High Yield must be dangerous. That is fair enough but do not pretend that your strategy is bound to be safer and/or more successful, just because you say it must be. I assure you it is not!


Ian

[kempiejon]

Any information relating the to past performance of an investment or investment service is not a guide to future performance.

I'm not so sure about that as applied to individual Companies. Their business models, market place and management don't necessarily change from one year to the next and neither does their dividend distribution policy. Indeed is it not an implicit assumption on the stock selection process, that a stock with a dividend yield of 8% this year won't have a 2% yield next year if the management cut the dividend to a quarter of its amount?

Ah yes, good point thank you. I did a quick copy from an investment website's disclaimer. Specific share picking is a separate case. But shares prices do rise and fall as do dividend amounts.