The Lemon Fool

With some of the shares in my investment portfolio down 15 -20% on their peaks, I've started topping up a few holdings.

Will Donald Trump put on a red coat and false whiskers and send us some presents from China this Christmas, or will we have to wait two (or even six) years until he has finished trying to destroy global trade?

You could say thank you Donald for creating some good buying opportunities.

Beat me to it, Parky - but this year we have to watch April Fools (or at least the 29th March!) day as well. Twixt the two (May and Trump) we are having a difficult decision time ahead. I am very defensively positioned at the moment,

Is it just May and Trump? Or even (in May's case) her squabbling, dysfunctional party.

Macron seems to be having a bit of difficulty too, with dark rumours flying of a Ukraine situation of his protestors being nudged by foreign state-sponsored agents looking to oust an elected president.

And there are a few other interesting situations around the world ...

Looking for a rally, one might ask where in the world there is good news? Well, in one sense, no news is good news. Or maybe there might be good news in Germany's CDU's apparently-smooth succession plans. Or indeed the EU's measured response to Blighty throwing its toys out.

I think there a a number of factors at play here.

First and foremost is liquidity. Bear in mind that after the 2007/8 crash central banks slashed interest rates and printed money (quantitative easing), this flooded the markets with liquidity pushing asset prices up. The reverse is now beginning to happen, at least in the US where the Fed is gradually raising interest rates and also, not mentioned as much, reversing the money printing and engaging in quantitative tightening, hence the liquidity effect is going into reverse. Additionally the US Treasury yield curve is beginning to invert, this also affects liquidity as banks traditionally borrow short term to lend long term earning the spread, but as the yield curve tightens across maturities their spread is reduced so their appetite to lend reduces, this also reduces liquidity.

Then on top of this we have the global trade tensions already referred to above.

langley59 wrote:I think there a a number of factors at play here.

First and foremost is liquidity. Bear in mind that after the 2007/8 crash central banks slashed interest rates and printed money (quantitative easing), this flooded the markets with liquidity pushing asset prices up. The reverse is now beginning to happen, at least in the US where the Fed is gradually raising interest rates and also, not mentioned as much, reversing the money printing and engaging in quantitative tightening, hence the liquidity effect is going into reverse. Additionally the US Treasury yield curve is beginning to invert, this also affects liquidity as banks traditionally borrow short term to lend long term earning the spread, but as the yield curve tightens across maturities their spread is reduced so their appetite to lend reduces, this also reduces liquidity.

Then on top of this we have the global trade tensions already referred to above.

Careful about the 'yield inversion'. More detailed comment from Bloomberg:

https://www.bloomberg.com/opinion/artic ... ould-sweat

This looks to be like a wrinkle in the 2-5 year point in the curve, rather than true inversion. Not sure that we can interpret what is happening here as a reliable leading indicator of a recession.

All fair comment - so my (unasked) question was "What strategy to adopt in this (probably extended) period of instability?"

A. Buy Personal Assets (PNL) or similar to move into US and UK Inflation Linked Government Bonds.
B. Stay in equities and hang on for the ride.
or
C. Something else.
I am half way between A and B at the moment.

Parky wrote:All fair comment - so my (unasked) question was "What strategy to adopt in this (probably extended) period of instability?"

A. Buy Personal Assets (PNL) or similar to move into US and UK Inflation Linked Government Bonds.
B. Stay in equities and hang on for the ride.
or
C. Something else.
I am half way between A and B at the moment.

I always advocate B, which has worked fine in all previous market upsets since I started investing in 1959.

TJH

tjh290633 wrote:

Parky wrote:All fair comment - so my (unasked) question was "What strategy to adopt in this (probably extended) period of instability?"

A. Buy Personal Assets (PNL) or similar to move into US and UK Inflation Linked Government Bonds.
B. Stay in equities and hang on for the ride.
or
C. Something else.
I am half way between A and B at the moment.

I always advocate B, which has worked fine in all previous market upsets since I started investing in 1959.

TJH

Only in the long term and if dividends are discretionary income. Your income declined dramatically in the 2008 crisis. Luckily you were not dependent solely on dividend income. Many on defined contribution pensions are.

Adequate cash reserves are a screaming ESENTIAL if you are 100% in B...

tjh290633 wrote:

Parky wrote:All fair comment - so my (unasked) question was "What strategy to adopt in this (probably extended) period of instability?"

A. Buy Personal Assets (PNL) or similar to move into US and UK Inflation Linked Government Bonds.
B. Stay in equities and hang on for the ride.
or
C. Something else.
I am half way between A and B at the moment.

I always advocate B, which has worked fine in all previous market upsets since I started investing in 1959.

TJH

I can't argue with this. During the financial crisis I was not nearly as savvy as I am now and barely knew what was happening. At that time, we had a lot going on with the kids, school, stress at work etc and I had a simple Halifax Sharebuilder account with a very modest amount going in every month, divis reinvested and which I rarely checked. By the time I realised, everything was already well in the red so I just sighed and got on with life. What the crisis did do however was make me read and educate myself more about investing, particularly asset allocation, including - shock, horror - the rest of the world. Being brought up by parents who had the Daily Mail delivered every day, I obviously assumed the world ended at Dover.
So I slowly started to add EM ETFs to the list, then Europe (ex-UK) ETFs, various ITs covering the rest of the world etc. Dividend income from these has finally overtaken my UK holdings and I'm happy to continue till retirement in about three years.

Steve

@toofast2live

My experience was that dividends held up well in the 2008 crisis.
A cash reserve of course is very reassuring !

Hariseldon58 wrote:@toofast2live

My experience was that dividends held up well in the 2008 crisis.
A cash reserve of course is very reassuring !

Some did, but a lot didn't. My experience was that dividend income in 2009 was about half that of 2007. Some of the cuts were temporary, but others were long lasting and slow to recover.

A lot of portfolio adjustment was needed to get back to the previous level. Had I done nothing, it never would have.

TJH

tjh290633 wrote:A lot of portfolio adjustment was needed to get back to the previous level. Had I done nothing, it never would have.

I can understand the dividend income (per unit) not recovering to its 2007-08 peak for a long time, but isn't 'never' a bit strong? Are you back to the previous peak - or rather, do you expect to be for 2018-19?

Thanks.

Best wishes

Mark.

ADrunkenMarcus wrote:

tjh290633 wrote:A lot of portfolio adjustment was needed to get back to the previous level. Had I done nothing, it never would have.

I can understand the dividend income (per unit) not recovering to its 2007-08 peak for a long time, but isn't 'never' a bit strong? Are you back to the previous peak - or rather, do you expect to be for 2018-19?

Thanks.

Best wishes

Mark.

Following up on that question from Mark, I'd be interested to know what kind of portfolio adjustments you made.

torata

@tjh

In April 2008 I sold my HYP and moved back to ITs and thus maintaining a healthy dividend income flow.

As I recollect some of the ITs were attractively priced.

Hariseldon58 wrote:@tjh

In April 2008 I sold my HYP and moved back to ITs and thus maintaining a healthy dividend income flow.

As I recollect some of the ITs were attractively priced.

By the mid 90s, we had developed two different approaches in our respective ISAs, my wife always invest in collectives, mostly ITs, I prefer individual holdings, but both those portfolios seek HY and have essentially re invested income. (unlike our other taxed portfolios which are about growth and much more global in outlook, these are being gradually reduced/realised anyway to the benefit of our grandchildren, needless to say in the current markets the process is somewhat in hold).

During the financial crisis, in the HY ISAs, my wife's divi per unit only dipped only 1.7%, mine dipped as much as 28.9%(Measured from the least squares fit lines). My wife's Inc per unit recovered very quickly, it took me 3+ years, and some re balancing. However, I got ahead again of hers in acc unit terms by 2012.

Overall, I think our approach of having two HY strategies works well, it feels solid and safer. In acc unit terms, similar type of scenario. Overall, since PEP days, I have done better than hers overall, as I would expect, but of course my ride has been much wilder(I invest across the market cap, not just the FT350), but my extra returns and extra 'hassle' vs her dead easy approach, ?, increasingly we will gradually settle for all ITs and will accelerate that move as my health deteriorates. I have started that process in the last year.

Generally, I would say that if income level maintenance is critical, then ITs are the way to go. We did precisely that for my father in law's portfolio when he went into care with part of his capital, at his request, with a very carefully chosen basket(much more globally oriented than Luni's though, with fewer overlaps), worked perfectly. And we are doing this again for a very old friend, at the request of her close relatives, timing more in our favour this time I feel with markets on a wobble.


Ozyu

torata wrote:

ADrunkenMarcus wrote:

tjh290633 wrote:A lot of portfolio adjustment was needed to get back to the previous level. Had I done nothing, it never would have.

I can understand the dividend income (per unit) not recovering to its 2007-08 peak for a long time, but isn't 'never' a bit strong? Are you back to the previous peak - or rather, do you expect to be for 2018-19?

Following up on that question from Mark, I'd be interested to know what kind of portfolio adjustments you made.

torata

OK, First question, Here is the record of Dividend per unit:

.   Ordinary 
Year to      Divs/unit
05-Apr-88         2.83
05-Apr-89         2.25
05-Apr-90         3.40
05-Apr-91         4.67
05-Apr-92         5.94
05-Apr-93         5.52
05-Apr-94         5.31
05-Apr-95         6.45
05-Apr-96         6.27
05-Apr-97         7.13
05-Apr-98         7.55
05-Apr-99         7.92
05-Apr-00        10.79
05-Apr-01        11.39
05-Apr-02        12.46
05-Apr-03        11.68
05-Apr-04        11.13
05-Apr-05        13.03
05-Apr-06        14.21
05-Apr-07        15.18
05-Apr-08        20.19
05-Apr-09        21.60
05-Apr-10        11.91
05-Apr-11        16.28
05-Apr-12        19.15
05-Apr-13        20.92
05-Apr-14        21.35
05-Apr-15        22.43
05-Apr-16        22.78
05-Apr-17        25.38
05-Apr-18        28.40
05-Apr-19        29.72 (to date)

As you can see it peaked in 2008-09 and virtually halved in 2009-10. It took until 2013-14 to reach the previous peak, but there had been a big rise in 2007-08 because of the number of takeovers and disposals, so really the level in 2008-07 is a better yardstick, and that was passed in 2010-11.

Second point, what was changed. Looking at the portfolio on 31 Dec 2007, it was split between a PEP and an ISA. They contained in the PEP:

AstraZeneca plc
BAe Systems plc
BP plc
BT Group plc
Cadbury-Schweppes plc (Sold 2008)
Compass Group plc
DS Smith plc
HBOS plc (Sold 2008)
Imp.Chem.Ind.plc
Imperial Tobacco Group plc
ITV plc (Sold 2010)
Kingfisher plc
Lloyds TSB Group plc
Mapeley Limited (Sold 2009)
Marks & Spencer plc
Northern Foods plc (Taken over 2011)
National Grid Transco plc
Prudential Corp plc (Sold 2010)
Rentokil Initial plc (Sold 2010)
Royal Dutch Shell plc B
Segro plc
Tesco plc
Thus Group plc
Tomkins plc (Sold 2010)
Vodafone Group plc

and in the ISA:

DSG International plc (Sold 2009)
Premier Foods plc (Sold 2010)
Rexam plc
Royal & Sun All Ins Gp plc
Stagecoach Hldgs plc (Sold 2008)
Tate & Lyle plc
Trinity Mirror plc (Sold 2009)
United Utilities plc
Taylor Wimpey plc

Of those I have indicated which were sold (or taken over). As a result, the portfolio at the end of 2011 comprised the following:

Aviva plc* (bought 2010)
AstraZeneca plc
BAe Systems plc
British American Tobacco plc* (bought 2010)
British Land Co. Plc
BHP Billiton plc* (bought 2010)
BP plc
BT Group plc
Compass Group plc
Diageo plc* (bought 2009)
GlaxoSmithKline plc* (bought 2010)
IMI plc* (bought 2009)
Imperial Tobacco Group plc
Kingfisher plc
Lloyds Banking Group plc
Marstons plc* (bought 2011)
Marks & Spencer plc
National Grid plc
Premier Farnell plc* (bought 2008)
Pearson plc* (bought 2009)
Reckitt Benckiser Group plc* (bought 2011)
Royal Dutch Shell plc B
Rexam plc
Royal & Sun All Ins Gp plc
Segro plc
DS Smith plc
Scottish & Southern Energy plc* (bought 2010)
Tate & Lyle plc
Tesco plc
Taylor Wimpey plc
Unilever plc* (bought 2010)
United Utilities plc
Vodafone Group plc
William Hill plc* (bought 2008)

The shares replacing those which left are marked (*) plus the year of purchase. Cattles had replaced HBOS in 2008 and vanished in 2011 as well. BLT replaced Anglo-American, bought in 2008, but which stopped paying dividends. Prudentila was sold to avoid a proposed big rights issue and replaced by Brit Insurance, itself also taken over in 2010 and replaced by Aviva.

Without going into a lot of detail, that is basically the story of how recovery was achieved.

TJH