HYP Heresy

[TUK020]

Sometimes I find it useful to pose questions in a new way to try and see if it prods any new perspective:

There has been lots of discussion in the press about approaching the top of the market, but not seeing irrational exuberance.

A different question: At what level for the FTSE100, would investors here consider selling out?
Graph from Yahoo finance:
https://uk.finance.yahoo.com/chart/%5EF ... FydCJ9fX19

In order to get specific, I am trying to frame this in terms that contain a level, a time frame, and a % reduction.

i.e. would you sell off 50% of your stock holdings if the FTSE100 reached 10,000 in the next 2 years (i.e this decade)?

[Dod101]

No

Dod

[tjh290633]

I've said it before and I will say it again. The capital value and the level of the market are of secondary importance to the amount of income generated. I ignore the ups and downs of the market and remain fully invested.

TJH

[James]

Regardless of whether you're in it for the capital or the income, that stretch between 1929 and 1954 would have taken balls of steel to stick with your beliefs.

[tjh290633]

Regardless of whether you're in it for the capital or the income, that stretch between 1929 and 1954 would have taken balls of steel to stick with your beliefs.

Well, I have been investing one way or another since 1958. Following the income model since c.1972. I have always stayed fully invested and continued to invest through every downturn since the start, and have no complaints with the results.

TJH

[James]

Regardless of whether you're in it for the capital or the income, that stretch between 1929 and 1954 would have taken balls of steel to stick with your beliefs.

Well, I have been investing one way or another since 1958. Following the income model since c.1972. I have always stayed fully invested and continued to invest through every downturn since the start, and have no complaints with the results.

TJH

1964-1982 would have taken a bit of patience too, if you were only in it for the capital. While these graphs are great for the long-term believers, they also show you can have some very long periods where capital goes nowhere. I'm in my 50s and don't fancy having to wait until my 70s for capital to recover should it fall off one of the "this is the top" cliffs tomorrow. I have no doubt it would recover; I'm just not convinced I'd be around to see it.

[CryptoPlankton]

Regardless of whether you're in it for the capital or the income, that stretch between 1929 and 1954 would have taken balls of steel to stick with your beliefs.

Well, I have been investing one way or another since 1958. Following the income model since c.1972. I have always stayed fully invested and continued to invest through every downturn since the start, and have no complaints with the results.

TJH

1964-1982 would have taken a bit of patience too, if you were only in it for the capital. While these graphs are great for the long-term believers, they also show you can have some very long periods where capital goes nowhere. I'm in my 50s and don't fancy having to wait until my 70s for capital to recover should it fall off one of the "this is the top" cliffs tomorrow. I have no doubt it would recover; I'm just not convinced I'd be around to see it.

In which case, perhaps you should seriously consider your investment position right now - after all, who's to say the recent market high wasn't THE top? Seriously, if you invest in equities you have to accept the risk that there could be a period such as those that you have pointed out and they can start at absolutely any time. Remember the old adage: never invest more than you are willing to lose...

[James]

In which case, perhaps you should seriously consider your investment position right now - after all, who's to say the recent market high wasn't THE top? Seriously, if you invest in equities you have to accept the risk that there could be a period such as those that you have pointed out and they can start at absolutely any time. Remember the old adage: never invest more than you are willing to lose...

Yes, but it could also be the start of another long, glorious period of growth. Yes, there could be another slump/flat line. Or maybe not. Which is why these aphorisms about what the stock market does are not that relevant because no one actually knows until after the fact. I was pointing out that the OPs exuberance was perhaps a little irrational and that there can be long periods of low growth or contraction.
I think never 'invest' more than you're prepared to lose comes from the gambling industry, not investment.
My own view is that even if it does flat line, dividend payments will help bring in a little bit of growth to reinvest - and at lower costs - so I'll stick with it even though neither I, no anyone else, knows what the future holds.

[Gengulphus]

Regardless of whether you're in it for the capital or the income, that stretch between 1929 and 1954 would have taken balls of steel to stick with your beliefs.

Eh? I could understand that being said about the stretch between 1929 and 1933, but not between 1933 and 1954. Basically, someone who bought in 1933 in particular wouldn't require any balls of steel, and someone who bought earlier had already demonstrated possessing them up to 1933 and would be feeling increasing relief from the pressure that required them to be made of steel!

Within my actual experience, mid 2002 to early 2003 did require a good deal of determination, and I didn't entirely stick it out - partly because I'd been running HYP and other strategies somewhat experimentally for a few years and I felt the time had come for assessing the experiments and deciding what to settle on more permanently, partly because I had a short-term need for the cash elsewhere, but also partly because the continuing falls were making me doubt my strategies - all of them! The lessons I drew from that are that in a full bear market, the grass isn't green on any side of the fence, and that it is hard to see either the start or the end of the bear market early enough and reliably enough to exploit them very effectively by cashing out in response to the start and re-entering the market in response to the end. (The "reliably enough" part is important - it's quite easy to spot starts and ends of bear markets as long as you're willing to accept a lot of 'false alarms' of both, but responding to a 'false alarm' as though it's a real bear market start/end will cost you...)

Later, in 2008 and early 2009, those earlier lessons made it much easier to stick to my beliefs.

Gengulphus

[ADrunkenMarcus]

A different question: At what level for the FTSE100, would investors here consider selling out?

If it was three or four times today's level (due to an expanded PE).

Failing that, I get excited when it falls and go on a bargain hunt. But I may well be around in another 70 years so my perspective is somewhat different to many who might be much older.

Best wishes

Mark.

[moorfield]

In order to get specific, I am trying to frame this in terms that contain a level, a time frame, and a % reduction.

i.e. would you sell off 50% of your stock holdings if the FTSE100 reached 10,000 in the next 2 years (i.e this decade)?

One way of approaching an answer I can suggest is to look at your overall xirr (historical cashflows into your investment "pot" versus it's current value) versus some "target" annualized rate. To illustrate the point let's say you are aiming for annualized total return of 7.2% pa over a 25 year period and some mega FTSE100 spike doubles your xirr to 14.4%.

At such point you are well ahead of your target curve and might consider it an appropriate point to bank some profit to cash. Extending the maths further you can also compare the two rates to determine how long you can then hold the cash before it needs to be put to work again earning your target annualized return.

[idpickering]

I've said it before and I will say it again. The capital value and the level of the market are of secondary importance to the amount of income generated. I ignore the ups and downs of the market and remain fully invested.

TJH

Well said TJH. People seem to forget that HYPing is an income strategy. Capital values should be ignored, although we're only human of course.

Ian.

[moorfield]

I've said it before and I will say it again. The capital value and the level of the market are of secondary importance to the amount of income generated. I ignore the ups and downs of the market and remain fully invested.

TJH

Well said TJH. People seem to forget that HYPing is an income strategy. Capital values should be ignored, although we're only human of course.

Ian.

The "market" itself, perhaps, but don't forget the "ups and downs" of individual shares relative to each other do prompt TJH's top slicing actions ...

[idpickering]

I've said it before and I will say it again. The capital value and the level of the market are of secondary importance to the amount of income generated. I ignore the ups and downs of the market and remain fully invested.

TJH

Well said TJH. People seem to forget that HYPing is an income strategy. Capital values should be ignored, although we're only human of course.

Ian.

The "market" itself, perhaps, but don't forget the "ups and downs" of individual shares relative to each other do prompt TJH's top slicing actions ...

Very true moorfield, and a fair point. TJH's tactic is not one I do myself tbh. I'd rather run my winners, but I do have previous for dropping Prov Fin, and Carillion. For me those events were when I could see something wrong causing me to change my mind on that share. Lucky for me eh?

Ian.

[tjh290633]

Well, I have been investing one way or another since 1958. Following the income model since c.1972. I have always stayed fully invested and continued to invest through every downturn since the start, and have no complaints with the results.

TJH

To amplify that, here is the table of changes in cost, value and income since 1971:

Change in                    
         Cost @      Value @   Income 
         31 Dec      31 Dec           
Year                                  
Dec-71       0.00%     0.00%     0.00%
Dec-72      -7.25%     8.60%   -17.07%
Dec-73       7.25%   -20.60%     1.17%
Dec-74      -1.06%   -36.61%    24.81%
Dec-75      23.15%   118.96%     3.00%
Dec-76       5.72%     3.00%    22.35%
Dec-77     -32.06%   -10.48%    16.57%
Dec-78       8.56%    15.72%   -24.94%
Dec-79      11.82%    10.45%    27.23%
Dec-80      23.92%    34.35%    27.17%
Dec-81      15.02%     6.05%     3.69%
Dec-82       2.35%     1.66%     5.98%
Dec-83       7.44%    31.72%     0.31%
Dec-84      14.79%    23.54%    12.87%
Dec-85      14.55%    19.31%    19.64%
Dec-86      13.07%    30.70%     8.46%
Dec-87      76.27%    13.93%    16.49%
Dec-88      23.13%    12.37%    14.59%
Dec-89      19.63%    30.04%    -8.98%
Dec-90      33.41%     6.72%     7.04%
Dec-91       4.11%    10.20%    36.37%
Dec-92       3.43%    20.00%     3.53%
Dec-93      68.91%    71.61%    57.94%
Dec-94       1.00%    -9.65%     3.36%
Dec-95      -4.85%    15.52%     4.98%
Dec-96      22.89%    24.28%    22.39%
Dec-97      14.31%    29.86%    18.11%
Dec-98      14.92%    12.62%     6.82%
Dec-99       6.26%    16.86%    22.06%
Dec-00       1.90%     1.35%    15.06%
Dec-01       4.84%    -5.77%    11.94%
Dec-02       3.81%   -18.11%     3.26%
Dec-03       2.09%    23.25%    20.55%
Dec-04       0.15%    18.05%    -0.74%
Dec-05       7.52%    25.66%    15.51%
Dec-06      -1.87%    20.87%    10.49%
Dec-07      16.85%     0.83%    26.85%
Dec-08      -7.29%   -36.04%    23.29%
Dec-09      -2.39%    28.67%   -32.18%
Dec-10       1.34%    18.38%    18.16%
Dec-11      -3.36%    -1.30%    17.45%
Dec-12      -0.47%    17.55%    10.17%
Dec-13      -4.46%    21.00%     1.71%
Dec-14      11.58%     3.63%    17.43%
Dec-15       0.04%     4.54%     8.69%
Dec-16       2.93%    15.04%    15.05%
Dec-17       3.93%    11.37%    11.04%

These relate to all my investments, not just the HYP, and the cost column reflects when capital was added or withdrawn, so differences between that column and the others should be discounted. The bad years for the market can be clearly seen in the value column. The lack of effect on the Income column can be seen. Note the lag beween capital change and income.

TJH

[Wizard]

I've said it before and I will say it again. The capital value and the level of the market are of secondary importance to the amount of income generated. I ignore the ups and downs of the market and remain fully invested.

TJH

Well said TJH. People seem to forget that HYPing is an income strategy. Capital values should be ignored, although we're only human of course.

Ian.

Except this isn't the HYP board, so while TJH is free to ignore capital surely having regard to it should not be an issue on this board?

Terry.

[Wizard]

There has been lots of discussion in the press about approaching the top of the market, but not seeing irrational exuberance.

Well I wish my income related equities were at the top of the market, but sadly they are far from it!

Terry.

[grimer]

In order to get specific, I am trying to frame this in terms that contain a level, a time frame, and a % reduction.

i.e. would you sell off 50% of your stock holdings if the FTSE100 reached 10,000 in the next 2 years (i.e this decade)?

I've been thinking the same thing for a couple of months. I don't think today's correction is going to last and I'm expecting the markets to go on a bit of a tear during the next 18 months.

If that does happen....... I may attempt to cycle into cash or gold before the (dot com?) crash occurs. This is really just daydream stuff at the moment, but I think there may be a 'play' to be had at some point.

[Steveam]

I hesitate to post here as I don’t run a HYP but my portfolios often have overlaps with HYP. The OP asks about selling a proportion of the portfolios if the FTSE reaches some number in the immediate future. I’m sure the answer must depend on individual circumstances and the financial environment (inflation and inflation prospects, taxation policy, investment opportunities) but for me the answer is that I’d take some money off the table (increase cash buffers, income reserve and reserve fire power) and I might even decide to buy some gilts. My circumstances are such that I’ve essentially “won the game” (subject, of course, to “events, dear boy, events”) and have been de-risking the portfolios for some years. I’m of an age that my timescales are shortening and I don’t have dependants.

If one takes money off the table the obvious question is what to do with it. The big risks to me are high or hyper inflation and/or a collapse in the value of the £. (I accept political and taxation risks are something I can’t do anything about). As stocks are not by any means a hedge against inflation I do hold a modest amount of gold/gold proxies and have index linked savings and an index linked pension (not yet taken). If the £ collapses then overseas diversification is going to help (and especially dividends paid in $ or € or ¥).

Like TJH on here I’ve been investing a long time through thick and thin but I’m very conscious that 40+ years of investing is a small window and things can happen. The future is not necessarily a gentle evolution of the present and may include traumatic changes which make our stock holdings an irrelevance - I’ve enjoyed a pretty benign investing environment.

Although I believe we can all take a few defensive measures too much worrying is self destructive so we need to find a balance: each to their own. Good luck.

Steve

[Gengulphus]

I hesitate to post here as I don’t run a HYP but my portfolios often have overlaps with HYP.

Please don't let that stop you posting on this board! Its topic is (as its title indicates) high yield shares and strategies in general. HYP strategies are certainly discussable here, but the board could do with more discussion of other strategies involving investments in high-yielding shares, not less!

Gengulphus