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Selling Unilever?

General discussions about equity high-yield income strategies
tjh290633
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Re: Selling Unilever?

#251815

Postby tjh290633 » September 14th, 2019, 2:28 pm

Spet0789 wrote:
Dod101 wrote:We tend to forget that the HYP was designed for a Doris, who almost be definition is not going to be looking at her portfolio every week or even every month. She just takes the income and is happy to have it. In many ways I cannot help thinking that that is the best way to treat a HYP. Just leave it alone. It was though also designed in a different investing environment. Today many of its expected characteristics seem also to have gone out of the window so that we have what seem to be good companies freezing their dividends (HSBC, Shell and the two pharmas for starters). We have other companies where the dividend is still increasing and yet the share price is virtually unmoved`; hence the high yields on shares like Legal and general, the tobaccos and so on.

On the subject of living off capital, I would feel most uncomfortable doing that as part of my regular income because the stock market goes down as well as up as we all know. I am prepared to use capital for a significant one off capital expenditure because I can then time my sale to suit or at least time it to satisfy my judgement of the state of the market. Obviously I cannot do that if I need a capital sale for monthly income.

Dod


If you systematically sell 1% of your portfolio for income every quarter, you’re not timing the market, any more than if you make monthly savings. It puts you no more at risk of stock market fluctuations than taking a dividend rather than reinvesting it. But it feels different and that’s why many of those who haven’t thought about the maths (as I have) are uncomfortable with it.

Dividend income is more stable, but ultimately it all comes from the same pot. I think anyone drawing income from an equity portfolio should be willing to adjust their spending as market returns change.

If you follow that idea, selling 1% each quarter, you are going to get quite a variable amount of cash and, in a long bear market, a steadily reducing amount of cash. You are also reducing the amount of future dividend income, as you will have fewer shares.

With some shares it will work for some of the time. However it strikes me as being a hazardous path to take.

TJH

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Re: Selling Unilever?

#251822

Postby Gengulphus » September 14th, 2019, 3:13 pm

Lootman wrote:
Gengulphus wrote:
Spet0789 wrote:Why not just sell 2% every year if you want the income?

Hey presto, a 5% income yield and I suspect the total return would still outperform a few of the usual suspects with ‘natural’ 5% yields.

Perfectly reasonable answer - if your holding is big enough for selling 2% of it to be a cost-effective sale and you've got the self-discipline to just get on with it each year without worrying endlessly about whether you're doing the right thing and you don't mind the fact that selling 2% of your holding will produce an amount of 'income' that is sometimes 'cut'. Such 'cuts' are produced by the stockmarket rather than company directors, and the stockmarket tends to make significantly more volatile decisions about 'cutting' than company directors,

I think the point that Spet0789 makes is valid. ...
...
The way I think of it is this. We naturally divide into three groups:

1) Those with sufficient wealth that they can live off only the dividends
2) Those who are so broke they can never retire at all
3) Those in between who can't live only off their dividends but can live off a mix of dividends and capital drawdown.

It is the class of people in (3) for whom Spet's drawdown idea makes sense, ...

I don't think it does, other than possibly in a very limited way, namely that if they're determined to live off a portfolio of individual shares, it probably makes more sense than most other policies that are consistent with living off such a portfolio. And even then, I think it would make a bit more sense still with a modification, namely that you don't sell 2% of a holding per year, but 10% every five years - and that you stagger the sales such that you only do that for about a fifth of the holdings that the policy applies to in any one year to make the 'income' produced by the sales about right. And preferably you choose the holdings you sell from to favour those that look a bit overvalued, though that needs to be tempered to ensure you're not concentrating your portfolio in its 'losers' at the expense of its 'winners' over the long term. So all in all, while I think that modification would cause it to make a bit more sense, it would be at the expense of a fair amount of complexity in the "what shall I sell this year?" decisions.

But the thing that would make more sense still (and much more sense in many cases) if you're in group (3) is IMHO not to be determined to live off a portfolio of individual shares. There are actually two subgroups of that group, depending on what the investor feels they need to do (*):

3a) Those who are in group (3) and don't need to start living off their investments now.
3b) Those who are in group (3) and do need to start living off their investments now.

For those in group (3a), what I think would make more sense is to defer living off their investments and instead allow their investments to grow further until they're in either group (1) or group (3b). Even if they end up being in group (3b) anyway, they should have rather more safety margin on their planned capital drawdown - and the more safety margin they have, the better the chances of riding out a serious general stockmarket fall, which is a danger even with a very good company such as Unilever (**).

For those in group (3b), what I think would usually make more sense would be a portfolio consisting of no more than a handful of holdings in ITs or other funds. That has a costs advantage because the individual holdings are larger, and the advantage can be quite noticeable for the total amounts of capital likely to be involved for someone in group (3b). E.g. someone with £300k in capital from which they want to take 5% (£15k) per year in dividends and capital gains really doesn't want it to be split into 20 holdings of £15k each, because a sale of 2% of a holding will be worth about £300 - a rather cost-ineffective amount to trade. If they want to harvest capital gains as well as dividends, it's better to have it split into maybe four IT/fund/etc holdings of £75k each, for which a 2% sale is worth £1.5k and is at least reasonably cost-effective.

I've chosen £15k extra income as an amount that supplements a state pension up to somewhere in the region of an average salary. Individual circumstances might make the investor need more than that, such as not getting a state pension for some reason. I don't totally exclude the possibility that it could be a large enough amount that the capital could be split 20ish ways with 2%ish sales of holdings being reasonably cost-effective, but I'm pretty certain that only a very small fraction of group (3b) would be affected by that.

(*) It's the investor's decision what constitutes a "need" of theirs rather than just a "desire", so my advice can only be conditional - i.e. of the form "If you're in group (3) and you feel you need to retire now, I suggest you put your capital into a spread of no more than a handful of ITs or other funds; if you don't, I suggest you keep the day job for the time being. Your decision which of those two suggestions applies to you - I cannot make decisions about what you feel you need for you!"

(**) E.g. on 7 April 2008 (I went for the 6th, but that was a Sunday), its share price was 1697p, by 6 April 2009, it had dropped to 1305p. So an investor who planned their capital drawdown a year ahead on the basis of selling a fixed percentage of their holding would have faced about a 23% stockmarket-imposed 'cut' to that particular item of 'income', or one who planned it on the basis of selling a fixed sum's worth of their holding would have found themselves having to sell about 1.3 times as many shares as they were planning. And Unilever would probably have been at the better-behaved end of the spectrum of outcomes from their portfolio.

Gengulphus

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Re: Selling Unilever?

#251928

Postby TUK020 » September 15th, 2019, 7:29 am

Spet0789 wrote:If you systematically sell 1% of your portfolio for income every quarter, you’re not timing the market, any more than if you make monthly savings.


Would you be suggesting selling 1% of each holding, each quarter? or rotating the sales per holding?
I would worry that the theoretical approach would incur significant trading costs

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Re: Selling Unilever?

#251931

Postby Dod101 » September 15th, 2019, 7:58 am

Spet0789 wrote:If you systematically sell 1% of your portfolio for income every quarter, you’re not timing the market, any more than if you make monthly savings. It puts you no more at risk of stock market fluctuations than taking a dividend rather than reinvesting it. But it feels different and that’s why many of those who haven’t thought about the maths (as I have) are uncomfortable with it.

Dividend income is more stable, but ultimately it all comes from the same pot. I think anyone drawing income from an equity portfolio should be willing to adjust their spending as market returns change.


I am not sure what 'the maths' has got to do with it but of course I see your point. There are though enough variations in my capital from the market as it is without introducing another in the form of selling a percentage to live off. The other point is of course the practical aspect. If I hold one investment trust, I can easily sell 1% but if I hold 30 individual shares, I am not going to sell 1% of each except at some considerable cost.

Dividend income is usually more stable but more importantly, it arrives in my bank account at no cost to me and my capital remains intact.

Dod

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Re: Selling Unilever?

#251947

Postby IanTHughes » September 15th, 2019, 9:39 am

TUK020 wrote:
Spet0789 wrote:If you systematically sell 1% of your portfolio for income every quarter, you’re not timing the market, any more than if you make monthly savings.

Would you be suggesting selling 1% of each holding, each quarter? or rotating the sales per holding?
I would worry that the theoretical approach would incur significant trading costs

My broker charges me £10 for a sale.

So, assuming I wanted to pay no more than 0.5% of the transaction amount, each transaction would have to be for a minimum value of £2,000. If this represented only 1% of my holding, the overall holding value would b e £200,000! In my view, it would be a very expensive method for raising regular amounts of cash, from a portfolio of diverse single equities, especially for those with modest portfolio sizes.


Ian

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Re: Selling Unilever?

#251978

Postby Julian » September 15th, 2019, 12:00 pm

IanTHughes wrote:
TUK020 wrote:
Spet0789 wrote:If you systematically sell 1% of your portfolio for income every quarter, you’re not timing the market, any more than if you make monthly savings.

Would you be suggesting selling 1% of each holding, each quarter? or rotating the sales per holding?
I would worry that the theoretical approach would incur significant trading costs

My broker charges me £10 for a sale.

So, assuming I wanted to pay no more than 0.5% of the transaction amount, each transaction would have to be for a minimum value of £2,000. If this represented only 1% of my holding, the overall holding value would b e £200,000! In my view, it would be a very expensive method for raising regular amounts of cash, from a portfolio of diverse single equities, especially for those with modest portfolio sizes.


Ian

A couple of observations on that...

1) I don't see why it needs to be quarterly sales. Even with annual or less frequent sales the balance could be kept in a savings account and maybe drawn down quarterly. My Paragon instant access account pays 1.4% interest which isn't great but it is about half of ULVR's current yield at least. Once a year seems the natural sell-off frequency to me, done sometime in the few months prior to the end of each tax year so that CGT calculations can all be done at the same time (on the assumption that one leaves a small enough window between sell-off date and the end of the tax year such that no unexpected Greene-King-like events are likely occur to complete within the current tax year and disrupt one's capital gains calculations).

2) My effective trading cost charged by at least one of my brokers, perhaps even more than one(*), is zero. That might be slightly unusual at the moment but I suspect there might be quite a few others in the same situation and I wouldn't be at all surprised if the brokerage market evolves in such a way that my situation becomes more common going forward but that's pure guesswork.

The reason for my "free" trades is that at least one of my brokers has moved to a scheme where they charge me a quarterly account admin fee but included in that are a certain number of "free" trades each quarter which, as a predominantly long term buy and hold investor, I almost never use since most quarters I won't do any trades at all. I can imagine that quite a lot of investors in the situation of living off investments and potentially wanting to draw down some capital to supplement yields that are lower than the income extraction rate that they desire will also be LTBH investors hence might not be using any of this type of "free" (or more accurately "included in the admin fee") trades.

- Julian

(*) I trade so infrequently that I don't actually know the trading costs of most of my brokers but I am sure that at least one has this some-free-trades-included-in-quarterly-fee scheme (Hargreaves Lansdown? I can't even remember which of my brokers it is).

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Re: Selling Unilever?

#251980

Postby Alaric » September 15th, 2019, 12:08 pm

Julian wrote:
(*) I trade so infrequently that I don't actually know the trading costs of most of my brokers but I am sure that at least one has this some-free-trades-included-in-quarterly-fee scheme (Hargreaves Lansdown? I can't even remember which of my brokers it is).


ii now use that system with a monthly fee which gives a credit towards dealing commission.

If you want to keep the portfolio balanced sell a generalist IT. If the portfolio needs adjusting sell whatever you want to reduce. It's much the same philosophy as to how dividends would be reinvested.

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Re: Selling Unilever?

#251988

Postby IanTHughes » September 15th, 2019, 12:39 pm

Julian wrote:
IanTHughes wrote:
TUK020 wrote:Would you be suggesting selling 1% of each holding, each quarter? or rotating the sales per holding?
I would worry that the theoretical approach would incur significant trading costs

My broker charges me £10 for a sale.

So, assuming I wanted to pay no more than 0.5% of the transaction amount, each transaction would have to be for a minimum value of £2,000. If this represented only 1% of my holding, the overall holding value would b e £200,000! In my view, it would be a very expensive method for raising regular amounts of cash, from a portfolio of diverse single equities, especially for those with modest portfolio sizes.

A couple of observations on that...

1) I don't see why it needs to be quarterly sales. Even with annual or less frequent sales the balance could be kept in a savings account and maybe drawn down quarterly. My Paragon instant access account pays 1.4% interest which isn't great but it is about half of ULVR's current yield at least. Once a year seems the natural sell-off frequency to me, done sometime in the few months prior to the end of each tax year so that CGT calculations can all be done at the same time (on the assumption that one leaves a small enough window between sell-off date and the end of the tax year such that no unexpected Greene-King-like events are likely occur to complete within the current tax year and disrupt one's capital gains calculations).

I did not even think about the possible Capital Gains Tax (CGT) complications!

Even if you did sell 4% of a portfolio, a portfolio of 15-25 individual holdings remember, each and every year, that could entail significant trading costs and of course you would be foregoing the coming year's dividend as well!

Julian wrote:2) My effective trading cost charged by at least one of my brokers, perhaps even more than one(*), is zero. That might be slightly unusual at the moment but I suspect there might be quite a few others in the same situation and I wouldn't be at all surprised if the brokerage market evolves in such a way that my situation becomes more common going forward but that's pure guesswork.

The reason for my "free" trades is that at least one of my brokers has moved to a scheme where they charge me a quarterly account admin fee but included in that are a certain number of "free" trades each quarter which, as a predominantly long term buy and hold investor, I almost never use since most quarters I won't do any trades at all. I can imagine that quite a lot of investors in the situation of living off investments and potentially wanting to draw down some capital to supplement yields that are lower than the income extraction rate that they desire will also be LTBH investors hence might not be using any of this type of "free" (or more accurately "included in the admin fee") trades.

(*) I trade so infrequently that I don't actually know the trading costs of most of my brokers but I am sure that at least one has this some-free-trades-included-in-quarterly-fee scheme (Hargreaves Lansdown? I can't even remember which of my brokers it is).

Your mooted strategy would probably be cheaper at my broker, A J BELL. They do not offer any "free" trades but then they only charge an account management fee of £7.50 per quarter, as opposed to the £11.95 per month charged by Hargreaves Lansdown, almost five times more than A J BELL!

Look, of course an Income investor could go down the route of selling off capital to supplement the dividends received from lower yield but higher growth shares. All I would say is that they should look very carefully at the costs that would be involved not to mention the extra management time required, as well as the whole question of maintaining a balanced portfolio.

In my view one should only go down this route with large or very large portfolios, when of course such income supplementation will probably not be required, or else with a portfolio of collective investments - Investment Trusts, ETF's and the like.


Ian

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Re: Selling Unilever?

#251997

Postby Julian » September 15th, 2019, 1:02 pm

Alaric wrote:
Julian wrote:
(*) I trade so infrequently that I don't actually know the trading costs of most of my brokers but I am sure that at least one has this some-free-trades-included-in-quarterly-fee scheme (Hargreaves Lansdown? I can't even remember which of my brokers it is).


ii now use that system with a monthly fee which gives a credit towards dealing commission.

If you want to keep the portfolio balanced sell a generalist IT. If the portfolio needs adjusting sell whatever you want to reduce. It's much the same philosophy as to how dividends would be reinvested.


And ii is one of my brokers too so that is the one that I was thinking of. Thanks.

On the second point there might well be other factors at play though. A number of people here have said that they are tilting the weighting of their income portfolios more towards generalist ITs and away from individual company shares (which I'll call "HYP shares" to differentiate them from any IT holdings) so, although I take your point on maintaining balance, selling a generalist IT is taking them in the wrong direction as far as their desired adjustments of income ITs vs HYP shares goes.

If I end up faced with the dilemma above where a planned year-end sell-off for spending-money release, if all done via sales of a single HYP share would unbalance my individual company shares portfolio to an extent that I was uncomfortable with, I'd bite the bullet and do multiple sales across a number of my HYP shares to lessen the imbalance despite Ian's valid arithmetic as outlined in his last post.

In such cases I stop thinking in terms of percentages ("fee for the trade is 0.5% of the transaction amount" for example) but instead think in absolute terms. Assuming £10 a trade and that I am doing annual selloffs then in a certain year perhaps I could get the extra spending money I require from a single sell-off at a trading cost of £10 or split it across say smaller sell-offs across 4 holdings (chosen as an arbitrary number for illustration) to lessen any imbalance effect which would give rise to total trading costs of £40. The question I ask myself then is, for the peace of mind of feeling that I have created less imbalance in my HYP share portfolio, is £30 extra once a year a price that I am willing to pay? When viewed in absolute terms and against maybe the cost of 6 pints of beer in a pub over the entire year (I live in London hence £5 pints!), it seems such a trivial one-off annual expenditure to me that the answer is a resounding yes regardless of what the percentage-based calculations might tell me.

All the above of course ignoring my particular circumstances with potential limited number of already-included trades anyway.

- Julian

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Re: Selling Unilever?

#252001

Postby Julian » September 15th, 2019, 1:33 pm

IanTHughes wrote:...
In my view one should only go down this route with large or very large portfolios, when of course such income supplementation will probably not be required, or else with a portfolio of collective investments - Investment Trusts, ETF's and the like.

Ian

I do agree with that point Ian, or at least that it is much easier to consider capital sell-offs if one has a large portfolio. If I was adopting my strategy with a smaller portfolio I would be far more concerned about monitoring capital decay and, as Terry already mentioned further up this thread, selling off income-generating assets also reduces income-generation capacity in the subsequent years vs the situation if one were not selling off those assets so that income decay also needs to be factored into the overall decay model.

I do monitor capital decay for my portfolio and my planned level of capital selloff each year but with a larger portfolio it is certainly easier to keep things out of any self-defined danger zone where I fear that I might run out of capital/income during my lifetime(*).

- Julian

(*) All based on predictions of future market and/or dividend behaviours course.

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Re: Selling Unilever?

#252525

Postby Arborbridge » September 18th, 2019, 1:00 pm

I'm happy just watching the dividends flow in to my "feeder" account and taking out a set amount a month.
And having seen some substantial drops on capital value in my time which lasted quite a while, I don't want to be seeing my capital eroding as I draw it down - or holding an excessive amount in cash to get over such dips.
Goodness, I couldn't be doing with deciding what to sell next every now and again, - give me a simple life in retirement.

Each to his own, but long ago I rejected "capital harvesting" as not for me.

Arb.

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Re: Selling Unilever?

#259018

Postby Kasey00 » October 19th, 2019, 8:59 pm

Darka wrote:I've been thinking of selling Unilever (3% yield) and moving the money to an IT, possibly City Of London (4.3% yield) or maybe Henderson Far East Income Ltd (5.8% yield) which would not only give me a higher income but also more diversification.

Another share I could do the same with is BAE systems (4.1% yield)…

I think it's a good idea, but I can't decide if I should do it?


Hi!

I think its not a good idea.Have you looked at the relevant total returns? I know this is a High Yield board, but it takes an awful lot of extra dividend to compensate for markedly inferior capital growth.ULVR offers you a non-negligible 2.84% yield, rising dividends (CAGR 8.35% over the past 8 years) and a good record of capital growth - 83% over past 5 years.

Thanks.

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Re: Selling Unilever?

#259044

Postby Darka » October 20th, 2019, 7:57 am

Kasey00 wrote:I think its not a good idea.Have you looked at the relevant total returns? I know this is a High Yield board, but it takes an awful lot of extra dividend to compensate for markedly inferior capital growth.ULVR offers you a non-negligible 2.84% yield, rising dividends (CAGR 8.35% over the past 8 years) and a good record of capital growth - 83% over past 5 years.



Thanks Kasey00,

I agree with you and decided not to sell in the end, they are a good dividend grower and also help with my diversification.

regards,
Darka

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Re: Selling Unilever?

#259065

Postby PrefInvestor » October 20th, 2019, 10:49 am

digitaria wrote:ULVR has been meteoric over the last few months and a good hedge against the struggling pound.


Hi digitaria, “meteoric” as in falling to earth at a rate of knots do you mean ?. Down a mere 13% since mid October from 53xx to 46xx. Granted it was up nicely at the start of the year and the TR charts show that it’s been a good investment over 5 years.

I just can’t bring myself to buy any of these low yielding growth stocks, or in fact ANYTHING that’s not an IT or an ETF these days. Just a matter of personal investing preference/style I guess.

I wish you all the very best with your investments.

ATB

Pref

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Re: Selling Unilever?

#259075

Postby Dod101 » October 20th, 2019, 11:58 am

As Pref must know no share goes upwards in a straight line, not upwards for ever. It has fallen back over the last few weeks but that is hardly surprising. I took some profits at £50 so I am perfectly happy with it, although it amuses me that we have such discussion about Unilever on this High Yield Board without challenge. Unilever is not a high yield share.

Dod

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Re: Selling Unilever?

#259081

Postby ADrunkenMarcus » October 20th, 2019, 12:19 pm

Dod101 wrote:Unilever is not a high yield share.


Not now.

But, when it is, it's well worth it!

Best wishes

Mark.

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Re: Selling Unilever?

#259084

Postby Alaric » October 20th, 2019, 12:39 pm

Dod101 wrote: Unilever is not a high yield share.


That depends on what you regard as "high yield". If it's anything that's above cash or Gilts, then it is.

That's not a high barrier, even though arguably it was when you could get approaching 6% on deposits or Gilts. Twenty years ago, when the letters H Y and P were first put together, that was the case.

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Re: Selling Unilever?

#259086

Postby Itsallaguess » October 20th, 2019, 1:02 pm

Alaric wrote:
Dod101 wrote:
Unilever is not a high yield share.


That depends on what you regard as "high yield".

If it's anything that's above cash or Gilts, then it is.


I disagree. I think the word you're looking for then is 'higher', and not 'high'....

2 is higher than 1, but that doesn't make 2 a high number....

I say the above as an owner of Unilever as part of my High Yield Portfolio, as I personally consider the 'High Yield' description to be portfolio based, and not necessarily a barrier to entry for each and every constituent, but I'd never actually try to argue that Unilever is, in and of itself, a high yield share, and on a forum such as this I think it would be very confusing to try to do so...

Cheers,

Itsallaguess

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Re: Selling Unilever?

#259170

Postby moorfield » October 20th, 2019, 7:25 pm

Itsallaguess wrote:, as I personally consider the 'High Yield' description to be portfolio based, and not necessarily a barrier to entry for each and every constituent,


I quite agree IAAG.

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Re: Selling Unilever?

#259188

Postby tjh290633 » October 20th, 2019, 9:33 pm

moorfield wrote:
Itsallaguess wrote:, as I personally consider the 'High Yield' description to be portfolio based, and not necessarily a barrier to entry for each and every constituent,


I quite agree IAAG.

In point of fact, I believe that the boundary between the FT350HY Index and the FTSE350LY Index is the average yield on the FTSE350 index when the indices are calculated. So there is no differentiation in that index between high and higher, just that they are above the boundary.

TJH


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