HYP1 is 23 - Total Return

[Arborbridge]

What would an equivalent holding in gold be worth now if you had sold an amount each year to provide the same income as HYP1?

BoE

As a practicing TR investor with half an hour to spare today I ran the numbers on this in a spreadsheet, out of interest. If you had bought £75k worth of Gold in November 2000, and sold enough on each anniversary to cover the dividends generated by HYP1, the gold would be worth £314k today. The total return would be £445k with a CAGR of 8%. IMHO nothing illustrates the high risk, low reward folly of investing for income only more than these numbers.

Didn't someone give us a TR for HYP1 of over 8% just a day or two ago? Sounds similar, so I don't see "folly" as being the apt word.

[kempiejon]

As a practicing TR investor

As a quick aside aren't we all TR investors? Isn't TR a measure of how the sums invested have changed due to capital appreciation/decline and any income like dividends/interest generated by said investments all added together? One can focus on dividends, growth, value, fixed interest, whatever but when you do the sums you get a value as to how the investment amount has changed or total return.

[simoan]

As a practicing TR investor with half an hour to spare today I ran the numbers on this in a spreadsheet, out of interest. If you had bought £75k worth of Gold in November 2000, and sold enough on each anniversary to cover the dividends generated by HYP1, the gold would be worth £314k today. The total return would be £445k with a CAGR of 8%. IMHO nothing illustrates the high risk, low reward folly of investing for income only more than these numbers.

Didn't someone give us a TR for HYP1 of over 8% just a day or two ago? Sounds similar, so I don't see "folly" as being the apt word.

I think they admitted it was wrong and they used XIRR. I calculated the CAGR as 5.85%: Start value = £75k, End Value = £277k, period = 23 years. You can easily calculate the CAGR yourself if you don't believe me. I'm sure you can appreciate there's a large difference between 6% and 8% CAGR over a period of 23 years.

[simoan]

As a practicing TR investor

As a quick aside aren't we all TR investors? Isn't TR a measure of how the sums invested have changed due to capital appreciation/decline and any income like dividends/interest generated by said investments all added together? One can focus on dividends, growth, value, fixed interest, whatever but when you do the sums you get a value as to how the investment amount has changed or total return.

My understanding is that many people hereabouts are not concerned with the capital value, only income generated. If I'm wrong it's only because they've been telling porkies for the past 24 years!

[CryptoPlankton]

What would an equivalent holding in gold be worth now if you had sold an amount each year to provide the same income as HYP1?

BoE

As a practicing TR investor with half an hour to spare today I ran the numbers on this in a spreadsheet, out of interest. If you had bought £75k worth of Gold in November 2000, and sold enough on each anniversary to cover the dividends generated by HYP1, the gold would be worth £314k today. The total return would be £445k with a CAGR of 8%. IMHO nothing illustrates the high risk, low reward folly of investing for income only more than these numbers.

Hmm, nothing illustrates investment risk better than a comparison with investing in gold? So, if the experiment had been run for 20 years from 1980 (during which time, gold fell in value by 40%) what would that have illustrated? Just wondering...

[Lootman]

As a practicing TR investor

As a quick aside aren't we all TR investors? Isn't TR a measure of how the sums invested have changed due to capital appreciation/decline and any income like dividends/interest generated by said investments all added together? One can focus on dividends, growth, value, fixed interest, whatever but when you do the sums you get a value as to how the investment amount has changed or total return.

From my perspective it is not a matter of only growth or only income. There are mechanisms for converting income into capital growth and vice versa, so the distinction is a bit arbitrary. Often that might be a decision based on taxation.

I prefer to think in terms of cashflows. Bond investors approach it that way but I think equity investors should too. As long as future cashflows meet or exceed my liabilities than a strategy can be considered sound. And whether those cashflows derive from interest, dividends, premiums, rent or profits (capital gains in the case of securities) does not really matter.

I do not ignore dividends but I certainly do not have a love affair with them, as some apparently do. And insofar as I consider dividends, I look more for increasing dividends and not their current yield. I tend to be more impatient with a holding that pays no dividend at all. But otherwise a 1% or 2% yield is fine as long as I believe in the story.

[simoan]

As a practicing TR investor with half an hour to spare today I ran the numbers on this in a spreadsheet, out of interest. If you had bought £75k worth of Gold in November 2000, and sold enough on each anniversary to cover the dividends generated by HYP1, the gold would be worth £314k today. The total return would be £445k with a CAGR of 8%. IMHO nothing illustrates the high risk, low reward folly of investing for income only more than these numbers.

Hmm, nothing illustrates investment risk better than a comparison with investing in gold? So, if the experiment had been run for 20 years from 1980 (during which time, gold fell in value by 40%) what would that have illustrated? Just wondering...

I am not suggesting anyone invest in gold. And there's no point having a discussion about it, particularly if you are going to pick arbitrary time periods. Risk is subjective and many faceted, and the vast majority of investors would accept gold is a lower risk asset than a portfolio of 15 FTSE100 shares. We are only discussing the 23 year period duration of HYP1. I could easily have picked the S&P500 and achieved a similar result. Sorry, but this is OT for this thread and I will not be replying any further.

[Bubblesofearth]

As a practicing TR investor with half an hour to spare today I ran the numbers on this in a spreadsheet, out of interest. If you had bought £75k worth of Gold in November 2000, and sold enough on each anniversary to cover the dividends generated by HYP1, the gold would be worth £314k today. The total return would be £445k with a CAGR of 8%. IMHO nothing illustrates the high risk, low reward folly of investing for income only more than these numbers.

I completely agree with you that risk-adjusted total return is what matters. One question regarding risk, if you are not going to use the industry standard of volatility then how do you quantify your preferred measure?

I've had a look at the numbers myself and get to the following amounts today starting with £75,000 23 years ago;

Gold £430,000. This is eyeballing a graph and close enough to your figure that we are probably in agreement.

S&P500 £394,000. Assumes reinvested dividends at 2% which is ball-park for the S&P over that time period.

HYP1 £359,000. Assumes reinvested dividends at 4% which is somewhat conservative over the time period.

I've assumed reinvestment of dividends as this is IMO the only sensible way of comparing total return between investments.

Bottom line there's not a huge difference between the results of investment in the different assets over the past 23 years. And worth pointing out that this period has been an unusually good one for gold - basically starting close to the infamous Brown bottom! The previous 20 years wouldn't have looked so clever.

BoE

[simoan]

As a practicing TR investor with half an hour to spare today I ran the numbers on this in a spreadsheet, out of interest. If you had bought £75k worth of Gold in November 2000, and sold enough on each anniversary to cover the dividends generated by HYP1, the gold would be worth £314k today. The total return would be £445k with a CAGR of 8%. IMHO nothing illustrates the high risk, low reward folly of investing for income only more than these numbers.

I completely agree with you that risk-adjusted total return is what matters. One question regarding risk, if you are not going to use the industry standard of volatility then how do you quantify your preferred measure?

I've had a look at the numbers myself and get to the following amounts today starting with £75,000 23 years ago;

Gold £430,000. This is eyeballing a graph and close enough to your figure that we are probably in agreement.

S&P500 £394,000. Assumes reinvested dividends at 2% which is ball-park for the S&P over that time period.

HYP1 £359,000. Assumes reinvested dividends at 4% which is somewhat conservative over the time period.

I've assumed reinvestment of dividends as this is IMO the only sensible way of comparing total return between investments.

Bottom line there's not a huge difference between the results of investment in the different assets over the past 23 years. And worth pointing out that this period has been an unusually good one for gold - basically starting close to the infamous Brown bottom! The previous 20 years wouldn't have looked so clever.

BoE

I'm sorry but you cannot move the goalposts like that to make a completely different point by adding in dividend re-investment. This is not the approach used by HYP1. There is so much confirmation bias on this thread it's unreal. I find it quite worrying. I am signing out now because there seems such devotion to HYP1 that minds are closed to any alternative approach. Once again you have completely ignored risk.

Sorry, Si

[Lootman]

Hmm, nothing illustrates investment risk better than a comparison with investing in gold? So, if the experiment had been run for 20 years from 1980 (during which time, gold fell in value by 40%) what would that have illustrated? Just wondering...

I am not suggesting anyone invest in gold. And there's no point having a discussion about it, particularly if you are going to pick arbitrary time periods. Risk is subjective and many faceted, and the vast majority of investors would accept gold is a lower risk asset than a portfolio of 15 FTSE100 shares. We are only discussing the 23 year period duration of HYP1. I could easily have picked the S&P500 and achieved a similar result. Sorry, but this is OT for this thread and I will not be replying any further.

One thing that flatters HYP1 is that its starting point just happens to be around the time that the dot.com bubble was peaking. That led to a period of a few years where value beat growth. Start it 5 years earlier or later, when growth was in the ascendancy, and you would probably see a less impressive result.

I suspect that a global tracker, a S&P 500 tracker and Berkshire Hathaway, with appropriate capital drawdown to create "income", would all have done as well or better than HYP1, and with less risk and volatility, and with more simplicity and diversification.

[CryptoPlankton]

Hmm, nothing illustrates investment risk better than a comparison with investing in gold? So, if the experiment had been run for 20 years from 1980 (during which time, gold fell in value by 40%) what would that have illustrated? Just wondering...

I am not suggesting anyone invest in gold. And there's no point having a discussion about it, particularly if you are going to pick arbitrary time periods. Risk is subjective and many faceted, and the vast majority of investors would accept gold is a lower risk asset than a portfolio of 15 FTSE100 shares. We are only discussing the 23 year period duration of HYP1. I could easily have picked the S&P500 and achieved a similar result. Sorry, but this is OT for this thread and I will not be replying any further.

Interesting. If all I had was £75k to invest, I'm not sure I'd be happier sticking it all in gold rather than spreading it across15 FTSE 100 shares, but I guess that's another debate. My point was simply that your best "illustration" seemed pretty weak, given the historical volatility of gold. As you say, you could have picked another "illustration", but you didn't...

[CryptoPlankton]

I suspect that a global tracker, a S&P 500 tracker and Berkshire Hathaway, with appropriate capital drawdown to create "income", would all have done as well or better than HYP1, and with less risk and volatility, and with more simplicity and diversification.

I suspect you could be right, and it would be of some interest if someone came up with those figures. Of course, it's all hindsight, and what really matters is positioning ourselves for the future. Other than diversification and (inspired?) guesswork, what do we have?

[Bubblesofearth]

I'm sorry but you cannot move the goalposts like that to make a completely different point by adding in dividend re-investment. This is not the approach used by HYP1. There is so much confirmation bias on this thread it's unreal. I find it quite worrying. I am signing out now because there seems such devotion to HYP1 that minds are closed to any alternative approach. Once again you have completely ignored risk.

Sorry, Si

It's not about moving goalposts it's about comparing like for like and bowing to your desire to look at total return. You need to understand what CAGR means - you can't calculate it by removing cash periodically from the investment. It doesn't matter what HYPers do, CAGR only means anything if dividends are reinvested.

As for risk I asked you how you quantify your unconventional measure - do you have an answer?

BoE

[Arborbridge]

I suspect that a global tracker, a S&P 500 tracker and Berkshire Hathaway, with appropriate capital drawdown to create "income", would all have done as well or better than HYP1, and with less risk and volatility, and with more simplicity and diversification.

I suspect you could be right, and it would be of some interest if someone came up with those figures. Of course, it's all hindsight, and what really matters is positioning ourselves for the future. Other than diversification and (inspired?) guesswork, what do we have?

That would be interesting. I would not like to be in the current position of having to fund my income in a market which has fallen - even if I had a big income reserve. The dividend income has held up well in comparison.

Arb.

[pyad]

Dontcha just love those people who tell you, decades later, that Mongolian horseshit futures would have been a better investment than HYPs or whatever they're trying to knock. Any fool, even lemon ones, can do that. Empty vessels make...

[Lootman]

Dontcha just love those people who tell you, decades later, that Mongolian horseshit futures would have been a better investment than HYPs or whatever they're trying to knock. Any fool, even lemon ones, can do that. Empty vessels make...

But someone who was an active investor 23 years ago might reasonably have chosen options like an index fund or a diversified investment trust. In fact many ITs have been around for a century or more, and the oldest ETF is now 40 years old. So I am afraid that you cannot get away with just glibly discounting reasonable alternatives that were readily available and popular in 1999, and that have done very well since then.

[Bubblesofearth]

But someone who was an active investor 23 years ago might reasonably have chosen options like an index fund or a diversified investment trust. In fact many ITs have been around for a century or more, and the oldest ETF is now 40 years old. So I am afraid that you cannot get away with just glibly discounting reasonable alternatives that were readily available and popular in 1999, and that have done very well since then.

The thing is though most of those alternatives haven't done any better than HYP1 in terms of CAGR*. You have to use hindsight and go to specific markets, like the US, to find ones that have actually done better.

*Assume reinvestment of income for HYP1 and all alternatives to make a valid comparison.

BoE

[1nvest]

Generally I've not seen evidence that the HYP1 adequately compensates for the higher risk taken in holding a limited number of stocks. Common advice is to buy the entire haystack.

That's an odd thing to say when presented with a 23 year record in which the "owner" has at no time suffered a loss of capital. For a retiree, I'd say that was good enough

How little risk do you want, for goodness sake? Do we have to do this for 50 years before you accept that HYP is a relatively risk free way of generating a high and rising income?

I get that some people will never be convinced; will always divert attention by changing the goal posts and introducing tangential considerations, but a Man from Mars would accept that HYP1 fulfilled its original brief - and that is all one can ask of it. All else is OT for this board.

Arb

HYP1 is just one sample. Broadly, assuming comparable rewards the risk of being concentrated into just 15 stocks is greater than a broad index fund. Individual case outcomes will vary around the broader market average, nice if to the plus side, but where for most the concern (risk) is that of the negative side. More risk, for the same reward (on average) is a worse risk-adjusted-reward.

I expect stock prices to broadly negate inflation, what someone might pay for a 5%/whatever earnings yield might equally see another paying a similar inflation adjusted price in the future, assuming similar/same general conditions at that time (inflation/interest rates etc.). Same for house/land prices, gold ...etc.

Between points of dissimilar conditions so the prices will differ, if you buy at a point when interest rates/inflation are high, end at a point when they're low, likely stock and house prices will have made good/great gains; As might another who started at low interest rates/inflation, ended at high interest rates/inflation - likely seen a relatively poor outcome.

Ancient diversification advice suggests diversifying across both asset and geopolitical risk exposure. Stocks are just a single element within that. i.e. wider/more diverse asset allocations are safer. Concentration of assets is a (broadly) uncompensated risk.

[Arborbridge]

HYP1 is just one sample.

That's true, only because you choose to discuss one example: there are others that have shown commendable robustness.

Of course, I agree with you that having a small number of shares is a higher risk - I've written so myself in the past few days.
But that is a concern mainly if you are interested in a high capital growth over a few years - but if you are intending to hold in perpetuity you can virtually ignore the risk. A strange idea and it takes some getting used to, but it does seem to work.

Forgetting to worry about the capital was something unique to Pyad - but he had a point.

Arb.

[1nvest]

For reference I calculate the XIRR of a third each UK (£) house/US ($) stock/gold (global non-fiat currency) asset allocation 2001-2022 calendar years to be 10.1% (inclusive of imputed rent and dividends).

A Martian upon seeing the state of the world might feel more comfortable with such a asset/currency/geopolitical-risk diversification than that of just 15 stocks selected from one stock market.

Most people first buy their own home, and thereafter set aside/accumulate surplus capital for later (retirement) spending - in the hope of at least getting their inflation money back. Setting aside home ownership - that negates otherwise exposure to having to find/pay rent each month, the historic prospects (since 1896, calendar yearly granularity) from 50/50 US stock/gold for a British resident of getting your inflation adjusted money back were pretty good. 3.33% 30 year SWR (start by drawing 3.33% of the value at the start of the first year, increase that amount by inflation as the amount drawn in subsequent years ... for 30 years, so the return of your inflation adjusted money via 30 yearly installments) .. in the worst case ended with 50% of the inflation adjusted capital still available at the end of 30 years, had a 86% chance of ending with more than the inflation adjusted capital still available, in the median case 2.4 times more.

At Martian arrivals desks where one offered a UK home, US $ invested in the US stock market, physical gold perhaps locked away in a Singapore vault ... or the other desk offered the alternative of just 15 UK stock market shares, and I would imagine that the latter desk would be pretty quiet. Yes for many of those that did opt for that 15 stock choice things probably would work out fine, but as ever within that set there are those that ended up in tears, worst/bad case comparisons were worse for the 15 stock than the more broader asset allocation choice.

Any individual sample test is relatively uninformative, better to seek out the worst cases and use those as comparisons as that is more often the primary concern factor for most investors. I approximate the worst 30 year 3.33% SWR for UK stocks to have been ending with 0% remaining, median case ending with 2 times, 72% chance of ending with at least 100% of the inflation adjusted portfolio value still remaining at the end of 30 years. With those and comparisons such as the figures I posted above you're better informed than you are from the outcome from a single case/sample.