GoSeigen wrote:Itsallaguess wrote:GoSeigen wrote:
And there, in one clear sentence, is made evident the problem with HYP: it is promising something it cannot deliver.
The idea that with no experience you can have a simple strategy to earn good returns with little effort is no different to the snake oil that any number of charlatans have sold to the gullible throughout history.
Easy money -- no effort or knowledge required!
I don't think that's fair at all.
The effort and knowledge has been in the
devising of the HYP Strategy...
Cunning and sycophantic in equal measure! The suggestion is that if all investors (including professionals presumably) gave up what they are doing they would make plenty of money for less effort and study?
There are retirees on this very board who have run income-investment strategies very similar to HYP, who are testament to the high-yield, portfolio-driven approach, so on what grounds do you think you're able to say that 'it cannot deliver'?
Your logic is faulty. You have to demonstrate that there are no significant counter-examples (i.e. people who lost money trying to follow HYP, for however short a period) if you wish to present so facile an argument. There are numerous investors on these boards who regularly express difficulty with popular HYP shares that they have selected. I'm sure I don't need to reel off a list!
I certainly don't deny that there are individuals skilled in stock-picking or who got lucky or who have subtly and skilfully adjusted their strategy who have done well out of HYP or some mutation of the same.
The HYP strategy isn't perfect, and it doesn't actually suit me personally as a one-stop shop, but I really don't think your view above is representable of the many income-investors who have used, and are using, such an income-investment strategy to help supplement their income.
See previous comment.
GS
P.S. That will be the end of my contribution. I realise it's a bit rude to come to the club and slag it off... apologies for the interruption.
On the contrary GS, I think it is the most valuable thing one can do on a finance & investment forum , so that if folk choose to go down a HYP pathway then at least they do so with forewarning of the dangers.
In a perfect market high dividend returns would arise as a result of depressed prices. The prices would be depressed because the perfect market has priced in risk. So at best the high return would signify high risk. The HYP strategy professes to be a High Yield Portfolio (HYP) strategy and many find it attractive because of this. If on the other hand it were called a High Risk Portfolio (HRP) strategy - which is the other name for what the strategy is - then I doubt so many people would find it that attractive.
It could be worse, as it is possible to get low return and high risk, but at best in that perfect market high return ought ordinarily to correspond to high risk.
If one is taking a rounded view of a company then on any given day one would ordinarily look at the expectations for its capital, and for its dividend. But in purist HYP methodologies one only looks closely at capital at the time of acquisition. Thereafter one focuses almost exclusively on profit, indeed furthermore one focuses explicitly on dividend. So retained earnings that get used internally in a company (such as for growth) tend to get excluded. Therefore purist HYP portfolios tend to consist of companies that at best have run out of ideas as to how to use profits to grow; or at worst aren't growing - indeed they may be failing - and are instead returning capital to shareholders by way of dividends in a way that is unsustainable.
It is no surprise to me that there is longstanding anecdotal concern about the number of typical HYP candidates that blow up. Indeed it is what one would expect, especially if running a very concentrated portfolio. The more concentrated and the more one chases yield in making the initial acquisition decision, then the more blow ups one would expect. And if one is excluding the option of trading out of a share (because HYP purists tend towards LTBH only, except in exceptional circumstances) then one would get very little warning of this.
To the extent that successful HYP portfolios exist then I suggest that they exhibit one or more of the following characteristics:
1. They were bought when the market was not perfect, and most especially they were bought at times when the market valued growth over profitable yield;
2. They were bought by people who ran extremely thorough screens that - in effect - excluded high yield companies in favour of mid yield companies, irrespective of whether those screens are on formal metrics, informal 'culture, or both;
3. They - either at portfolio birth, or early in portfolio life - grew to contain so many stocks that they became in effect closet trackers of FTSE-100 or FTSE-350 (say, effectively, a FTSE-50);
4. They generally did pay attention to capital value of holdings, and so a) trimmed back (traded out of) holdings that grew too large; and/or b) exercised some process to dispose of holdings that had become too small. By doing so they avoided over-concentration in individual shares & sectors, and sold out of losers prior to complete failure.
5. But when a HYP screen threw up a high yielding candidate that otherwise passed the various tests, they took it for what it was, a signal that there might be a interesting investment opportunity that was being incorrectly assessed by the market, and they investigated further.
Put all that lot together and I don't think the successful portfolios are really HYP at all. I suspect that there is quite a lot of survivor bias in what we read here regarding HYP portfolios. One simply does not read much about folk that have found it does not work, or does not work for them. Furthermore I think that when you look at the points I make above and think about what the successful HYPers are doing, then what you really are seeing is that these people are being rounded and mature investors, and that really there is nothing about their approach that ought to be labelled "HYP" except that they take yield as an important (but not sole) metric in determining what is out of favor in the market on any given day, for unjustified reasons, and then picking that and subsequently trading in and out of it as they see fit.
I really do worry that HYP strategy is taken too literally, especially without understanding its natural corollary HRP. Remember, Yield = Risk.
Another factor that concerns me is the over-focus on UK main market shares. Because of factors that are pretty specific to the UK tax system & investment culture there are very few growth companies on the LSE Main Market. This means that there is a double structural imbalance against growth in almost any HYP portfolio.
Personally I think Total Return (TR) is important. For sure one can get TR by reinvesting dividends, but never in a month of Sundays would a HYP screen have thrown up (say) ARM (to pick something UK-based retrospectively that was very successful), or HUR (to pick something UK based that might or might not be successful), until too late to capture significant growth in value. Equally a HYP screen will not pick up those macro trends that can dramatically destroy value, with tobaccos being one such candidate at present, and banks having been one in the past.
So, on many counts, I personally think HYP is deeply flawed. Like most gems it is nonetheless of interest and value, but it is not at all perfect and can definitely be highly dangerous if used blindly. One of the really good things going for it is that it teaches an aversion to trading, and that is very important as we know that almost all investors - whether amateur or professional - lose money by trading. But there is a time to sell up & trade out, and a skillset in that which a HYPer would never learn. (It is also one I will profess I am not good at, so I respect all the more those who do it well).
Something that disappoints me is the degree to which there are squabbles - both here on TLF and historically on TMF - over what does and what does not constitute a HYP strategy and who is a true adherent to it. This really is bald people fighting over a comb, as in my opinion HYP is a very flawed strategy. Of the HYPers who contribute here I pay most attention to those HYPers who observe HYP only in the mildest possible way. It certainly ought not to be a dogma and is not worth bickering over.
Just some personal thoughts.
regards, dspp
