tlf67482 wrote:Should I be ignoring the current political environment? ... Am I better off just converting to IUKD UK Dividend and IDVY Euro Dividend iShares to reduce the worry a bit and spread the risk a bit more but then again apart from the specific shares above it is not all bad and income is quite healthy.
In my view you need to consider where/ why the worry is arising.
I've been investing now for around 20yrs, roughly following an approximate High Yield / Value strategy.
That's a lot of experience, and I won't bore you with it all, but here are my thoughts with a few specific, and I feel pertinent points...
Part 1 - Lower Yields = Bigger LossesOver the past few months there have been quite a few posts on here (TLF) relating to losing faith. In particular, a lot now seem to be almost advocating a buy high sell low strategy if their proclamations were taken at face value!
Let's look at Vodafone, and some of the recent commentary around that. Some expressed horror that people were buying it with such a high yield.. that was clearly a sign it wasn't safe, and it would be throwing money away. Stupid, silly!
Well, a few years ago, with my portfolio growing in size, and me getting older, I inevitably started become a little more risk averse. I've now got more to lose, and less years left to rebuild it if it goes wrong. So I did what I thought was the sensible thing and put quite a chunk into Tesco. It wasn't the highest yield around. But that was the point. This was me being risk averse and buying into a big stable company that should be just ticking over with a little growth and steadily increasing dividends until I retire.
And we all know what then happened. If we take the doom mongers at face value, I should be doing better than those who subsequently bought when the yield was even higher. After all, I bought a lower yield, they were silly and bought a higher yield.
Balderdash!
By buying in at a lower yield, I lost even more!!
Leaping to a lesson from that ... There's no such thing as a 'safe' company. Whatever yeld you might buy it at!
Part 2 - High Yields = High Gains!Considering again the same horror at buying high yielders. Back when I was starting, one of my first investments was Nichols. The company who makes Vimto.
Now, shock horror, back then I wouldn't even consider a share if it wasn't yielding upwards of 7%!!
And Nichols was somewhere in that ball park when I bought it.
And now look at it... (scale to the period from 2000 to today)..
https://uk.finance.yahoo.com/chart/NICL.L ... my purchases were in the period around 2001- 2003
Today my £1,600 investment would now be worth £26,000 in capital value, on top of the 7% dividends was paying.
Note the 'would be'.
Sadly, with the ISA rules as they were, when they proposed moving to AIM market, not wanting to hold outside an ISA, I sold in 2004 at a small profit (of £388).
Part 3 - High Yields = Wipe Out!So where's this going?
Like I say, no room and too boring for me to detail all of my investment experience, but looking back, I really do feel it's gone through phases. And I do mean 'phases' and not 'cycles'.
Back when I was buying Nichols, I was also buying other similarly high yield shares, and was actually doing quite well. So much so that I then became overconfident in my ability when the 2008 financial crisis hit.
After the best part of a decade doing pretty well buying shares with high yields, that the market wasn't interested in, suddenly a dose of reality.
For nearly a decade, buying high yield shares in companies whose names you recognised, felt quite safe. The brand gave some protection, and the yield was (to my mind) evidence that the companies had at least been generating profits at some point to provide that yield and OK, they might have hit a soft patch, but they'd proved the market was there, they just needed to get back on their feet.
How that presumption then proved wrong in 2008!!
Suddenly the high yields on the big name, instantly recognised banks, were something different.
I was reading TMF at the time and I didn't listen to one or two posters. And even with hindsight, even with big losses, I stand by that. I had no way of knowing whether those people genuinely had a brilliant inside understanding of the industry, or whether they were just shorters trying to manipulate the market. Or even just 'cranks' who with hindsight happened to be lucky. And with hindsight, I can still see no way I could have known back then, so stand by my decision at the time to ignore them. As an investor, you cannot rely on anonymous people on internet chat boards directing your investing.
I have to treat 2008 for what it was - a change in reality.
A change that meant some high yielders weren't a nice relatively safe unloved dividend payer that was just out of favour, but instead they were rotten giants, waiting to collapse from within.
Part 4 - High Yields to the RescueBut that didn't dent my faith in high yielders.
I remember, in the shattered post-financial crash landscape, looking at the big FTSE 100 companies and seeing the likes of Shell, and other big names, yielding yields more akin to utilities.
As my portfolio lay in tatters... my total gains now verging on a loss... with the financial crisis having at one point wiped out all of the gains I'd made from the high yielders over almost a decade prior...
... I then remember thinking to myself.... is this it? Do I admit I'm no good as an investor? Or is this the time to be strong - buy when others are fearful?
Fortuitously I chose the latter. I was earning (and accumulating) quite a bit of overtime at the time, and other holdings were still paying dividends. I had quite a bit available in cash looking for a home.
I just went for it and bought a healthy spread across the FTSE100 of big name companies at knock down prices - yields that would have many on these HYP boards today hiding under their mattress and staying well away.
Well, I can safely say, that the health of my current portfolio, stems almost completely from that decision to go in big at that time, into scary high yielders, when everyone else was fearful.
Part 5 - Brexit Bonus!Fast forward a little to the brexit vote, and bang... the FTSE does well as the pound collapses... I'd like to say it was skill on my part for choosing to buy companies with substantial foreign earnings.
But I have to be honest with myself. It was pure luck. I'd just been lucky in the aftermath of the financial crisis to buy into a very high yielding FTSE100 for which much of its earning come from overseas.
Though that 'luck' came about from chasing after the high yields which were there because everyone else was being fearful.
Part 6 - High Yield High Street CarnageUnfortunately as part of my diversification and supposed de-risking strategy (due to dealing now with much higher value portfolio, and an older me with less time to make up losses), I also went into high yielders in the high street.
I might have avoided the Carrillion issue, but not Tesco, and certainly not Debenhams or Thomas Cook.
However, thinking back to the period mentioned in Part 2 to Part 3 above, most of my high yielders back then were retaillers. Body Shop, Thorntons, and so on. And I did quite well from those.
But now, fast forward to the post financial crisis world, and retail is now finished. Or at least, established retaillers are dead in the water.
Their debt has crippled them from competing with the likes of Amazon.
Since 2010, high yield retaillers have been a trap. One which I've fallen into.
But that said, annoying as it feels to lose money, my diversification has paid off ... it hasn't crippled my portfolio. I'm still substantially up overall. My portfolio value is still within 10% of its peak.
[seems like the system won't allow long posts, so I'm going to have to split this into two.....]