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HYP1 is 20 - thread discussing income and capital diversification

General discussions about equity high-yield income strategies
Itsallaguess
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Re: HYP1 is 20 - thread discussing income and capital diversification

#357576

Postby Itsallaguess » November 18th, 2020, 8:58 am

Bagger46 wrote:
In my personal experience, all the retired people I know who require portfolio income, and it is quite a few real people, have chosen the IT route, plus the odd pref in a few cases for the the bulk of income core of their portfolio, simply because of the large volatility they know can happen in holding only HY individual holdings portfolios, as we see here.

I might add that the people I am referring to are (mostly) highly capable of understanding all aspects of investing, having suitable numeracy and professional/business/finance backgrounds.

Quite a few, who generally tend to be better off so they don’t need a massive portfolio yield, have a growth component which is ‘occasionally milked’ to create income for ‘special’ expenses.


A share-only HYP was how I started out income-investing, and the income and capital volatility didn't suit me at all, I'll be honest.

That's not to say that others will of course be able to handle that very personal side of investment better than me, and I'm sure this is the case, but my decision a few years ago to steer towards income-collectives in the form of relatively high-yield Investment Trusts was the single best investment decision I have made personally, in that whilst my 'headline level' portfolio-yield might well have come down, which it definitely has, the volatility side on both the income and capital front have also definitely come down as well, and improved in a way that enables me to really quite happily continue to actually enjoy my current income-investment approach, and to really turn it into the sort of 'hands-off' income portfolio that I originally thought I was getting into with my original HYP approach...

People can raise end-to-end HYP1 performance measures all they like, and to some that might be all that matters, but for me personally it's not necessarily about the speed of the journey, but much more about the comfort that I'm enjoying whilst I'm on it...

Cheers,

Itsallaguess

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Re: HYP1 is 20 - thread discussing income and capital diversification

#357583

Postby Wizard » November 18th, 2020, 9:15 am

Itsallaguess wrote:Sure - here's the HYP1 Year 10 to Year 20 data, showing the percentage of overall dividend income that was provided from the highest three payers in each year -

Image

It should be noted that the specific shares in the top-three payers did sometimes change from year to year, but it's clear from the above chart that the trend is to add more and more income-dependency over time to a very small number of HYP1 holdings.

Looking at the reports Gengulphus has posted so far (many thanks to him for that), the percentage of income from the top three shares for HYP1 up to Year 4 is as follows:
Year 0 - 26.8%
Year 1 - 26.2%
Year 2 - 27.1%
Year 3 - 31.1%
Year 4 - 33.2%

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Re: HYP1 is 20 - thread discussing income and capital diversification

#357586

Postby Bubblesofearth » November 18th, 2020, 9:29 am

Wizard wrote:

The first sentence tells us that Doris' portfolio had not behaved like HYP1 has, it remained diversified. If this was not the case surely the sentence would have referred to it being well diversified at the time of selection (from the article I think it is clear Stephen Bland would have had no insight into the level of diversification at purchase, he only knew the portfolio from the time he started to do Doris' tax returns many years later). Indeed, if that had changed surely it would have been worth mentioning in the article that that diversification had been watered down over the forty years Doris owned the portfolio. So I think it is pretty clear that the article was telling this portfolio retained its diversification.

I believe my conclusion above is confirmed in the second highlighted sentence. If Doris' portfolio showed the imbalance that HYP1 does I can not see how it could be described as relatively low risk.

So whether the story was fact, fiction, or a bit of both, what we are told is that Doris had a portfolio that was initially well diversified and remained so after over forty years. In that situation I can see why nobody would worry about 'tinkering' with the portfolio. But that is not how HYP1 looks after half that time. My guess is that PYAD did not expect HYP1 would ever look anywhere near as unbalanced as it does now when it was first selected.


If diversification was maintained by tinkering then how is this possible, and who did it, if Doris had no desire to get involved? I think you are drawing conclusions to fit your opinion rather than as supported from the statements.

On the second point I do not agree that a portfolio cannot be low risk just because there is imbalance in share holdings. Is the Vanguard World tracker high risk because of the weighting it has to a few shares such as Apple?

On the whole issue of the risk of a portfolio that equal weights across shares and sectors and is then left alone I would throw the following challenge - show me one that has failed. Every study I've seen, Doris, HYP1, studies of the original Dow components or my own experience has confirmed my belief that the approach is sound.

You diversify on purchase precisely because you know some shares will do better than others! Thats how portfolios and markets evolve. Why incur an endless succession of charges to try to maintain equal weightings when there is no evidence to suggest it helps overall performance. Again, if there is evidence, let's see it.

BoE

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Re: HYP1 is 20 - thread discussing income and capital diversification

#357591

Postby Charlottesquare » November 18th, 2020, 9:43 am

Lootman wrote:
Gengulphus wrote:
SalvorHardin wrote:There's also the "Doris factor". Doris, who was often mentioned in HYP articles, ...

Really? I am aware of precisely one such TMF article, namely https://web.archive.org/web/20070104152 ... doris.aspx and I would be interested if anyone can point me to any others!

Or do you perhaps mean "often mentioned in TMF posts". On that, I would agree that many of them talked about someone named Doris, but typically she was someone who was struggling to make ends meet and was therefore badly affected by dividend cuts - which makes her very clearly a different person to the Doris in the article, who "had plenty of the folding stuff" and "was pretty rich, so much so that she never really knew how much she had". I.e. most of the posts were naming someone called Doris, but not referring to the person described in the article.

I feel sure those were the two Dorises.

But the one with so much money she couldn't count it isn't really the interesting one. She could have adopted almost any investment strategy and it would have worked in the sense that she would never have run out of money. Sounds like in fact she might have not even needed to invest it, and therefore risk it, at all. So we can't learn a lot from that Doris.

The more interesting Doris is the one who is considering retirement and/or planning for her future financial security, but has limited funds. She has to decide between HYP and a few alternatives like funds, bonds, annuities etc. If she makes the wrong choice it could be a disaster. And then the question arises, could she cope with a 47% drop in income from one year to the next? Should the bulk of her income depend on just 5 or 6 shares?

The people I worry about are those who barely have enough to retire, but they think they can get away with it merely by boosting the yield of the investments they buy. For folks like you, me and Salvor, with a few million in the bank, it hardly matters what we do except for the fun of it.


There are a fair few quasi Doris figures in Edinburgh (One is an honorary Great Aunt to my kids), all those who worked for our two wonderful banks (HBOS/RBOS) and held large slabs of their shares in their retirement savings know precisely what over concentration can mean to their standard of living.

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Re: HYP1 is 20 - thread discussing income and capital diversification

#357593

Postby Charlottesquare » November 18th, 2020, 9:50 am

BellaHubby wrote:
Alaric wrote:
funduffer wrote:HYP was intended as a retirement income option for someone with a lump sum investment, who needed to boost income, and who was an unsophisticated LTBH investor, who wanted little or no trading - just to spend, live and not fret about their portfolio.


Given those objectives, why doesn't a parcel of ITs achieve these with less income volatility?

Much of the chatter on the HYP-P board is those who are using the dividend income for reinvestment rather than living expenses. Growth investors in effect who can be relaxed about volatility of income receipts and illogically about capital values as well.in the sense that they are seemingly unconcerned to test whether the income performance is at the expense of capital.

A basket of ITs is a perfectly reasonable alternative to HYP. Less effort, maybe, but with downsides that you are paying someone to manage the portfolio, and they typically hold back payouts in the good years to use in the bad years. A HYPer can do exactly the same if they wish.
There are many ways to achieve an investment objective, HYP is just one of them. None is ideal or perfect.

It's interesting to note that you don't find HYPers sniping on the IT board, so why is there all this sniping on the HYP board?


Because this is the High Yield Shares & Strategies-General board where other high yield strategies are permitted

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Re: HYP1 is 20 - thread discussing income and capital diversification

#357604

Postby Charlottesquare » November 18th, 2020, 10:07 am

Bubblesofearth wrote:
Wizard wrote:

The first sentence tells us that Doris' portfolio had not behaved like HYP1 has, it remained diversified. If this was not the case surely the sentence would have referred to it being well diversified at the time of selection (from the article I think it is clear Stephen Bland would have had no insight into the level of diversification at purchase, he only knew the portfolio from the time he started to do Doris' tax returns many years later). Indeed, if that had changed surely it would have been worth mentioning in the article that that diversification had been watered down over the forty years Doris owned the portfolio. So I think it is pretty clear that the article was telling this portfolio retained its diversification.

I believe my conclusion above is confirmed in the second highlighted sentence. If Doris' portfolio showed the imbalance that HYP1 does I can not see how it could be described as relatively low risk.

So whether the story was fact, fiction, or a bit of both, what we are told is that Doris had a portfolio that was initially well diversified and remained so after over forty years. In that situation I can see why nobody would worry about 'tinkering' with the portfolio. But that is not how HYP1 looks after half that time. My guess is that PYAD did not expect HYP1 would ever look anywhere near as unbalanced as it does now when it was first selected.


If diversification was maintained by tinkering then how is this possible, and who did it, if Doris had no desire to get involved? I think you are drawing conclusions to fit your opinion rather than as supported from the statements.

On the second point I do not agree that a portfolio cannot be low risk just because there is imbalance in share holdings. Is the Vanguard World tracker high risk because of the weighting it has to a few shares such as Apple?

On the whole issue of the risk of a portfolio that equal weights across shares and sectors and is then left alone I would throw the following challenge - show me one that has failed. Every study I've seen, Doris, HYP1, studies of the original Dow components or my own experience has confirmed my belief that the approach is sound.

You diversify on purchase precisely because you know some shares will do better than others! Thats how portfolios and markets evolve. Why incur an endless succession of charges to try to maintain equal weightings when there is no evidence to suggest it helps overall performance. Again, if there is evidence, let's see it.

BoE


But are you happy to take the risk when outperformance of a single share leaves the portfolio very skewed? Nobody is suggesting continual tinkering but are there boundaries where one starts to get uncomfortable?

I once had the task for new clients of reconstructing their portfolio (Not a High Yield Portfolio) for CGT purposes (A lot of sitting in the ICAS library studying the Exdel books re corporate actions), the husband had over many years bought some of this and some of that , the couple were in their 80s by the time we acquired them as clients and the portfolio was near £500k of which one share (I think it was Daily Mail & General Trust) was circa £400k of the £500k. (Our job to establish the base costs was to enable their newly appointed brokersto reposition the skewed portfolio)

All eggs in one basket , likely first used in writing in the 17th century, probably ought not be ignored.

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Re: HYP1 is 20 - thread discussing income and capital diversification

#357677

Postby dealtn » November 18th, 2020, 11:47 am

Bubblesofearth wrote: Every study I've seen, Doris, HYP1, studies of the original Dow components or my own experience has confirmed my belief that the approach is sound.



Have you heard of Survivor Bias? (Or Confirmation Bias come to that).

Have you ever gone looking for failed strategies? If not it's hardly surprising the ones you have seen are "positive" and you have the belief you express.

OldPlodder

Re: HYP1 is 20 - thread discussing income and capital diversification

#357706

Postby OldPlodder » November 18th, 2020, 12:19 pm

Itsallaguess wrote:
Bagger46 wrote:
In my personal experience, all the retired people I know who require portfolio income, and it is quite a few real people, have chosen the IT route, plus the odd pref in a few cases for the the bulk of income core of their portfolio, simply because of the large volatility they know can happen in holding only HY individual holdings portfolios, as we see here.

I might add that the people I am referring to are (mostly) highly capable of understanding all aspects of investing, having suitable numeracy and professional/business/finance backgrounds.

Quite a few, who generally tend to be better off so they don’t need a massive portfolio yield, have a growth component which is ‘occasionally milked’ to create income for ‘special’ expenses.


A share-only HYP was how I started out income-investing, and the income and capital volatility didn't suit me at all, I'll be honest.

That's not to say that others will of course be able to handle that very personal side of investment better than me, and I'm sure this is the case, but my decision a few years ago to steer towards income-collectives in the form of relatively high-yield Investment Trusts was the single best investment decision I have made personally, in that whilst my 'headline level' portfolio-yield might well have come down, which it definitely has, the volatility side on both the income and capital front have also definitely come down as well, and improved in a way that enables me to really quite happily continue to actually enjoy my current income-investment approach, and to really turn it into the sort of 'hands-off' income portfolio that I originally thought I was getting into with my original HYP approach...

People can raise end-to-end HYP1 performance measures all they like, and to some that might be all that matters, but for me personally it's not necessarily about the speed of the journey, but much more about the comfort that I'm enjoying whilst I'm on it...

Cheers,

Itsallaguess


I agree that being comfortable and relaxed about one's investments is important. We have done that an settled on what we like and planned some time ago.

However, we measure performance because we feel we should be mindful of what common indices (or a compound one in our case) are achieving, and should we underperform, say over a suitable rolling period(we use three years) we would have a rethink.

My retirement requirements are sorted. I am very much invested on the lines Bagger alludes to, which obviously depends on portfolio size and individual income requirements, ie a chunk for base income through ITs, around 60% will do for me, the rest very growth oriented. I let go of individual holdings a while back (during the building phase over decades the balance was 70% growth, rest income to reinvest % which I maintained by re balancing every couple of years. It really paid off big time, and again really I agree with Bagger, in that looking forward I have urged our children to steer clear of HY.) I expect, should the future be reasonably similar to the past, that after a few years, the better capital performance of my growth basket choices will once again alter my portfolio balance, so I will then, should we need more income, or want to splash out on whatever(although as I said in my very first post there is plenty of slack to start with, plus a reserve anyway), I would tweak the balance back a notch. I expect such processes to be infrequent, but if markets become very turbulent and over-react, as they do every few years in excess, I might make the odd buck on the side, for added fun.

Plodder

I am a new poster, and profoundly disliked the aggressive attitude, and quoting part of my posts out of context, basically willingly ignoring my meaning and distorting things, which I experienced from one particular poster. I am seriously considering packing it in already.

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Re: HYP1 is 20 - thread discussing income and capital diversification

#357751

Postby Bubblesofearth » November 18th, 2020, 1:49 pm

dealtn wrote:Have you heard of Survivor Bias? (Or Confirmation Bias come to that).

Have you ever gone looking for failed strategies? If not it's hardly surprising the ones you have seen are "positive" and you have the belief you express.


Because it interests me and because I am a firm believer in its benefits, I've searched pretty widely around the equal-weight on purchase LTBH strategy and not found a great deal outwith TLF. And, yes, as I am investing my own money this way I have tried to disprove the theory! There's an obvious reason why these sort of studies are scarce and it's because it is not a strategy fund managers can easily operate. Wealth managers can (ref my Brewin Dolphin example) but detail of bespoke portfolios for private clients is not easily found.

I throw the challenge out because ISTM there are a fair few folk on here who see an evolved and unbalanced portfolio as unacceptably risky. Is the onus not on them to defend that position with evidence?

FWIW I don't think it's enough to simply consider the risk associated with an evolved portfolio in isolation. When someone invests in a portfolio of shares one does so with a certain amount of capital that one is prepared to take that risk with. If that capital has appreciated significantly then is it not likely that the risk one is prepared to take with that new level of wealth has changed? I may be prepared to take one level of risk with £100,000 but willing to accept higher risk if that grows to £200,000. Personal circumstances cannot be divorced from consideration of risk.

BoE

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Re: HYP1 is 20 - thread discussing income and capital diversification

#357753

Postby JamesMuenchen » November 18th, 2020, 1:55 pm

dealtn wrote:
Bubblesofearth wrote: Every study I've seen, Doris, HYP1, studies of the original Dow components or my own experience has confirmed my belief that the approach is sound.



Have you heard of Survivor Bias? (Or Confirmation Bias come to that).

Have you ever gone looking for failed strategies? If not it's hardly surprising the ones you have seen are "positive" and you have the belief you express.

Yes, it would be nice to get an occasional update on HYP2, HYP3, HYP4, HYP-lite and the rest of Pyad's non-tinker demos.

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Re: HYP1 is 20 - thread discussing income and capital diversification

#357763

Postby Bubblesofearth » November 18th, 2020, 2:22 pm

Charlottesquare wrote:But are you happy to take the risk when outperformance of a single share leaves the portfolio very skewed? Nobody is suggesting continual tinkering but are there boundaries where one starts to get uncomfortable?

I once had the task for new clients of reconstructing their portfolio (Not a High Yield Portfolio) for CGT purposes (A lot of sitting in the ICAS library studying the Exdel books re corporate actions), the husband had over many years bought some of this and some of that , the couple were in their 80s by the time we acquired them as clients and the portfolio was near £500k of which one share (I think it was Daily Mail & General Trust) was circa £400k of the £500k. (Our job to establish the base costs was to enable their newly appointed brokersto reposition the skewed portfolio)

All eggs in one basket , likely first used in writing in the 17th century, probably ought not be ignored.


It doesn't sound like this was set up along the lines under discussion, i.e. a diversified equal weight on purchase LTBH portfolio.

My understanding of the Trust you mention is that it manages a number of companies? If so then it's not really 'one share' but will already presumably be well diversified?

I've not come across a HYP-style portfolio that has got to the point where 80% of the capital is in a single share. Not even close. If it did happen from the starting point under discussion then it would have to be a share like Apple or Tesla. I'd probably kick myself round the living room if I'd sold either of those prematurely!

BoE

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Re: HYP1 is 20 - thread discussing income and capital diversification

#357772

Postby Charlottesquare » November 18th, 2020, 2:37 pm

Bubblesofearth wrote:
Charlottesquare wrote:But are you happy to take the risk when outperformance of a single share leaves the portfolio very skewed? Nobody is suggesting continual tinkering but are there boundaries where one starts to get uncomfortable?

I once had the task for new clients of reconstructing their portfolio (Not a High Yield Portfolio) for CGT purposes (A lot of sitting in the ICAS library studying the Exdel books re corporate actions), the husband had over many years bought some of this and some of that , the couple were in their 80s by the time we acquired them as clients and the portfolio was near £500k of which one share (I think it was Daily Mail & General Trust) was circa £400k of the £500k. (Our job to establish the base costs was to enable their newly appointed brokersto reposition the skewed portfolio)

All eggs in one basket , likely first used in writing in the 17th century, probably ought not be ignored.


It doesn't sound like this was set up along the lines under discussion, i.e. a diversified equal weight on purchase LTBH portfolio.

My understanding of the Trust you mention is that it manages a number of companies? If so then it's not really 'one share' but will already presumably be well diversified?

I've not come across a HYP-style portfolio that has got to the point where 80% of the capital is in a single share. Not even close. If it did happen from the starting point under discussion then it would have to be a share like Apple or Tesla. I'd probably kick myself round the living room if I'd sold either of those prematurely!

BoE


I said it was not an HYP but I can confirm it did not have excessive sums thrown at any particular share, it was merely just built over 50 years of ad hoc buying as the couple had monet to invest.

The catch for your accepting heavy weighting is no crystal ball, a RBOS, HBOS or even Carillion build up could be very painful.

I have no issue with long term holding, my father when he died in 2012 still held things he had bought in the 1950s (in fact he had some unit trust things that my Mother seems to have inherited from her father so they could have been bought in the 1930s), but he always considered balance, he reviewed what he owned annually and held/built/sold to balancer both income and growth (Typical of what he had been, a Trust Solicitor, and managed akin to the investments that might be held in an IIP trust where the trustee holds a duty of care to the party holding the right to the income and the different party holding the right to capital)

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Re: HYP1 is 20 - thread discussing income and capital diversification

#357774

Postby Charlottesquare » November 18th, 2020, 2:46 pm

Bubblesofearth wrote:
dealtn wrote:Have you heard of Survivor Bias? (Or Confirmation Bias come to that).

Have you ever gone looking for failed strategies? If not it's hardly surprising the ones you have seen are "positive" and you have the belief you express.


Because it interests me and because I am a firm believer in its benefits, I've searched pretty widely around the equal-weight on purchase LTBH strategy and not found a great deal outwith TLF. And, yes, as I am investing my own money this way I have tried to disprove the theory! There's an obvious reason why these sort of studies are scarce and it's because it is not a strategy fund managers can easily operate. Wealth managers can (ref my Brewin Dolphin example) but detail of bespoke portfolios for private clients is not easily found.

I throw the challenge out because ISTM there are a fair few folk on here who see an evolved and unbalanced portfolio as unacceptably risky. Is the onus not on them to defend that position with evidence?

FWIW I don't think it's enough to simply consider the risk associated with an evolved portfolio in isolation. When someone invests in a portfolio of shares one does so with a certain amount of capital that one is prepared to take that risk with. If that capital has appreciated significantly then is it not likely that the risk one is prepared to take with that new level of wealth has changed? I may be prepared to take one level of risk with £100,000 but willing to accept higher risk if that grows to £200,000. Personal circumstances cannot be divorced from consideration of risk.

BoE


Studies have suggested that as your funds grow you actually are more likely to become risk averse, a number of investment studies I have over the years seen mentioned appear to suggest that losses are more keenly felt than winners , so once your £100k has become £200k you are possibly very unwilling to see your £200k (and I know it may not have been realised) revert to £100k, a 50% drop.

Everyone has pain thresholds, everyone is different, I suspect loses much over 25%-30% from peak are mine, but that is because as I have got older I know there are fewer years left to recoup any reverses, I was possibly less risk averse when younger.

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Re: HYP1 is 20 - thread discussing income and capital diversification

#357794

Postby dealtn » November 18th, 2020, 3:41 pm

Bubblesofearth wrote:
dealtn wrote:Have you heard of Survivor Bias? (Or Confirmation Bias come to that).

Have you ever gone looking for failed strategies? If not it's hardly surprising the ones you have seen are "positive" and you have the belief you express.


Because it interests me and because I am a firm believer in its benefits, I've searched pretty widely around the equal-weight on purchase LTBH strategy and not found a great deal outwith TLF. And, yes, as I am investing my own money this way I have tried to disprove the theory! There's an obvious reason why these sort of studies are scarce and it's because it is not a strategy fund managers can easily operate. Wealth managers can (ref my Brewin Dolphin example) but detail of bespoke portfolios for private clients is not easily found.

I throw the challenge out because ISTM there are a fair few folk on here who see an evolved and unbalanced portfolio as unacceptably risky. Is the onus not on them to defend that position with evidence?



Well I suspect it will be difficult, as you say, to find anything, at least that won't be open to the accusation of anecdotal. Any LTBH portfolio is going to be affected by Corporate events. Look at the original 100 components of the FTSE100, for instance. Only around a quarter remain. Some have been demoted, many taken over, many taken private, some gone bust.

So what would an equal weighted portfolio now look like, and how would you measure its success? It all depends on what happened under all those Corporate Events, plus all the rights issues etc. on the way. It is likely that such a portfolio, were it be truly no tinker, would have large holdings of cash, which are likely to have meant a drag not just on performance, but in real terms not kept up with inflation.

As I said you need to be concious of Survivor Bias. HYP-P is not my natural Board, indeed its not clear if I should ever be allowed to post there, so I haven't followed its evolution over the years. But no doubt there will be many posters from times past that are no longer regular posters. Some of those may have become disillusioned with the failure of their HYPs, and unsurprisingly don't post there, or "highlight" the failure for others to see. That's no more than human nature. It doesn't meant they, or their portfolios, don't exist. On the other hand there will be many who have been both successful and vocal.

I'm sure if there was a TLF Coin Tossing Board there would be an above average posting about successes, and even some with perhaps a 75% ability in such a "sport" to tell us about it. I doubt many would be convinced it was anything other than a 50:50 random "sport", but from comments alone that might not immediately be obvious. Why would it be so different on an investment site?

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Re: HYP1 is 20 - thread discussing income and capital diversification

#357796

Postby Charlottesquare » November 18th, 2020, 3:46 pm

dealtn wrote:
Bubblesofearth wrote:
dealtn wrote:Have you heard of Survivor Bias? (Or Confirmation Bias come to that).

Have you ever gone looking for failed strategies? If not it's hardly surprising the ones you have seen are "positive" and you have the belief you express.


Because it interests me and because I am a firm believer in its benefits, I've searched pretty widely around the equal-weight on purchase LTBH strategy and not found a great deal outwith TLF. And, yes, as I am investing my own money this way I have tried to disprove the theory! There's an obvious reason why these sort of studies are scarce and it's because it is not a strategy fund managers can easily operate. Wealth managers can (ref my Brewin Dolphin example) but detail of bespoke portfolios for private clients is not easily found.

I throw the challenge out because ISTM there are a fair few folk on here who see an evolved and unbalanced portfolio as unacceptably risky. Is the onus not on them to defend that position with evidence?



Well I suspect it will be difficult, as you say, to find anything, at least that won't be open to the accusation of anecdotal. Any LTBH portfolio is going to be affected by Corporate events. Look at the original 100 components of the FTSE100, for instance. Only around a quarter remain. Some have been demoted, many taken over, many taken private, some gone bust.

So what would an equal weighted portfolio now look like, and how would you measure its success? It all depends on what happened under all those Corporate Events, plus all the rights issues etc. on the way. It is likely that such a portfolio, were it be truly no tinker, would have large holdings of cash, which are likely to have meant a drag not just on performance, but in real terms not kept up with inflation.

As I said you need to be concious of Survivor Bias. HYP-P is not my natural Board, indeed its not clear if I should ever be allowed to post there, so I haven't followed its evolution over the years. But no doubt there will be many posters from times past that are no longer regular posters. Some of those may have become disillusioned with the failure of their HYPs, and unsurprisingly don't post there, or "highlight" the failure for others to see. That's no more than human nature. It doesn't meant they, or their portfolios, don't exist. On the other hand there will be many who have been both successful and vocal.

I'm sure if there was a TLF Coin Tossing Board there would be an above average posting about successes, and even some with perhaps a 75% ability in such a "sport" to tell us about it. I doubt many would be convinced it was anything other than a 50:50 random "sport", but from comments alone that might not immediately be obvious. Why would it be so different on an investment site?


Surely depends upon the coin used, the old thrupenny possibly had a less than 50:50 chance re either side,given its edge, so it too would be all about selection. :D

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Re: HYP1 is 20 - thread discussing income and capital diversification

#357801

Postby Gengulphus » November 18th, 2020, 3:53 pm

Charlottesquare wrote:
Lootman wrote:
Gengulphus wrote:Really? I am aware of precisely one such TMF article, namely https://web.archive.org/web/20070104152 ... doris.aspx and I would be interested if anyone can point me to any others!

Or do you perhaps mean "often mentioned in TMF posts". On that, I would agree that many of them talked about someone named Doris, but typically she was someone who was struggling to make ends meet and was therefore badly affected by dividend cuts - which makes her very clearly a different person to the Doris in the article, who "had plenty of the folding stuff" and "was pretty rich, so much so that she never really knew how much she had". I.e. most of the posts were naming someone called Doris, but not referring to the person described in the article.

I feel sure those were the two Dorises.

But the one with so much money she couldn't count it isn't really the interesting one. She could have adopted almost any investment strategy and it would have worked in the sense that she would never have run out of money. Sounds like in fact she might have not even needed to invest it, and therefore risk it, at all. So we can't learn a lot from that Doris.

The more interesting Doris is the one who is considering retirement and/or planning for her future financial security, but has limited funds. She has to decide between HYP and a few alternatives like funds, bonds, annuities etc. If she makes the wrong choice it could be a disaster. And then the question arises, could she cope with a 47% drop in income from one year to the next? Should the bulk of her income depend on just 5 or 6 shares?

The people I worry about are those who barely have enough to retire, but they think they can get away with it merely by boosting the yield of the investments they buy. For folks like you, me and Salvor, with a few million in the bank, it hardly matters what we do except for the fun of it.


There are a fair few quasi Doris figures in Edinburgh (One is an honorary Great Aunt to my kids), all those who worked for our two wonderful banks (HBOS/RBOS) and held large slabs of their shares in their retirement savings know precisely what over concentration can mean to their standard of living.

If they know that, that's a major difference between them and the article's Doris: the article says "Although she was knowledgeable on many things, Doris had a blind spot when it came to money. ... Due to her blind spot with money she neither knew nor cared what shares were held ...". Of course, when you say "quasi Doris figures", you may be referring to the struggling Doris I typically saw talked about in TMF posts, or to Lootman's retirement-planning-with-limited-funds Doris, or some other type of Doris you've seen mentioned...

It would help if, when talking about hypothetical investors in very different financial circumstances from the article's Doris, people came up with a different name. Using the same name Doris almost seems calculated to create endless confusion about what type of investor is being talked about!

And by the way, the article's Doris was very wealthy - certainly far more wealthy than me, and I suspect than all or just about all of us here. My reason for saying that is that according to the article, her portfolio "at £7m it was around 65 times its value when she inherited it at a then value of £108,000 back in the thirties. A compound growth rate of roughly 11%.". It takes almost exactly 40 years for compound growth at 11% to produce a 65-fold increase in value, so that places the time the article was talking about in the 1970s. Using some cost-of living index figures from an old copy of the CSFB Equity-Gilt Study I've got, adjusting that for inflation from the 1970s to 2000 involves multiplying it by a factor in the rough range 3 to 9 (depending which end of the 1970s one is talking about - it was a high-inflation decade), and then RPI figures from 2000 to 2020 indicates a further multiplication by a factor of about 1.7; together, those indicate a multiplication by a factor in the rough range 5 to 15. So in inflation-adjusted terms, her portfolio in the 1970s was the rough equivalent of a £35m-£100m portfolio today, and the annual dividend income from it highly likely to be the equivalent of £1m-plus (maybe a lot plus!) today. So it's not surprising that "her income was vastly in excess of her outgoings", and she could very easily afford to be totally oblivious to overconcentration risks!

As Wizard has pointed out, the article reads as if Doris's portfolio had remained well-diversified over those ~40 years, and that seems inconsistent with what we've seen in HYP1 - and with the continuation of my first quote from the article above "... and in consequence she never did any trading. The only changes to the portfolio over all those years were consequently those mandatory impositions resulting from corporate activity." But those mandatory impositions will have occurred, and it seems highly unlikely from the description of her "blind spot" that she knew anything much about how to deal with them. She didn't deal with her tax herself, but employed Stephen Bland's accountancy practice to do it for her, so it seems highly likely to me that she didn't deal with the mandatory trading produced by corporate activity herself, but employed another professional to do it for her. At her level of wealth and at that time, she could definitely get (and easily afford) someone who would run it according to her individual instructions rather than lumping her into one of a few groups of 'similar' clients. And her instructions might well have been along the lines of "I like the portfolio as it is, so leave it alone - unless something really needs to be done", interpreted by the person managing her portfolio as "mainly deal with returned capital (especially takeover proceeds) which needs reinvestment, but a holding becoming dangerously overweight is also something that needs to be dealt with"...

So there could have been some rebalancing done since the 1930s - and Stephen wouldn't necessarily have known about it, because as her tax accountant he would only have needed to know about buying or selling for CGT purposes, and CGT had only been in existence since 1965. So the portfolio wouldn't have needed to have gone 40 years without serious build-up of imbalances - it could have been as few as 5, which could very plausibly have happened (see the table in the OP, which shows little extra build-up of imbalances between 2010 and 2015). Furthermore, I don't know exactly how CGT was assessed in its early days, but I do know that in the 1990s before 1998, it was assessed as though it was extra income on top of the taxpayer's other income, and that the highest Income Tax rates in the late 1960s and 1970s were eyewateringly high: if 1970s CGT assessment worked on the same principle as in the 1990s, that would have produced a serious tax incentive not to realise capital gains, and so the person managing her portfolio would probably have been very reluctant to take big capital gains even if the portfolio was starting to become uncomfortably unbalanced.

So I would take what the article says about never doing any trading other than that imposed by corporate activity with more than a pinch of salt - it's not totally impossible, but it seems far more likely to me that a small amount of non-mandatory trading had been done over the portfolio's 40-year history, but Stephen Bland (and quite likely Doris herself) simply didn't know about it. And it doesn't take much non-mandatory trading: I reckon that half a dozen trimmings of holdings over the last 20 years would have done the job for HYP1 - two each for Persimmon and Rio Tinto, and one each for BATS and Intercontinental Hotels (only one for BATS despite it having roughly the same current capital value as Rio Tinto because that capital value is boosted by it having been very overweight when purchased as a replacement for Gallaher - an investor who is concerned enough about imbalance to trim overweight holdings would have split the Gallaher takeover proceeds at least two ways rather than investing them all in BATS). Another would have been done for Anglo American around 2007 and subsequently turned out not really to be needed, I think, due to the share price then being about 50% higher than it is today, and there may be one or two further such cases, but basically, HYP1's imbalances could have been dealt with by some more diversification-aware reinvestment of large takeover proceeds plus a trimming every 2-3 years on average (which means that both significantly longer and significantly shorter gaps would probably have occurred).

My main point though is that, with rare exceptions where they make it clear that they are talking about the Doris portrayed in pyad's article, about the one thing I am fairly certain of when people talk about Doris is that the investor they're talking about is not remotely like that Doris! Which often leaves me trying to reconstruct from context what that investor is like...

Gengulphus

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Re: HYP1 is 20 - thread discussing income and capital diversification

#357803

Postby funduffer » November 18th, 2020, 3:56 pm

Alaric wrote:
funduffer wrote:HYP was intended as a retirement income option for someone with a lump sum investment, who needed to boost income, and who was an unsophisticated LTBH investor, who wanted little or no trading - just to spend, live and not fret about their portfolio.


Given those objectives, why doesn't a parcel of ITs achieve these with less income volatility?

Much of the chatter on the HYP-P board is those who are using the dividend income for reinvestment rather than living expenses. Growth investors in effect who can be relaxed about volatility of income receipts and illogically about capital values as well.in the sense that they are seemingly unconcerned to test whether the income performance is at the expense of capital.


I couldn't agree more on both points.

IT's form a much more hassle free and less volatile means of taking income, as my own IT portfolio has demonstrated during this pandemic, compared to my HYP.

I also agree that building a retirement pot using HYP and re-investing dividends is probably not the best way to get portfolio growth. Investment in a low cost, world equity index tracker would be a better way in my view, for a LTBH, unsophisticated investor..

FD

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Re: HYP1 is 20 - thread discussing income and capital diversification

#357807

Postby Gengulphus » November 18th, 2020, 4:01 pm

dealtn wrote:I'm sure if there was a TLF Coin Tossing Board there would be an above average posting about successes, and even some with perhaps a 75% ability in such a "sport" to tell us about it. I doubt many would be convinced it was anything other than a 50:50 random "sport", but from comments alone that might not immediately be obvious. Why would it be so different on an investment site?

As a real-world example that points in the opposite direction, back in the days of the TMF boards, there was a Premium Bonds board - and IIRC the most common type of post was about never winning anything!

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Re: HYP1 is 20 - thread discussing income and capital diversification

#357810

Postby dealtn » November 18th, 2020, 4:08 pm

Gengulphus wrote:
dealtn wrote:I'm sure if there was a TLF Coin Tossing Board there would be an above average posting about successes, and even some with perhaps a 75% ability in such a "sport" to tell us about it. I doubt many would be convinced it was anything other than a 50:50 random "sport", but from comments alone that might not immediately be obvious. Why would it be so different on an investment site?

As a real-world example that points in the opposite direction, back in the days of the TMF boards, there was a Premium Bonds board - and IIRC the most common type of post was about never winning anything!

Gengulphus


Yes, but that's not a "skill" event is it? You don't even get to pick your own number, let alone run ERNIE.

But coin tossing is all about choosing heads or tails, and then tossing the coin yourself, utilising your natural skill and advantage!

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Re: HYP1 is 20 - thread discussing income and capital diversification

#357831

Postby Charlottesquare » November 18th, 2020, 4:42 pm

Gengulphus wrote:
Charlottesquare wrote:
Lootman wrote:I feel sure those were the two Dorises.

But the one with so much money she couldn't count it isn't really the interesting one. She could have adopted almost any investment strategy and it would have worked in the sense that she would never have run out of money. Sounds like in fact she might have not even needed to invest it, and therefore risk it, at all. So we can't learn a lot from that Doris.

The more interesting Doris is the one who is considering retirement and/or planning for her future financial security, but has limited funds. She has to decide between HYP and a few alternatives like funds, bonds, annuities etc. If she makes the wrong choice it could be a disaster. And then the question arises, could she cope with a 47% drop in income from one year to the next? Should the bulk of her income depend on just 5 or 6 shares?

The people I worry about are those who barely have enough to retire, but they think they can get away with it merely by boosting the yield of the investments they buy. For folks like you, me and Salvor, with a few million in the bank, it hardly matters what we do except for the fun of it.


There are a fair few quasi Doris figures in Edinburgh (One is an honorary Great Aunt to my kids), all those who worked for our two wonderful banks (HBOS/RBOS) and held large slabs of their shares in their retirement savings know precisely what over concentration can mean to their standard of living.

If they know that, that's a major difference between them and the article's Doris: the article says "Although she was knowledgeable on many things, Doris had a blind spot when it came to money. ... Due to her blind spot with money she neither knew nor cared what shares were held ...". Of course, when you say "quasi Doris figures", you may be referring to the struggling Doris I typically saw talked about in TMF posts, or to Lootman's retirement-planning-with-limited-funds Doris, or some other type of Doris you've seen mentioned...

It would help if, when talking about hypothetical investors in very different financial circumstances from the article's Doris, people came up with a different name. Using the same name Doris almost seems calculated to create endless confusion about what type of investor is being talked about!

And by the way, the article's Doris was very wealthy - certainly far more wealthy than me, and I suspect than all or just about all of us here. My reason for saying that is that according to the article, her portfolio "at £7m it was around 65 times its value when she inherited it at a then value of £108,000 back in the thirties. A compound growth rate of roughly 11%.". It takes almost exactly 40 years for compound growth at 11% to produce a 65-fold increase in value, so that places the time the article was talking about in the 1970s. Using some cost-of living index figures from an old copy of the CSFB Equity-Gilt Study I've got, adjusting that for inflation from the 1970s to 2000 involves multiplying it by a factor in the rough range 3 to 9 (depending which end of the 1970s one is talking about - it was a high-inflation decade), and then RPI figures from 2000 to 2020 indicates a further multiplication by a factor of about 1.7; together, those indicate a multiplication by a factor in the rough range 5 to 15. So in inflation-adjusted terms, her portfolio in the 1970s was the rough equivalent of a £35m-£100m portfolio today, and the annual dividend income from it highly likely to be the equivalent of £1m-plus (maybe a lot plus!) today. So it's not surprising that "her income was vastly in excess of her outgoings", and she could very easily afford to be totally oblivious to overconcentration risks!

As Wizard has pointed out, the article reads as if Doris's portfolio had remained well-diversified over those ~40 years, and that seems inconsistent with what we've seen in HYP1 - and with the continuation of my first quote from the article above "... and in consequence she never did any trading. The only changes to the portfolio over all those years were consequently those mandatory impositions resulting from corporate activity." But those mandatory impositions will have occurred, and it seems highly unlikely from the description of her "blind spot" that she knew anything much about how to deal with them. She didn't deal with her tax herself, but employed Stephen Bland's accountancy practice to do it for her, so it seems highly likely to me that she didn't deal with the mandatory trading produced by corporate activity herself, but employed another professional to do it for her. At her level of wealth and at that time, she could definitely get (and easily afford) someone who would run it according to her individual instructions rather than lumping her into one of a few groups of 'similar' clients. And her instructions might well have been along the lines of "I like the portfolio as it is, so leave it alone - unless something really needs to be done", interpreted by the person managing her portfolio as "mainly deal with returned capital (especially takeover proceeds) which needs reinvestment, but a holding becoming dangerously overweight is also something that needs to be dealt with"...

So there could have been some rebalancing done since the 1930s - and Stephen wouldn't necessarily have known about it, because as her tax accountant he would only have needed to know about buying or selling for CGT purposes, and CGT had only been in existence since 1965. So the portfolio wouldn't have needed to have gone 40 years without serious build-up of imbalances - it could have been as few as 5, which could very plausibly have happened (see the table in the OP, which shows little extra build-up of imbalances between 2010 and 2015). Furthermore, I don't know exactly how CGT was assessed in its early days, but I do know that in the 1990s before 1998, it was assessed as though it was extra income on top of the taxpayer's other income, and that the highest Income Tax rates in the late 1960s and 1970s were eyewateringly high: if 1970s CGT assessment worked on the same principle as in the 1990s, that would have produced a serious tax incentive not to realise capital gains, and so the person managing her portfolio would probably have been very reluctant to take big capital gains even if the portfolio was starting to become uncomfortably unbalanced.

So I would take what the article says about never doing any trading other than that imposed by corporate activity with more than a pinch of salt - it's not totally impossible, but it seems far more likely to me that a small amount of non-mandatory trading had been done over the portfolio's 40-year history, but Stephen Bland (and quite likely Doris herself) simply didn't know about it. And it doesn't take much non-mandatory trading: I reckon that half a dozen trimmings of holdings over the last 20 years would have done the job for HYP1 - two each for Persimmon and Rio Tinto, and one each for BATS and Intercontinental Hotels (only one for BATS despite it having roughly the same current capital value as Rio Tinto because that capital value is boosted by it having been very overweight when purchased as a replacement for Gallaher - an investor who is concerned enough about imbalance to trim overweight holdings would have split the Gallaher takeover proceeds at least two ways rather than investing them all in BATS). Another would have been done for Anglo American around 2007 and subsequently turned out not really to be needed, I think, due to the share price then being about 50% higher than it is today, and there may be one or two further such cases, but basically, HYP1's imbalances could have been dealt with by some more diversification-aware reinvestment of large takeover proceeds plus a trimming every 2-3 years on average (which means that both significantly longer and significantly shorter gaps would probably have occurred).

My main point though is that, with rare exceptions where they make it clear that they are talking about the Doris portrayed in pyad's article, about the one thing I am fairly certain of when people talk about Doris is that the investor they're talking about is not remotely like that Doris! Which often leaves me trying to reconstruct from context what that investor is like...

Gengulphus


They know from experience- Edinburgh has vast numbers of ex staff re both banks, some had over concentrations in the shares of their former employers, they learned that over concentration was dangerous the really hard way. (My Brother in Law may have experienced similar with all his Centrica Shares)


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