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