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High yield vs other investing strategies

General discussions about equity high-yield income strategies
Alaric
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Re: High yield vs other investing strategies

#216230

Postby Alaric » April 19th, 2019, 4:16 pm

SDN123 wrote:but it seems to me that you have a particular problem with HYP “as defined on these boards”.


The particular problem I have is with the dogmatic assertions and the quasi-religious fervour with which they are defended. "Capital doesn't matter" is a dogmatic assertion and buying always in equal amounts of capital value is an arbitrary rule. Why not, if capital doesn't matter, buy for the same amount of income from each holding?

Otherwise do whatever you like and that includes investing in corporate bonds, preference shares and collectives such as ITs. You will get a different return from investing in a subset of stocks as compared with the market average as defined by a capitalisation weighted index. You may have increased your risk, against that using the volatility definition of risk, you may have reduced it.

My benchmark for rate of return would be to add the dividend growth to the dividend yield and subtract the expected capital loss, if any.

Gengulphus
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Re: High yield vs other investing strategies

#216238

Postby Gengulphus » April 19th, 2019, 5:09 pm

daveh wrote:
Gan020 wrote:I would suggest that this Board have unconscious bias on this matter, because the people who blew up their pot due to a large market correction aren't posting on here sharing their situation. They are still in employment regretting the day they ran too much risk (either knowingly or unknowingly)

I'm afraid you are wrong - there are a number of posters on here who were investing in a version of a HYP through the last correction who post regularly. I can name three from memory TJH, Dod and myself and I think a number of the other regulars Eg the two Ians, Arboridge, Gengulphus were all investing in HYPs to a lesser or greater extent over the last correction in 08/09 and are still posting.

In my case at least, that needs some context. My HYP income did drop by about a third between the 2008/2009 and 2009/2010 tax years - but I've had much more capital than I need for the income on it to cover my living expenses ever since the 1999 tech boom (by far the best investment move I've ever made was to take very substantial chunk of it out of the market in late 1999 and early 2000, and by far the worst was not to take it all out!). So even after that fall in HYP income, it was still more than enough for my needs. And I didn't have anything like 100% of my investment capital in my HYP...

I remained happy to be invested in HYPs, and indeed to retire early in the spring of 2010, funding the majority of my living expenses from HYP income. Would I have been happy to do that if my HYP had only just been covering my living expenses and I hadn't had further investment capital to fall back on if necessary? I'm 100% certain that my answer would have been "No" - and that's not merely an opinion expressed now with hindsight: I can point to an archived 2006 post of mine on TMF in which I had pretty clearly said that having no 'safety margin' of one's actual income over the income one needs struck me as decidedly risky. (Note in particular that if one can deal with a shortage of income by cutting back on one's spending, then one has such a safety margin - "needs" is not necessarily the same thing as "wants"!)

Had I been in that position of only just having enough investment capital to buy a HYP whose income would cover my living expenses, what would I have done? I'm 99% certain the answer is that I would have failed to find anything else that delivered the income I required sufficiently safely. So I would have put my plans to retire early on hold and continued in employment and saving until I had enough investment capital to fund a HYP with a 25% income safety margin (i.e. its income = 1.25 times my living expenses) plus a cash reserve of a year's living expenses (note that a year's worth of living expenses will cover more than a year's worth of required income shortfalls, unless they were 100% shortfalls - and that would indicate a marketwide total disaster that would very likely affect every other type of investment as well). I would have expected that to take about five more years, allowing for new savings, reinvestment of all dividends / corporate action proceeds and inflation, and my general impression is that it would probably actually have taken about four due to the market recovery being a bit faster than I would have expected.

The other bit of context is that while I'm happy using a HYP strategy myself, I most certainly don't intend to say (and AFAIAA don't say) that HYP strategies are suitable for everyone. They are IMHO not suitable for:

* those who don't have enough investment capital to be able to invest in a HYP to earn their required income with sufficient safety for their taste (though I doubt they'll find any other strategy that does that job, until they're old enough to be fairly certain that they won't live more than about 20 years longer - note that means a lot more certain than the ~50% chance that they live longer than their statistically-expected remaining lifespan);

* those who want to pit their shorter-term trading skills against the market, since the income-oriented nature of HYP strategies is at odds with the capital-gain-oriented nature of short-term trading;

* those who think it's worth paying the management fees for a good professional fund manager to manage their investments for them and that they're capable of picking a professional fund manager who will prove to be a good one in the future, since they will be happier choosing and investing in a suitable fund (using the term loosely to cover investment trusts, unit trusts, OEICs, etc);

* those who basically take no interest at all in the stockmarket and would prefer to leave handling all management of their equity investments to a professional fund manager, since running a HYP does involve sporadically having to deal with takeovers and other corporate actions;

* those who cannot psychologically accept that a company-specific disaster (e.g. Carillion) that they see because it affects a directly-owned shareholding of theirs is no worse than the same disaster happening out of sight to the holdings of a fund they own, as long as their portfolio isn't significantly overweight in that share;

* probably some more categories I haven't recalled offhand!

Gengulphus

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Re: High yield vs other investing strategies

#216240

Postby Itsallaguess » April 19th, 2019, 5:20 pm

Alaric wrote:
"Capital doesn't matter" is a dogmatic assertion and buying always in equal amounts of capital value is an arbitrary rule.

Why not, if capital doesn't matter, buy for the same amount of income from each holding?


I think that's a fair point, but one that's not taking into account a much more prominent feature of the HYP strategy...

One of the main selling-points of the HYP strategy is that it's a very simple one for non-investors to pick up and run with. We might even argue that it's THE main selling point...

Buying 20 lumps of different income-investments with the same amounts of capital is simple - anyone can do it....

Asking non-investors to work out the necessary lumps of capital required to deliver the same amount of income from each holding is not as simple. It's not difficult, don't get me wrong, but it's nowhere near as simple as the proposed 'equal amounts of capital into each holding' suggestion...

The main thing here is that the resulting HYP portfolio gives a 'good-enough' level of income and capital diversification. I think doing either of the two capital options would help to deliver that, but I don't think there's any denying that having to work out the extra steps to deliver 'the same income from each holding' is asking for an additional level of aptitude from the investor than the much simpler one being originally proposed...

HYP as a strategy certainly isn't perfect, but I don't think it was ever meant to be perfect - it was simply meant as a way into the investment arena for non-investors. There's no denying that this is the case, but there's also no denying that more experienced investors may prefer to carry out an income-investment strategy that's more complicated, but also more suited to their own set of circumstances, expectations, and requirements.

That's not to say that experienced investors can't still run with the original HYP strategy - it's just suggesting that they don't *have to*, and if they decide *not to*, then there's really very little point then looking back at the HYP strategy and poo-pooing it - because whilst it might not be right for them, that doesn't mean that it's still not right for the originally intended audience, it just means that they're not now part of that originally intended audience....

Cheers,

Itsallaguess

Lootman
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Re: High yield vs other investing strategies

#216253

Postby Lootman » April 19th, 2019, 6:08 pm

daveh wrote:
Gan020 wrote:I would suggest that this Board have unconscious bias on this matter, because the people who blew up their pot due to a large market correction aren't posting on here sharing their situation. They are still in employment regretting the day they ran too much risk (either knowingly or unknowingly)

I'm afraid you are wrong - there are a number of posters on here who were investing in a version of a HYP through the last correction who post regularly. I can name three from memory TJH, Dod and myself and I think a number of the other regulars Eg the two Ians, Arboridge, Gengulphus were all investing in HYPs to a lesser or greater extent over the last correction in 08/09 and are still posting.

I did not take Gan020 to be saying that nobody with a HYP survived the 2008-2010 market crash. It is fairly obvious that some did since they are still here and posting. But rather his point was that those who failed probably stopped posting and so there is survivorship bias regarding those who are still around and talking about it.

And that is to be expected with any investment method. Some win, some lose and some just get by. No reason why HYP would be any different.

The more interesting question for the future of HYP is whether the number of new adherents exceeds the number giving up on it. It's possible that they are not since Bland isn't promoting it as much these days and his tipsheet failed, for reasons I feel sure we could debate. And of course the average age of a HYP'er is fairly old and so, if new and younger blood doesn't climb on board, then HYP will gradually die off over time. It doesn't really have a life beyond the folks here as far as anyone can verify.

Check back in another decade or two :D
Last edited by Lootman on April 19th, 2019, 6:14 pm, edited 1 time in total.

tramrider
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Re: High yield vs other investing strategies

#216254

Postby tramrider » April 19th, 2019, 6:12 pm

Alaric wrote:
My benchmark for rate of return would be to add the dividend growth to the dividend yield and subtract the expected capital loss, if any.


If somebody could add those columns to the HYPTUSS spreadsheet, it would be very helpful! 8-)

Seriously, adding a dividend growth CAGR column would be very helpful and show the differences between e.g. HSBA 6% fixed and SDRC 5% growing.

Tramrider

Itsallaguess
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Re: High yield vs other investing strategies

#216257

Postby Itsallaguess » April 19th, 2019, 6:25 pm

tramrider wrote:
Seriously, adding a dividend growth CAGR column [to the HYPTUSS tool] would be very helpful and show the differences between e.g. HSBA 6% fixed and SDRC 5% growing.


If I can be allowed to briefly reply to this suggestion (with the proviso that any further discussions would be best taking place over on the Financial Software board....), then I'd like to just make the following points -

  • We'd need a reliable source of such information, which would need to cover the expected universe of income-investments (shares, IT's...)
  • Kiloran and I seem to have enough regular updates to the tool that are already required due to our *existing* data-sources often tweaking the format of their data, so introducing a new feature like this that relies on an *additional* data source is very likely to add to that ongoing (and not insignificant...) problem..

That's not to say that we'd not consider it as a potential improvement - it's just that we'd need pointing towards a reliable source for this new information before we would be able to do so....

Anyhow - happy to discuss further on the Financial Software board if you raise it as a new thread, as that's probably my off-topic allowance well and truly blown at this point...

Cheers,

Itsallaguess

tjh290633
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Re: High yield vs other investing strategies

#216357

Postby tjh290633 » April 20th, 2019, 2:48 pm

Just a comment on the subject of dividend growth. For the shares which I hold, I keep a record of past dividends based on company accounting years. I use conditional formatting to show increased dividends in green, reduced in red and unchanged as black. For each complete company year, I show the percentage change on the previous year. It would not be difficult to show the change in the individual dividends as well.

For a share on your watchlist, it should be easy to construct a similar table by looking back through the RNS posts with dividend declarations. Company annual reports will also do the job.

DYOR.

TJH

monabri
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Re: High yield vs other investing strategies

#216409

Postby monabri » April 20th, 2019, 8:04 pm

I'd use "dividend data" for the past dividends - as all the info is in one place and there is also info on specials/consolidations etc. It also calculates the compound annual growth rate in divis over 5,10 & 15 years (the formula is available there for the CAGR calc if you want different timescales).


https://www.dividenddata.co.uk/dividend ... et=ftse100


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