HYP1 is 23 - Total Return

[tjh290633]

You only rebalance when you have to. It was 10 years before I felt the need. Then I set the limit for no more than 10% in a single share. If I had stuck to that 10% limit, it would probably be no more frequently than every 3 years, if that.

This makes no sense whatsoever and is totally bizarre. What you are saying is that in the early years when you have very few shareholdings and in a time where a significant over-concentration can occur, there is no need to rebalance. However, after a few years , you can put a very loose filter on to avoid over-concentration but when you get to 30+ shareholdings you need to really trim this down so that you make a lot more changes to your portfolio to avoid this problem. If trimming to avoid over-reliance has any merit, it is in a small portfolio in the early years. However, the HYP proposed had 30+ constituents and since you seem to take that as a sign that there needs to be more emphasis on rebalancing, then surely it would be good to use your method to see what impact that has on performance. Here I am not talking about the value of the shareholding but the dividends achieved every year. It would seem that there is a real concern about this method being tested...?

It has saddened me that this has morphed into a discussion about unitising, because an emphasis on that is largely an intellectual one for those that want to analyse how they are doing - and no harm in that, but it is not a key concern for me. I am with Moorcroft in that the real number I am concerned with is how much am I receiving in dividends, is it rising and is it enough to live on?

If TJH's portfolio doesn't do well, he has less to leave to his beneficiaries; if mine doesn't do well, I don't eat!

At the time, I had about 18 holdings, soon to rise into the 20s.

When one share rose considerably, I got worried. Presumably you would accept a single share rising well above the average. At what point would you feel over exposed? 25%, 50%, 75% or where?

I have given the example of the then Imperial Tobacco, which I had occasion to trim by 25% on five occasions and to sell two nil paid rights. Left alone it would have risen to 50% or more of the portfolio value. Each time the proceeds went into a higher yielding shares than IMT, so the dividend income from the portfolio and from the theoretical income unit rose. Elsewhere you will find my reports, indicating that the dividend per income unit has rise from an initial 2.83p/unit to 32.13p/unit in the last financial year. Meanwhile the unit value has increased from £1.00 to £6.22 at the end of the last financial year. Over the same period the FTSE100 rose from 1949 to 7662, about four-fold.

I am happy to publish those figures.

TJH

[moorfield]

It has saddened me that this has morphed into a discussion about unitising, because an emphasis on that is largely an intellectual one for those that want to analyse how they are doing - and no harm in that, but it is not a key concern for me. I am with Moorcroft in that the real number I am concerned with is how much am I receiving in dividends, is it rising and is it enough to live on?

If TJH's portfolio doesn't do well, he has less to leave to his beneficiaries; if mine doesn't do well, I don't eat!

Ha ha, well I've been called many things!, but yes you get what really matters clearly, and I hope it's not too off topic here to discuss that LLLS chart of Malcolm's. The next logical step then, is to extrapolate it.

What's curious about TJHs 35-holding finely balanced portfolio for all the meticulous record keeping is that it yields little more than CTY (City of London IT) today and (as has been shown elsewhere) could ratchet up its income again by some 40-50% - no financial voodoo involved there, just counting. Whether he would choose to or not I suspect has more to do with anthropology than mathematics. Nothing wrong with that of course.

History is Bunk, as someone once said, which is what I was suggesting in my earlier post.

[monabri]

For "new readers"...LLLS chart (posted by MDW1954) "How HYP1 might have grown with dividend reinvestment"


viewtopic.php?p=548820#p548820

[tjh290633]

It has saddened me that this has morphed into a discussion about unitising, because an emphasis on that is largely an intellectual one for those that want to analyse how they are doing - and no harm in that, but it is not a key concern for me. I am with Moorcroft in that the real number I am concerned with is how much am I receiving in dividends, is it rising and is it enough to live on?

If TJH's portfolio doesn't do well, he has less to leave to his beneficiaries; if mine doesn't do well, I don't eat!

Ha ha, well I've been called many things!, but yes you get what really matters clearly, and I hope it's not too off topic here to discuss that LLLS chart of Malcolm's. The next logical step then, is to extrapolate it.

What's curious about TJHs 35-holding finely balanced portfolio for all the meticulous record keeping is that it yields little more than CTY (City of London IT) today and (as has been shown elsewhere) could ratchet up its income again by some 40-50% - no financial voodoo involved there, just counting. Whether he would choose to or not I suspect has more to do with anthropology than mathematics. Nothing wrong with that of course.

History is Bunk, as someone once said, which is what I was suggesting in my earlier post.

Funny that the thought just crossed my mind. Is the time now right for a partial switch into ITs with some of my lower yielding shares?

My current yield is 5.05% and I have 15 shares yielding less than 4%, 6 yielding less than 3%. Those are DGE, BA., PSON, AZN, IMI and HLN. The dichotomy comes with the highest yielders, WDS and VOD, both over 11% if they continue to pay. Now that I am in my 90s, is this the time to make the long contemplated move into ITs?

I was looking at a potential list of ITs, but need to update my data.

TJH

[moorfield]

Funny that the thought just crossed my mind. Is the time now right for a partial switch into ITs with some of my lower yielding shares?

My current yield is 5.05% and I have 15 shares yielding less than 4%, 6 yielding less than 3%. Those are DGE, BA., PSON, AZN, IMI and HLN. The dichotomy comes with the highest yielders, WDS and VOD, both over 11% if they continue to pay. Now that I am in my 90s, is this the time to make the long contemplated move into ITs?

I was looking at a potential list of ITs, but need to update my data.

These are my overall income figures (indexed) for the last six years, the effect of "upcycling" all my low/no yield shares into income oriented ITs has been dramatic, helped along by some small (<5% portfolio value) capital contributions since 2021. No voodoo here, just counting. (I have realigned with the tax year and will be writing this up next April.)

2017 1000
2018 1112
2019 1205
2020 973 (covid)
2021 1725
2022 2098
2023 2304 (incomplete)

As a result, I have reduced the (reinvested) income growth rate I use to extrapolate target income forward, which means I can be more "hands-off". I am well ahead of the schedule I sketched out 10+ years ago, and am sleeping better too.

[kempiejon]

I'm a fan of absolute income being a good measure however one has to know whether ones investment is any good. XIRR, unit values and looking at annualised CAGRs from web aggregators are good at that. I used to estimate the rate of growth of income to predict a FI date
When I stated HYPing I used to measure income by the bills it would pay, I remember when my HYP income covered my TV licence, then things like car services, utility bills, council tax. Now it covers all my bills.

[moorfield]

I used to estimate the rate of growth of income to predict a FI date

Yes this is why the LLLS charts are so useful, to builders of income particularly.

Increasingly I have come to think that the Grands Debats that rumble on interminably here - HYP vs. PHY, Tinker vs. Not Tinker, and so on - are largely irrelevant actually. Minutae. If there were more LLLS results available from folks' different approaches my conjecture is their rates would all coalesce into a narrow range, 8-10% or thereabouts.

[1nvest]

I used to estimate the rate of growth of income to predict a FI date

Yes this is why the LLLS charts are so useful, to builders of income particularly.

Increasingly I have come to think that the Grands Debats that rumble on interminably here - HYP vs. PHY, Tinker vs. Not Tinker, and so on - are largely irrelevant actually. Minutae. If there were more LLLS results available from folks' different approaches my conjecture is their rates would all coalesce into a narrow range, 8-10% or thereabouts.

I do see that LLLS similarities reflected between HYP1 (non rebalanced), TJH HYP and FTSE250 data, but with variations. A potential alpha-add might be to rotate into the laggard of the time, persist with that until its the leader of the time - before rotating into the then laggard of the time. Somewhat like rotating between a investment trust that was at a discount to NAV, back into a tracker when at around NAV, and then back again into the IT when at a discount again. Assuming £10/trading fees, £300 to rotate 15 individual stocks - as being negligible (sizable portfolio value), most of the cost would be in market markers spread and stamp duty (assuming tax exempt from CGT i.e. ISA/SIPP) ... so perhaps a 1.5% indicative rotation cost. Whereas the swings can excel 10%+, so maybe a possible 10% periodic alpha add. Even if that was relatively infrequent, one rotation per 5 years, over a 30 year investment horizon period = 6 rotations of 10% alpha compounded = 1.77 alpha factor, near 2% annualised alpha.

Bogle used to say that average investors tended to lag the market by 2% ... indicative that many might take the counter side to the above, jump into what has performed the best, later swap that out for a 'better' performing alternative - that sources the above 2% alpha add for those taking the counter position.

[1nvest]

I feel that, without unitizing, you cannot get a real feel of performance. You might want to reconsider. It can be done retrospectively if need be.

Total return unitisation is the better relative measure. Total return is total return however that is sourced. All else being equal you can draw the exact same amount of income out of total return whether the source was combined price appreciation + reinvested dividends, or if was solely from price appreciation (stock that paid no dividends).

Take your capital/price only unit value alongside your accumulation unit value, and draw the exact same amount of income as the price only unit measure provided from the accumulation unit measure, and you've the exact same overall effect/outcome of 'disposable income' and remaining portfolio capital value.

Chasing higher yield is fundamentally a push towards a slower/lower capital appreciation, but where the risk is increased, as a large risk factor element is the withdrawal rate used. It's far safer to be drawing a low rate, a 2% SWR for instance is much safer than a 5% SWR. And there's a distinct cliff edge, where even just a small increase in SWR can make a massive difference to overall outcome. Increasing SWR by even just 0.1% will at a certain point see the difference between perhaps the portfolio having sustained through 30+ years or having totally failed in perhaps the 25th year. HYP by nature encourages risk taking, alongside excluding whole sections of the market (that pay low/no dividends).