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Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

General discussions about equity high-yield income strategies
AsleepInYorkshire
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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223045

Postby AsleepInYorkshire » May 19th, 2019, 10:04 pm

tlf67482 wrote:I have had a HYP for a good fifteen years or so.

Looking at my overall performance over this period I am at a current yield of 5.5% and a current unrealised profit of 25% (and a realised profit of 15%). Comparing to my Pension funds and Fidelity Funds I have, my HYP is probably underperforming these by 25%.

Even though timing shouldn't be a overall factor I have been very unluckly with this due in the banking sector and now the utility sector. Also in retrospect some choices may not have been the best for a HYP but I was certainly not alone in making the same mistakes. There are also some dot com disasters mixed in with my figures which are dragging the figures down somehwat.

I have some uninvested funds but I am struggling to find new sectors / new shares without breaking the rule of not over investing in specific shares or sectors (lesson learnt from banking share crash) or just having lost faith in my choices. To be honest I am already quite a bit overweight on Banks (LLOY) already and tempted to add more!

Out of my current holdings only really VOD and BT are showing a 20-30% loss have a few around 10% loss UU, EMG and LLOY and the rest are a few small loss, a few small gain and the rest reasonable gains.

My main current concerns are I have United Utilities showing a 10% loss and SSE a 2% loss and National Grid showing a 55% profit. My gut feeling is get rid of UU and SSE and keep a very close eye on NG am I mad? 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.

I have 22 shares, 18 sectors (16 if SSE/UU are sold with the sector names I use).


I think the FTSE 100 has had a bit of a flat time for two decades now. And I think others have already mentioned that the HYP was put forward as an alternative to annuities before may of the recent ruels regarding pensions were in existence.

https://www.ft.com/content/a3b1186a-bdd ... 144feab7de

AiY

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223049

Postby moorfield » May 19th, 2019, 10:20 pm

Julian wrote:My analysis was a bit of an eye-opener for me. My options will be limited by CGT considerations which will probably limit my ability to harvest too much from those low-yielders if I go that route but knowing the bigger breadth of opportunity than I thought that I have in my portfolio to trade some yields upwards as a counterbalance to the trading downwards that I will be doing with dumping CNA and SSE and maybe others is encouraging.


Me too. My utilities - CNA, SSE, UU. - plus those yielding less than MRCH - GSK, RIO, IMI, AZN, ULVR, JMAT, SGE - collectively yield 4.6% currently. I could improve overall income nearly 6% by swapping out tomorrow ...

What people might call a "no brainer", perhaps ?

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223070

Postby Itsallaguess » May 20th, 2019, 4:52 am

Julian wrote:
MDW1954 wrote:
Focusing in on the word 'quick', here, I'd again urge you to look at the bought-cost yields, having recalled a post of yours from last week, in which you gave a clue as to how long-standing some of these holdings are.


Maybe I’m missing something here but I can’t see how bought-cost yields affect my decisions regarding switches next week.

Surely all I care about when comparing income generation (I.e. ignoring issues such as perceived safety of that income, future growth potential etc) is absolute income levels as you alluded to further back in this thread.

If I sell £10,000 worth of a share yielding currently yielding 3.00% and re-invest it all in a share yielding 4.00% then my annual income goes from £300 to £400. Yield on current price, I.e. income currently derived from the amount of releasable capital currently tied up in an investment where that capital is potentially deployable elsewhere at a different yield on current price hence to generate a different amount of income from the same capital, is surely what matters?

Sorry if I’m being dense but I’m not sure why you’re urging me to calculate yield on bought cost.


I'm also at a loss as to why yield-on-cost is at all relevant here - in fact I'd go further than that and say that I think any income-investor using 'yield-on-cost' as a metric to potentially make income-investment-decisions is likely to actually be harming their income-investment options, especially on long-term holdings where substantial share-price appreciation may have been experienced at a rate where dividend-growth has not kept up the same pace.

The subject of 'yield on cost' crops up so regularly that I composed a worked-example showing why it's a dangerous metric to use for income-investors, and I'd urge any income-investor who gets a warm feeling from making such a 'yield-on-cost' calculation to read it and fully understand why it might well be limiting the best available use of your income-investment capital if you're researching options for income-investment capital-allocation -

https://www.lemonfool.co.uk/viewtopic.php?t=5031&start=20#p54230

Given the current discussion around rotating income-investment capital from single-share holdings and into income-oriented investment-trusts, I actually think that long-term, share-price appreciation examples such as the one linked above are potentially classic cases where such rotation makes complete sense, from a couple of diverse perspectives -

1. It makes better use of income-investment capital - rotating from a 2% current yield to an investment-trust yielding 4% or 4.5% will instantly double the income delivered from this lump of invested capital.

2. It locks-in what is often a hefty capital gain from a single-share holding, and rotates that capital into a collective income-investment that often provides a hugely improved level of investment-diversification. Whilst it's fine, and warranted, to have a 'let-your-winners run' approach to investment, it's also important to look after capital gains where they occur, and if such gains have been potentially allowed to become a slightly unbalanced component of our income-portfolios (in the majority of cases where my income-investments have gone on to currently yield around half of the market average, this has often been the case...), then I personally get a great deal of satisfaction from rotating such investment-capital out of a single-company HYP share and into a heavily-diversified collective investment trust.

I'd actually go so far as to say that doing so feels as close to scoring an income-investment 'goal' as I can ever imagine feeling....

Cheers,

Itsallaguess

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223096

Postby GoSeigen » May 20th, 2019, 9:47 am

Itsallaguess wrote: income-investment-decisions


Your space-button seems to be generating a-lot-of superfluous-hyphens ;-)


GS

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223100

Postby Julian » May 20th, 2019, 10:02 am

Itsallaguess wrote:...
Given the current discussion around rotating income-investment capital from single-share holdings and into income-oriented investment-trusts, I actually think that long-term, share-price appreciation examples such as the one linked above are potentially classic cases where such rotation makes complete sense, from a couple of diverse perspectives -

1. It makes better use of income-investment capital - rotating from a 2% current yield to an investment-trust yielding 4% or 4.5% will instantly double the income delivered from this lump of invested capital.
...

Thanks for the confirmation re my suspicions.

On your point above, since I have mentioned in previous posts on this thread that I also operate a top-slice-growth portfolio alongside my HYP/IT high yield strategy for investment strategy diversification and for tax efficiency, an alternative to the above is to re-invest sufficient released capital into a high-yielding investment trust to maintain the current income level (i.e. do a switch to greater perceived security/stability with no hit to the current income level) and use the surplus as seen fit, e.g. to boost/start another portfolio following a different investment strategy. Or some mid-way point between your scenario above (all-to-income) or my preserve-income-and-the-rest-elsewhere strategy(*).

- Julian

(*) I hope I'm not enraging the hyphen-hating-GoSeigen here. I'm not doing it deliberately. Well, OK, the bit in the footnote was deliberate :)

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223111

Postby MDW1954 » May 20th, 2019, 11:10 am

Julian wrote:
MDW1954 wrote:
Julian wrote:I've just done some quick analysis of the yields on some of my HYP shares.


Focusing in on the word 'quick', here, I'd again urge you to look at the bought-cost yields, having recalled a post of yours from last week, in which you gave a clue as to how long-standing some of these holdings are.

MDW1954

Maybe I’m missing something here but I can’t see how bought-cost yields affect my decisions regarding switches next week. Surely all I care about when comparing income generation (I.e. ignoring issues such as perceived safety of that income, future growth potential etc) is absolute income levels as you alluded to further back in this thread. If I sell £10,000 worth of a share yielding currently yielding 3.00% and re-invest it all in a share yielding 4.00% then my annual income goes from £300 to £400. Yield on current price, I.e. income currently derived from the amount of releasable capital currently tied up in an investment where that capital is potentially deployable elsewhere at a different yield on current price hence to generate a different amount of income from the same capital, is surely what matters? Sorry if I’m being dense but I’m not sure why you’re urging me to calculate yield on bought cost.

By the way, my calculations were reasonably quick but not careless. I did hand-calculate all yields based on the most recent year of declared dividends in pence divided by the Friday closing price in pence. I didn’t simply take any numbers from a yield quoted on a web site where I couldn’t be sure how they were calculated or if they were correct. I also do have full S104 narratives for all my holdings so I can see my bought costs at a glance but I still struggle to understand why I care from an income perspective (I obviously do from a CGT perspective).

- Julian


Obviously, if you compare two shares, one yielding 5% and one yielding 10%, then the opportunity cost of holding the one yielding 5% is that you won't be earning the 10% that the other share offers.

On that basis, you switch.

But that 10% yield tells you nothing about how dependable that 10% might be going forward, how fast the dividend might grow, and whether the 10% is predicated on a falling share price or a rising dividend.

I find bought cost yield to be a simple rough-and-ready (sorry about the hyphens, GS) proxy for dividend 'quality'. A high bought-cost yield tells you a lot about the hard-cash pounds and pence that you are receiving today, versus the less tangible income that you might receive when you switch.

A high bought-cost yield is the reward for being a LTBH investor -- otherwise, we would all be merrily switching into higher-yielding shares all the time, gradually trading away dividend stalwarts for shares in Carillion, Centrica, and other dubious propositions.

That said, I understand IAAG's satisfaction when swapping a lower-yielding single-company share for a higher-yielding IT.

On another thread, you have said (if I recall correctly), that your income withdrawals now put your portfolio 'underwater' for the first time since 2009. In that situation, I would place a high premium on the hard-cash pounds-and-pence dividends that I was already receiving, rather than the more speculative earnings that might come from switching.

Just my 2p worth.

MDW1954

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223122

Postby Julian » May 20th, 2019, 11:54 am

MDW1954 wrote:...
But that 10% yield tells you nothing about how dependable that 10% might be going forward, how fast the dividend might grow, and whether the 10% is predicated on a falling share price or a rising dividend.

I find bought cost yield to be a simple rough-and-ready (sorry about the hyphens, GS) proxy for dividend 'quality'. A high bought-cost yield tells you a lot about the hard-cash pounds and pence that you are receiving today, versus the less tangible income that you might receive when you switch.
...

Thanks for the explanation. That does make sense now.

MDW1954 wrote:On another thread, you have said (if I recall correctly), that your income withdrawals now put your portfolio 'underwater' for the first time since 2009. In that situation, I would place a high premium on the hard-cash pounds-and-pence dividends that I was already receiving, rather than the more speculative earnings that might come from switching.
....

Your recollection is correct. A pedantic possible re-wording of the above - since 2009 was when I switched from building my HYP to drawing income from it 2009 was the first time that the concept of "underwater" was ever possible in my HYP (zero withdrawls during the building phase) so one could say that my HYP is now "underwater" for the first time "ever" rather than "since 2009".

I'm actually having a huge rejig of all my finances at the moment and not only looking at adjustments to my income portfolio but also beefing up my growth portfolio and putting more onus on it to provide some of my annual spending money. I'm also completely changing the way that cash flows around my network of accounts and changing my monitoring tools such that the entire concept of my HYP ever being 'underwater' disappears and potential sell-offs in my HYP as well as my growth portfolio (also to release capital for spending rather than for re-investment in alternative high-yielding assets) is no longer a concern for me although my new monitoring tools, once completed, will show the effect of any erosion of my HYP and the likely long-term consequences thereof. The VOD divi cut that took me "underwater" was the catalyst for all of this but it's sort of been brewing for a while and turning 60 next month and realising that there is no point in dying with a massive amount of capital left behind (I have no heirs) when I could easily up my spending while I am young enough to enjoy it without significant risk of running out of income/capital (the definition is blurred in my new scheme) is another spur.

The above is all still a work in progress, in fact just beginning. I have 22 full pages of hand-written A4 sheets of paper with notes on planning ideas, refinement of concepts, pros & cons of various alternatives, what-if scenarios etc on my desk right now (I just counted) plus a couple spreadsheets on screen that I'm creating right now with more to come. There are new bank accounts to be opened, others to be closed, payment destinations to be changed, etc. It's a big shakeup of the system that I had been running since 2009 but it's exciting and I really do think that I am heading in the right direction for me.

Back to the spreadsheets...

- Julian

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223130

Postby GoSeigen » May 20th, 2019, 12:17 pm

MDW1954 wrote:
I find bought cost yield to be a simple rough-and-ready (sorry about the hyphens, GS) proxy for dividend 'quality'. A high bought-cost yield tells you a lot about the hard-cash pounds and pence that you are receiving today, versus the less tangible income that you might receive when you switch.

A high bought-cost yield is the reward for being a LTBH investor -- otherwise, we would all be merrily switching into higher-yielding shares all the time, gradually trading away dividend stalwarts for shares in Carillion, Centrica, and other dubious propositions.


I'm not that bothered about hyphens, hence the smiley -- hyphens seem to be strongly in fashion at the moment, especially in US publications.



The above though is one of the most easily disproved fallacies I've ever read about investing. You say that bought cost yield tells you about the quality of a company's dividend?

So if I bought Widget plc shares 12 months ago for 100p and you bought the same share 18 months ago for 200p, my future dividends from the company are really good quality and I should hang onto the shares, while your dividends in the same company are rubbish and you might as well sell the shares?


That really makes no sense at all and I hope every investor no matter how inexperienced will see right though it.


GS

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223139

Postby Itsallaguess » May 20th, 2019, 12:33 pm

MDW1954 wrote:
Obviously, if you compare two shares, one yielding 5% and one yielding 10%, then the opportunity cost of holding the one yielding 5% is that you won't be earning the 10% that the other share offers.

On that basis, you switch.

But that 10% yield tells you nothing about how dependable that 10% might be going forward, how fast the dividend might grow, and whether the 10% is predicated on a falling share price or a rising dividend.


I'm sure you've not done it deliberately, but I think using a 5% yield and a 10% yield in your example above might be a bit of a red-herring here, as it intuitively makes us question the 'safety' of the potential alternative income investment, and that's not going to be helpful in determining why 'yield-on-cost' is such a deceiving metric for people to want to use.

To align more with the point that Julian has raised, I think it would be more appropriate to consider the following two options -

1. A current 'single-share' HYP component yielding 5%

2. A potential alternative 'collective investment' income-investment-trust yielding 5%

If we ignore, for now, any talk of 'yield-on-cost' at all, I think the main point being made here is to raise the potential for moving a lump of invested capital from a 'single company' income source to a 'collective investment' income source, and thus maintaining the 5% yield (and hence maintaning the income from that capital - excluding costs of course...), but at the same time removing a 'single point of failure' component in our HYP's, and replacing it with a more diversified 'collective investment', which by the way comes with it's own income-reserve...

In terms of 'dependability', I would like to think that most people might see the 5% yield coming from an income-oriented investment-trust as being at least as dependable as the single-company investment, and probably more so in general terms. This is the main point that's been raised earlier - reducing HYP risk whilst maintaining income.....what's not to like?

Would you agree that changing comparable yields in my example above goes some way to justify such a switch?


MDW1954 wrote:
I find bought cost yield to be a simple rough-and-ready proxy for dividend 'quality'. A high bought-cost yield tells you a lot about the hard-cash pounds and pence that you are receiving today, versus the less tangible income that you might receive when you switch.


I'm not quite sure where you're getting this 'less tangible' income from here. If it's because in your example you're moving from an investment with a 5% yield into one with a potential yield of 10%, then I'd agree that we might begin to question such tangibility, but we're not using such yield-moves in our earlier discussions, as we're really discussing moving from single-company investment yields that are currently more or less aligned with the yields available from collectives, so again, I think raising a doubt regarding any 'tangibility' of yields is another red-herring.


MDW1954 wrote:
A high bought-cost yield is the reward for being a LTBH investor -- otherwise, we would all be merrily switching into higher-yielding shares all the time, gradually trading away dividend stalwarts for shares in Carillion, Centrica, and other dubious propositions.


And this is exactly why I think 'yield-on-cost' is such a truly dangerous metric.

I've said in the past that it can be held as some sort of 'comfort blanket' by a LTBH income-investor as a metaphorical 'pat on the back', and I think allowing ourselves to do this when in reality we might actually only be seeing a 'true yield' on invested-capital of a much, much lower-scale than the 'yield-on-cost' figure we might be holding on to, goes some way to explain where the real danger lurks....

You mention 'less tangible income' when discussing a potential alternative investment, but in my mind, the 'much less tangible income' is the income you've convinced yourself that you're getting when viewing an 'imaginary yield-on-cost' figure, and not the 'tangible alternative' that we might look at as a much better option for a particular lump of investable capital when we properly compare potential options using true yields that are available today, and not comparing them with some historical artefact yield-figure that bares no comparison to the actual income being taken from the currently-invested-capital....

Yield-on-cost really is the 'much less tangible' metric because it's not actually a real yield of any sort.....

Cheers,

Itsallaguess

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223163

Postby MDW1954 » May 20th, 2019, 1:45 pm

Itsallaguess wrote:
To align more with the point that Julian has raised, I think it would be more appropriate to consider the following two options -

1. A current 'single-share' HYP component yielding 5%

2. A potential alternative 'collective investment' income-investment-trust yielding 5%

If we ignore, for now, any talk of 'yield-on-cost' at all, I think the main point being made here is to raise the potential for moving a lump of invested capital from a 'single company' income source to a 'collective investment' income source, and thus maintaining the 5% yield (and hence maintaning the income from that capital - excluding costs of course...), but at the same time removing a 'single point of failure' component in our HYP's, and replacing it with a more diversified 'collective investment', which by the way comes with it's own income-reserve...

In terms of 'dependability', I would like to think that most people might see the 5% yield coming from an income-oriented investment-trust as being at least as dependable as the single-company investment, and probably more so in general terms. This is the main point that's been raised earlier - reducing HYP risk whilst maintaining income.....what's not to like?

Would you agree that changing comparable yields in my example above goes some way to justify such a switch?


I agree wholeheartedly. This is why I am an enthusiastic holder of so many income-centric ITs.


Itsallaguess wrote:
MDW1954 wrote:
I find bought cost yield to be a simple rough-and-ready proxy for dividend 'quality'. A high bought-cost yield tells you a lot about the hard-cash pounds and pence that you are receiving today, versus the less tangible income that you might receive when you switch.


I'm not quite sure where you're getting this 'less tangible' income from here. If it's because in your example you're moving from an investment with a 5% yield into one with a potential yield of 10%, then I'd agree that we might begin to question such tangibility, but we're not using such yield-moves in our earlier discussions, as we're really discussing moving from single-company investment yields that are currently more or less aligned with the yields available from collectives, so again, I think raising a doubt regarding any 'tangibility' of yields is another red-herring.


Obviously, I don't think so, or I wouldn't have written it.

I find it helpful to think about bought-cost yield, because it tells me something about actual income received from actual capital deployed. At the point of switching into a share on a particular historic yield, you're basically hoping that the future will be a continuation of the past. That may or may not work out to be the case.

Note that I am not saying don't look at published yields. Far from it: investors definitely should look at them. Nor am I saying that investors should only look at bought-cost yields. This would also be wrong, as a bought-cost yield tells you nothing about the opportunity costs of alternative capital deployment options.

I am simply saying that I find bought-cost yield to be a useful additional point of information.

MDW1954

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223174

Postby Itsallaguess » May 20th, 2019, 2:18 pm

MDW1954 wrote:
At the point of switching into a share on a particular historic yield, you're basically hoping that the future will be a continuation of the past. That may or may not work out to be the case.


Agreed.

But when there's other risk-management processes at play here too, such as moving from a single-company dividend-source to a collective income-investment, we must take that into consideration too, as part of our assessment.

And then, of course, in doing nothing we would also be 'basically hoping that the future will be a continuation of the past' in the investment we're currently employing our capital in, so we shouldn't pretend that 'hope' is only required on the potential alternative....

MDW1954 wrote:
I am simply saying that I find bought-cost yield to be a useful additional point of information.


We'll need to agree to disagree on this point.

I will continue to see it as a dangerous, irrelevant 'comfort blanket' of a metric, that has the huge potential to skew important income-investment options, and never in a good way....

Cheers,

Itsallaguess

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223176

Postby GoSeigen » May 20th, 2019, 2:39 pm

MDW1954 wrote:I find it helpful to think about bought-cost yield, because it tells me something about actual income received from actual capital deployed. At the point of switching into a share on a particular historic yield, you're basically hoping that the future will be a continuation of the past. That may or may not work out to be the case.

Note that I am not saying don't look at published yields. Far from it: investors definitely should look at them. Nor am I saying that investors should only look at bought-cost yields. This would also be wrong, as a bought-cost yield tells you nothing about the opportunity costs of alternative capital deployment options.

I am simply saying that I find bought-cost yield to be a useful additional point of information.

MDW1954


I think we can accept MDW1954 is not offering anything of use to anyone else or attempting any justification for using bought-cost yield. He is simply saying he likes it. I understand his point, because I quite like my 11-year-old daughter's cuddly toys, but also do not offer them up as a useful tool for evaluating investments! [EDIT: Heh, IAAG makes a very similar point about about "comfort blankets"!]


To the OP: as a long-term HYP skeptic, I can fully understand your disappointment. Back in in 2005/2006 or so I was making the point that a typical collection of HYP shares had a modified duration of some 25 years. This is a technical measure which means (roughly) that the optimal holding time for a HYP in order to maximise the probability of hitting the promised yield was 25 years. You are around halfway though those 25 years, so should not be surprised at any disappointing return: there was always a reasonably probability that HYP would significantly underperform, and you have been able, with hindsight, to identify the source of the underperformance (banks etc) and hopefully learn something from that.

The argument you have to put to yourself now is this: the underperformance is already baked in; if you sell now, you are going to realise a lower price for your investment than you might have if you'd received your expected yield in a straight line; moreover, you have only ten or twelve years of the original 25 remaining (adjust figures for your own circumstances), and since the yield curve is almost always upward sloping, the market is going to offer you a lower yield for a 12-year duration investment going forward than for the original 25 (and bond yields are much lower anyway). And 12 years duration is what you need to target for a new investment: if you go for longer duration, you again risk a highish probability of significant under-performance at the end of the investment period; if you go shorter you'll get an even lower yield.

My view would be that you should remain patient. Your original investment was made with the expectation you would hold for 25 years, so just do that. If you have other new funds to invest you don't have to add them to a HYP-style portfolio. Think about what time horizon you want to invest for and then allocate the new funds accordingly. Have fun exploring new areas, but forget about the HYP and take a look again in about 10 years time.

Good luck.


GS

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223190

Postby MDW1954 » May 20th, 2019, 3:31 pm

GoSeigen wrote:
MDW1954 wrote:I find it helpful to think about bought-cost yield, because it tells me something about actual income received from actual capital deployed. At the point of switching into a share on a particular historic yield, you're basically hoping that the future will be a continuation of the past. That may or may not work out to be the case.

Note that I am not saying don't look at published yields. Far from it: investors definitely should look at them. Nor am I saying that investors should only look at bought-cost yields. This would also be wrong, as a bought-cost yield tells you nothing about the opportunity costs of alternative capital deployment options.

I am simply saying that I find bought-cost yield to be a useful additional point of information.

MDW1954


I think we can accept MDW1954 is not offering anything of use to anyone else or attempting any justification for using bought-cost yield. He is simply saying he likes it. I understand his point, because I quite like my 11-year-old daughter's cuddly toys, but also do not offer them up as a useful tool for evaluating investments! [EDIT: Heh, IAAG makes a very similar point about about "comfort blankets"!]


GoSeigen,

I have explained how I use bought-cost yield, and why I like it. Conceptually, it's very little different from other HYP investors' talk of the extent to which earnings from a given LTBH holding have outstripped the initial capital cost, etc etc: it's some indication of real returns from a real capital deployment.

If I were the OP, and contemplating making major changes to my investment strategy in the wake of apparently poor returns, I might find that useful.

If you wish to characterise this in the way that you have done, so be it.

MDW1954

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223219

Postby vrdiver » May 20th, 2019, 4:58 pm

I don't look at bought-cost yield, but his close cousins, XIRR and CAGR, both useful components when evaluating if a share is worth hanging on to. Take a share with a current yield of 2% or so. I have Diageo in my HYP at the moment with approximately that yield. I could trade it for double that yield (or more), but I choose not to.

Its capital value has a XIRR of 15.1% and the dividend shows 1, 5 and 10 year CAGRs of 5.1, 6.7 and 6.8% respectively*.

From the CAGR data I interpret a nice steady increase in the dividend and with the XIRR I am happy that my original capital has been working hard for me. Not surprisingly, the bought-cost yield is a nice high figure of around 10.7%.

Looking at XIRR and CAGR data gives me an idea that the share has a performance history. Perhaps this is what MDW1954 is getting from bought-cost yield? In any case, if switching to an IT or other share, I might want to look at its history, at least for a few years back, to see if it had the characteristics I want (growth and increasing dividend). If, say it had paid a flat 6% dividend for a few years, I'd wonder if that tripling of the dividend was a short-term gain at the expense of moving to a less robust company? Glaxo (GSK) is an example of a 6% (ish) yield on offer, with stagnant yield growth recently and for the near future at least.

Of course, I am still vulnerable to single-company or single-sector disaster, which is mitigated by the portfolio's diversity (at least, to some extent).

It is this latter point that is making me pay more attention to ITs and looking to swap out the "underperforming" part of my HYP as and when the opportunity arises, figuring that derisking the weaker elements of the portfolio may make sense, but worried that I am baking in the low-points and will miss any recovery to normal! Fear and greed paralysis, which I still struggle with despite knowing that preserving existing capital rule #1.

VRD


* XIRR is obviously a function of the starting price, so others may have different figures even with quite similar historic purchases, depending on price movements at the time. CAGR is calculated in this case, by me, as actual dividends received per share, so historic and based on my data, therefore subject to errors by me.

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223225

Postby MDW1954 » May 20th, 2019, 5:32 pm

vrdiver wrote:I don't look at bought-cost yield, but his close cousins, XIRR and CAGR, both useful components when evaluating if a share is worth hanging on to. Take a share with a current yield of 2% or so. I have Diageo in my HYP at the moment with approximately that yield. I could trade it for double that yield (or more), but I choose not to.


And I have Compass (2.1%), Greggs (1.8%), Reckitt Benckiser (2.7%), and Weir Group (2.9%). All either long-standing holdings (the first three), or bought at rock-bottom fire-sale prices (Weir in 2016).

Alas, it seems I'm doing something wrong.

vrdiver wrote:
Its capital value has a XIRR of 15.1% and the dividend shows 1, 5 and 10 year CAGRs of 5.1, 6.7 and 6.8% respectively*.

From the CAGR data I interpret a nice steady increase in the dividend and with the XIRR I am happy that my original capital has been working hard for me. Not surprisingly, the bought-cost yield is a nice high figure of around 10.7%.

Looking at XIRR and CAGR data gives me an idea that the share has a performance history. Perhaps this is what MDW1954 is getting from bought-cost yield?


Yes, as I think I have said.

MDW1954

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223239

Postby tjh290633 » May 20th, 2019, 6:40 pm

It's odd. All my spreadsheets for individual companies have a column "yield on cost" for each dividend. I don't remember why I included it in the first place, but it features in every one.

I was just looking at National Grid, which came to me as a results of having bought British Gas, as a Sid, then Lattice was demerged and later taken over by National Grid. When first demerged the price was 150p, and the initial yield was 4.73%, 7.1p on 150p. Now the yield is about 5.8%, but the yield on the cost of my shares, including sales and topping up about 300p, is about 15.7%. I think it is of less than academic interest.

From time to time I ponder about when and how to move into ITs, as age catches up with me. My portfolio sorted by yield is:

Rank   EPIC   Yield
1 TW. 9.88%
2 SSE 9.20%
3 IMB 8.84%
4 WMH 8.81%
5 BT.A 7.58%
6 AV. 7.20%
7 MARS 6.87%
8 BATS 6.83%
9 VOD 6.20%
10 ADM 6.10%
11 LGEN 6.04%
12 NG. 5.79%
13 RDSB 5.72%
14 BP. 5.67%
15 BLND 5.59%
16 LLOY 5.39%
17 S32 5.27%
18 UU. 5.23%
19 GSK 5.16%
20 BHP 5.11%
21 RIO 4.98%
22 BA. 4.83%
23 KGF 4.83%
24 SMDS 4.71%
25 IMI 4.29%
26 MKS 4.21%
27 AZN 3.70%
28 TATE 3.65%
29 ULVR 2.87%
30 RB. 2.72%
31 SGRO 2.64%
32 TSCO 2.46%
33 PSON 2.31%
34 CPG 2.13%
35 DGE 1.99%

One approach could be to sell the lowest yielding shares and move the funds in CTY or similar. Let's say everything below a 4% yield. I also looked at the yield of various segments of the portfolio:

Range   Yield
1-20 6.62%
2-21 6.38%
3-22 6.16%
4-23 5.96%
5-24 5.75%
6-25 5.59%

The idea here was that one might simplify the portfolio by selling at either end, getting rid of both the lower yield shares and those with very high yields, to end up with a 20-share portfolio. That might be too indiscriminate, so looking at sectors, to ensure that one kept some of each, could be a way forward.

Just an idle thought.

TJH

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223242

Postby GoSeigen » May 20th, 2019, 7:04 pm

MDW1954 wrote:I have explained how I use bought-cost yield, and why I like it. Conceptually, it's very little different from other HYP investors' talk of the extent to which earnings from a given LTBH holding have outstripped the initial capital cost, etc etc: it's some indication of real returns from a real capital deployment.


Okay, I'll humour you for a post or two, if you could simplify a bit and explain to me how bought-cost yield works in terms of, for example, a 30-year vanilla bond with a 5% coupon and yielding 4% today.
How is it useful?
What does it tell us about whether we should hold on to the bond or sell it and buy something else?
Why is it better than running yield, gross redemption yield and other metrics already in use in the bond world?
Can you link to examples of use in the real world?

Genuine questions because this is not covered in standard bond texts to the best of my recollection.

GS
[EDIT: P.S. Please could you also comment on my earlier "Widget plc" problem. Thx.
P.P.S. NB: something is not useful because YOU find it useful. It is useful when a lot of people generally find it useful. So some thoughts about who professionally is using this metric and why would be nice.]

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223246

Postby MDW1954 » May 20th, 2019, 7:28 pm

GoSeigen wrote:
MDW1954 wrote:I have explained how I use bought-cost yield, and why I like it. Conceptually, it's very little different from other HYP investors' talk of the extent to which earnings from a given LTBH holding have outstripped the initial capital cost, etc etc: it's some indication of real returns from a real capital deployment.


Okay, I'll humour you for a post or two, if you could simplify a bit and explain to me how bought-cost yield works in terms of, for example, a 30-year vanilla bond with a 5% coupon and yielding 4% today.
How is it useful?
What does it tell us about whether we should hold on to the bond or sell it and buy something else?
Why is it better than running yield, gross redemption yield and other metrics already in use in the bond world?
Can you link to examples of use in the real world?

Genuine questions because this is not covered in standard bond texts to the best of my recollection.

GS
[EDIT: P.S. Please could you also comment on my earlier "Widget plc" problem. Thx.
P.P.S. NB: something is not useful because YOU find it useful. It is useful when a lot of people generally find it useful. So some thoughts about who professionally is using this metric and why would be nice.]


You can humour me all you like, but I'm not going to engage with someone who thinks that making mocking references to an 11-year old's fluffy toys is an acceptable debating tactic.

Learn some manners.

I know what I do, and why I do it. And I know why I continue to hold (say) Greggs (bought at £4.17 in 2013 and now worth £21.18) and Compass (£5.75 and £18.04) when you and others would presumably have me switch into something else.

MDW1954

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223258

Postby Itsallaguess » May 20th, 2019, 8:15 pm

MDW1954 wrote:
And I know why I continue to hold (say) Greggs (bought at £4.17 in 2013 and now worth £21.18) and Compass (£5.75 and £18.04) when you and others would presumably have me switch into something else.


I'm still struggling to fully understand how you're wanting to justify a long-term holding doing well with regards to historical total-return, such as the above examples, and using that as a basis to maintain your invested capital in such holdings, but then, in your own words, decry a possible alternative income-investment that may offer comparable or improved yields (and likely improvements in income-diversification from a move away from a single-holding and into a collective investment trust), by saying that -

At the point of switching into a share on a particular historic yield, you're basically hoping that the future will be a continuation of the past. That may or may not work out to be the case. - MDW1954

If you can explain why you'd be able to dispel 'future-performance doubts' regarding your own holdings above, but happily introduce those doubts with regards to a potential alternative yield-play, then I think that would go some way to help solve my own confusion with this specific point, and given that it was one of the main issues when you introduced the 'yield on cost' metric, I think it's an important point of view to understand more fully.

Given that we're able to review the historical performance of the potential yield-play, and form a view as to how it's been able (or not..) to maintain dividends payouts, or even raise them over a number of years, as well as any share-price performance, I'm really struggling to see why one set of 'owned' historical performance indications is somehow different or 'better' than any such performance indicators of alternative options....

Are you able to at least help clear up this specific issue?

I think it's also important to recognise that we're having this discussion on the 'High Yield Shares & Strategies' board, so it hopefully won't come as too much of a surprise if people are looking more towards income than total-return....

Cheers,

Itsallaguess

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223267

Postby MDW1954 » May 20th, 2019, 9:03 pm

This multi-part quoting is doing my head in, as the youth around here say. Or possibly don't say any more, as it's a long time since I've talked to any.

Anyway...

Itsallaguess wrote:
MDW1954 wrote:
And I know why I continue to hold (say) Greggs (bought at £4.17 in 2013 and now worth £21.18) and Compass (£5.75 and £18.04) when you and others would presumably have me switch into something else.


I'm still struggling to fully understand how you're wanting to justify a long-term holding doing well with regards to historical total-return, such as the above examples, and using that as a basis to maintain your invested capital in such holdings, but then, in your own words, decry a possible alternative income-investment that may offer comparable or improved yields (and likely improvements in income-diversification from a move away from a single-holding and into a collective investment trust), by saying that -

At the point of switching into a share on a particular historic yield, you're basically hoping that the future will be a continuation of the past. That may or may not work out to be the case. - MDW1954

If you can explain why you'd be able to dispel 'future-performance doubts' regarding your own holdings above, but happily introduce those doubts with regards to a potential alternative yield-play, then I think that would go some way to help solve my own confusion with this specific point, and given that it was one of the main issues when you introduced the 'yield on cost' metric, I think it's an important point of view to understand more fully.

Given that we're able to review the historical performance of the potential yield-play, and form a view as to how it's been able (or not..) to maintain dividends payouts, or even raise them over a number of years, as well as any share-price performance, I'm really struggling to see why one set of 'owned' historical performance indications is somehow different or 'better' than any such performance indicators of alternative options....

Are you able to at least help clear up this specific issue?


I think of it in terms of 'additional information', using 'information' in the statistical sense that it has now, as opposed to when I did university-level stats 40 years ago.

If I compare two yields on Hargreaves Lansdown, say, and contemplate switching from the lower yielder to the higher yielder, as you seem to be advocating, then the only 'information' (again in that sense) that I have about the higher-yielder is its yield. About the lower-yielder, though, I have more 'information': I have held it for several years. I 'know' it. How best to summarise this 'information'? Ideally in a single metric? I happen to use bought-cost yield, but I could fire up spreadsheets and use XIRRs or all manner of things.

So invariably, there's premium for the share you hold (the devil you 'know'), versus the unknown share.

Now, I could investigate the unknown share, and spend hours acquiring a comparable state of knowledge. Across multiple shares, that is a lot of hours. Which I (mostly) don't have. Bought-cost yield is a handy heuristic, which I often find brings me to (mostly) the same place.

Now, you will be asking why I agreed with your posts about ITs. And that is because ITs (in the sense of "do I swap this single share for an IT?") change the game. I have the same lack of information, but the prospective investment offers two things: diversification, and professional management. I find that persuasive.

I don't know if that answers all your specific questions. But rightly or wrongly, it's how I think about these things. It's worked for me, and I'm not going to change it.

And thank you for not reducing the conversation to the level of children's fluffy toys, and for asking sensible questions. Your good manners are appreciated.

MDW1954


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