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On the Dividend Letter's demise

General discussions about equity high-yield income strategies
tjh290633
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Re: On the Dividend Letter's demise

#199446

Postby tjh290633 » February 6th, 2019, 11:22 pm

Backache wrote:
Grumpsimus wrote:
I have seen academic research which suggested that a portfolio of 20 diversified shares would by adequate and there was no further benefit after reaching 25 shares. I know that a few people have very large HYPs 40 to 50 shares, this just appears to cause extra admin with little benefit.
.

However diverse the sectors HYP may not produce a truly diverse selection of shares that an academic paper might suggest as almost by definition they are shares in companies that are not using capital to grow .

You might think that, but oddly enough they do grow, some considerably.

I bought IMI in 2009 at 265p. I have trimmed back 3 times and had a B-share issue, topping up 3 times in between. The last time I trimmed, just over a year ago, I got £14.25 for my shares.

TJH

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Re: On the Dividend Letter's demise

#199457

Postby Alaric » February 7th, 2019, 1:57 am

funduffer wrote:Rather, he advocated buying a HYP with a retirement lump sum, and withdrawing all the dividends to live on.


Which is fair enough, but what's the plan regarding the eventual inheritance of the assets?

Passing the capital risk to the inheritors is also a reasonable idea, but suggests using the HYP strategy as a means of accumulating wealth could be suspect.

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Re: On the Dividend Letter's demise

#199489

Postby tjh290633 » February 7th, 2019, 9:13 am

Alaric wrote:
funduffer wrote:Rather, he advocated buying a HYP with a retirement lump sum, and withdrawing all the dividends to live on.


Which is fair enough, but what's the plan regarding the eventual inheritance of the assets?

Passing the capital risk to the inheritors is also a reasonable idea, but suggests using the HYP strategy as a means of accumulating wealth could be suspect.

Not necessarily. Plenty of HYPs have given very satisfactory total returns when dividends have been reinvested.

Sometimes high yield shares beat low yield shares and vice versa. Compare the HIX and LIX indices for example.

TJH

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Re: On the Dividend Letter's demise

#199591

Postby mickeypops » February 7th, 2019, 1:39 pm

With regards to the number of individual shares to hold in a HYP portfolio, at the time when I ran a HYP and was subscribed to Pyad's TDL, he was advocating a "matched pair" approach in his tip sheet. For example, the PF would hold both BP and RDSB; two supermarkets, insurers, miners etc. So, he was advocating holding 30 shares across 15 sectors.

This was in 2013 I think.

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Re: On the Dividend Letter's demise

#199592

Postby mickeypops » February 7th, 2019, 1:42 pm

I recall Luni's oft quoted "'Good Enough is better than Even Better'" from the old MF board. At the time, I thought this was nonsense.

I've come to realise that he's advocating the philosophy of the old proverb about "not letting the perfect be the enemy of the good," and I've come to the conclusion over the years that he's absolutely spot on. I wish I'd come around to this thought earlier.

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Re: On the Dividend Letter's demise

#199610

Postby Lootman » February 7th, 2019, 2:47 pm

tjh290633 wrote:
Alaric wrote:
funduffer wrote:Rather, he advocated buying a HYP with a retirement lump sum, and withdrawing all the dividends to live on.

Which is fair enough, but what's the plan regarding the eventual inheritance of the assets?

Passing the capital risk to the inheritors is also a reasonable idea, but suggests using the HYP strategy as a means of accumulating wealth could be suspect.

Not necessarily. Plenty of HYPs have given very satisfactory total returns when dividends have been reinvested.

Sometimes high yield shares beat low yield shares and vice versa. Compare the HIX and LIX indices for example.

Yes, and that may depend more generally on how value is doing relative to growth. And whether the market is rewarding those who take more risk, or punishing them.

Even so, it would be useful to see studies that looked at the market as a whole, across entire market cycles, to see whether HY beats LY more often than not. Perhaps divide the market into quintiles based on yield. There is something intuitive about the idea that a company that disgorges a lot more of its earnings in dividends may lack the ability to grow so fast. And I believe that is why when HY is used to build wealth, there is usually an accompanying emphasis on reinvesting dividends. Spend those dividends instead, and growth may be pedestrian.

In that sense a HYP may behave rather like the FTSE-100 has done over the last 20 years. It has paid out a lot of dividends but has done nothing in capital terms. Some foreign lower-yielding markets have done much in capital terms, most obviously the US. There is no free lunch to pursuing yield for its own sake.

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Re: On the Dividend Letter's demise

#199636

Postby Itsallaguess » February 7th, 2019, 4:20 pm

mickeypops wrote:
I recall Luni's oft quoted "'Good Enough is better than Even Better'" from the old MF board. At the time, I thought this was nonsense.

I've come to realise that he's advocating the philosophy of the old proverb about "not letting the perfect be the enemy of the good," and I've come to the conclusion over the years that he's absolutely spot on.

I wish I'd come around to this thought earlier.


I wish he'd simply used the earlier proverb....

Is there really any need to re-package and re-sell an age-old, existing phrase as one's own?

Cheers,

Itsallaguess

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Re: On the Dividend Letter's demise

#199666

Postby Luniversal » February 7th, 2019, 6:25 pm

It has been mooted by academics that a portfolio's efficiency is found not to be improved by housing more than 20-25 shares. That is in the context of seeking capital gains (not a HYP objective) or that vapid conflation 'total return' (ditto).

Not needing to go XXL is all the truer of a portfolio if it aims to be a lifelong provider of income which will, with reserving, match or beat inflation. This is so because dividends rise and fall far less than share prices. Payouts reflect enterprises' trading: their prevalent tendency under capitalism to grow gently, if with setbacks now and then. Prices embody the stochastic hysteria of speculators: the trait in a few mainly Anglophone countries of investors becoming gamblers.

I showed on The Motley Fool that in the universe of HYP-worthy shares, current and past (i.e. including those that bombed or became too expensive) disappointing dividend histories were uncommon from 2000 to 2015. The odds that a company would fail to maintain or increase its dividend after inflation, year by year, were under one in four. Fewer than one in ten enforced suspensions or stayed off the list between years, and many of those later revived. All this while London underwent two severe bear markets.

Those who believe payouts are more perilous used to say 'What about Marconi?' That fiasco was 18 years ago, and it was not a high-yield staple. Now they say 'what about Carillion?', but instances of wipeout are few indeed among the shares HYP mostly deals in: market cap five billion minimum.

Putting this smallish risk of a particular stock faltering or crashing together with the inbuilt safeguards of HYP investing renders a 15-share portfolio safer for income. The one-per-sector tenet skirts the risk of chasing too many unsustainable yields, which tend to cluster in out-of-favour business areas, e.g. oils until lately or insurers after the Global Financial Crisis. Equal amounts committed to each of the fifteen also limit exposure to defaulters: even a permanent abandonment of dividends by one constituent loses only 6.67% of the stream. And since bigger companies, recommended for HYPs over tiddlers, are more often taken in hand once the dividend is impaired, windfalls (such as lapsed rights entitlements in a bailout) can supply quick recycling of capital into healthier positions.

These factors assisted my HYPs since 2011/12, as well as the back-jobbed 'HYP-othetical' calculated from Jan. 13, 2006 which I reported upon last month. As a baby, HYP06 endured the 2008 crash and would now be paying 4.5%+RPI pa, backed by an income reserve worth 15 months of that payout.

During HYP06's 13-year run, seven of the original 20 holdings in this all-Footsie bunch were taken over. One-third of the present 21 have suffered dividend interruptions, none with full restoration to date: BHP Billiton, Centrica, Land Securities, Legal & General, Pearson, Standard Chartered and Tesco. For all such churning and mishaps, total spendable income has always been less variable than and well above what fixed interest or cash would have paid, without wilful tinkering. Pyad's 'market trading' took care of that.

If you want some theoretical underpinning, see

https://www.gurufocus.com/news/179527/d ... ar-markets

These ideas relate to Wall Street. If anything, London-- with its unique bias among big bourses to paying out-- ought to justify them more strongly. At least, I wish I had embraced HYP in early 2009, when the All-Share Index yielded over 5%, not in mid-2011 when it was 3%. I was frightened at the end of the GFC that so juicy a starting yield warned of widespread collapse among blue-chip divis. Not at all. There was an epidemic of rescues, cheap rights issues and gloom; but 2010, the blackest calendar year for income since at least 2000, would see more than half the items in my HYP database of almost 200 raise their divis in real terms, year on year. Only 27% cut or passed them.

Here is another piece of US academic research from 2003 which posited, counter-intuitively, that firms that distribute earnings more generously come to do better on share price as well:

https://www.researchaffiliates.com/docu ... Growth.pdf

The historical evidence strongly suggests that expected future earnings growth is fastest when current payout ratios are high and slowest when payout ratios are low. This relationship is not subsumed by other factors, such as simple mean reversion in earnings. Our evidence thus contradicts the views of many who believe that substantial reinvestment of retained earnings will fuel faster future earnings growth. Rather, it is consistent with anecdotal tales about managers signaling their earnings expectations through dividends or engaging, at times, in inefficient empire building.

Studies cited in the prior link only claim that high-yielders are fastest off the blocks if acquired during market declines. If we are in for another such, HYP and value investing generally can expect another time in the sun.

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Re: On the Dividend Letter's demise

#199680

Postby tjh290633 » February 7th, 2019, 7:01 pm

Luniversal wrote:I showed on The Motley Fool that in the universe of HYP-worthy shares, current and past (i.e. including those that bombed or became too expensive) disappointing dividend histories were uncommon from 2000 to 2015. The odds that a company would fail to maintain or increase its dividend after inflation, year by year, were under one in four. Fewer than one in ten enforced suspensions or stayed off the list between years, and many of those later revived. All this while London underwent two severe bear markets.

What happened to the period from 2008 to 2010? Many companies paused or held their dividends static in that period.

Recovery took a long time.

TJH

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Re: On the Dividend Letter's demise

#199690

Postby Luniversal » February 7th, 2019, 7:32 pm

What happened to the period from 2008 to 2010? Many companies paused or held their dividends static in that period.

Recovery took a long time.


As I wrote, in the 2010 annus horribilis 27% of companies cut, passed or remained dividendless compared with 2009.

For 2000-16 percentages of companies declaring anything worse than a dividend maintained in real terms year on year were:

2001: 11
2002: 27
2003: 30
2004: 24
2005: 6
2006: 15
2007: 12
2008: 13
2009: 45
2010: 37
2011: 25
2012: 22
2013: 24
2014: 25
2015: 21
2016: 32

AVERAGE: 23

A three-in-four success rate over time should provide a rising real income in most years. Smooth purchasing power can be firmly buttressed by income reserving (average ~12% of the natural inflow seems OK) while one lets the invisible hand of market trading refresh the selection.

My impression is that dividends became a mite choppier in 2017 and 2018, but I no longer keep records. The LuniHYPs are doing all right, though :D.

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Re: On the Dividend Letter's demise

#199696

Postby Itsallaguess » February 7th, 2019, 8:01 pm

Luniversal wrote:
Putting this smallish risk of a particular stock faltering or crashing together with the inbuilt safeguards of HYP investing renders a 15-share portfolio safer for income.

The one-per-sector tenet skirts the risk of chasing too many unsustainable yields, which tend to cluster in out-of-favour business areas, e.g. oils until lately or insurers after the Global Financial Crisis.

Equal amounts committed to each of the fifteen also limit exposure to defaulters: even a permanent abandonment of dividends by one constituent loses only 6.67% of the stream.


The problem with attempts at academic study, when used to back up a claim that 'Otherwise no [HYP] tweaks proposed on TMF or TLF stand up' is that it takes no account of human nature, and the desires or needs of the personal investor as a human being....

Even if we could agree that a 15-share HYP is 'safe for income' (I don't, personally, and would never advocate such a concentrated income portfolio...), that still might not allow an owner of such a concentrated HYP to sleep comfortably at night.

If the owner of a 15-share HYP thinks that he would like to double-up in sectors, or widen his net to simply include more sectors in his HYP over the years that such fish might become available, and that he'd simply feel more comfortable in doing so, then that's a 'good thing' in my book, and a valid 'tweak' to the strategy if it either encourages an individual investor to the strategy in the first place, or allows him to continue with the strategy as his HYP grows in size and his nerves perhaps wobble a little when faced with an often considerable amount of later-years capital invested in it...

A similar theme can be used to discuss Terry's much-admired top-up process - again a 'tweak' that has been proposed over the original strategy - so let's start at the same place as above, and perhaps agree that at an technical level, his top-up process is no better or worse, than the original strategy (again, I don't agree with that, but let's start there for the sake of this discussion...).

But if individual investors can see the simplicity of that top-up process, and see that it's both repeatable and manageable over many years, then that's a 'good thing', right?

If it helps HYP investors to stay the course, which many of us will surely agree is almost the single-most important aspect of any investment strategy, then that's a positive improvement to the strategy, surely, even if it could be proved that at a round-trip technical level, it's actually no better or worse than any other top-up strategy....

So that's just two examples why I think that anyone suggesting that 'Otherwise no tweaks proposed on TMF or TLF stand up' might be entirely missing the point a little, and allowing themselves to be blinded by academic study somewhat.

Even if such tweaks were to be proved to be worthless in a pounds, shilling, and pence valuation, often they are not supposed to be a guaranteed method of improving profitability - they are tweaks to help us manage things in a way that means we can perhaps sleep at night, and even it were proved to actually be costly, to some small degree or other, over the original HYP edicts, then as individual investors, we are often even willing to pay a price, if the return on that cost means being able to continue managing our finances in a way that suits us as individuals, and not just plough on regardless, following a set of rules dreamt up many years ago, since when the personal-investor market, and the options available to us, has grown well beyond the scope and ease that was originally available.

Lift your head up and look at the people wanting to use these tweaks and improvements - they are often doing so for personal, human reasons, and are very often not purely thinking about the pounds, shilling, and pence being delivered by the strategy itself....

Many of those tweaks are at a portfolio-management level, and engage with the human element doing the investing, and living month-to-month, year-to-year with their investments....

To disregard them so easily is, I believe, entirely missing the actual point of them....

Cheers,

Itsallaguess

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Re: On the Dividend Letter's demise

#199742

Postby tjh290633 » February 7th, 2019, 10:21 pm

Luniversal wrote:As I wrote, in the 2010 annus horribilis 27% of companies cut, passed or remained dividendless compared with 2009.

For 2000-16 percentages of companies declaring anything worse than a dividend maintained in real terms year on year were:

2009: 45
2010: 37

That's not 27%, almost double in fact.

TJH

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Re: On the Dividend Letter's demise

#199756

Postby Backache » February 7th, 2019, 11:05 pm

tjh290633 wrote:
Backache wrote:
Grumpsimus wrote:
I have seen academic research which suggested that a portfolio of 20 diversified shares would by adequate and there was no further benefit after reaching 25 shares. I know that a few people have very large HYPs 40 to 50 shares, this just appears to cause extra admin with little benefit.
.

However diverse the sectors HYP may not produce a truly diverse selection of shares that an academic paper might suggest as almost by definition they are shares in companies that are not using capital to grow .

You might think that, but oddly enough they do grow, some considerably.

I bought IMI in 2009 at 265p. I have trimmed back 3 times and had a B-share issue, topping up 3 times in between. The last time I trimmed, just over a year ago, I got £14.25 for my shares.

TJH

Yup, I wasn't meaning to imply htat they couldn't grow , but that having being selected primarily by one factor they may not provide the kind of diversity in twenty shares that results in one part of one's portfolio zigging whilst another is zagging.

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Re: On the Dividend Letter's demise

#199757

Postby 88V8 » February 7th, 2019, 11:07 pm

I recall a thread of Luni's on Cutters & Comebacks which showed that cuts did indeed take a long time to restore.

Anyway.... there is a fundamental difference to me, apples and oranges, between a 15 share HYP purchased as a lump and immediately drawn upon - the original concept- and an HYP constructed brick by brick over many years in anticipation of retirement.

The former, Dorisianly unmanaged, could with luck and a fair wind see the holder through to the next life.

The latter in contrast will certainly need tinkering. Methods of managing that tinkering, of resisting the Sweetshop Syndrome and consequent diworsification to which I have been prone, are to be welcomed.

But much of this debate is and has been about apples and oranges. And its endless reiteration rather gives me the pip.

V8

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Re: On the Dividend Letter's demise

#199762

Postby Luniversal » February 7th, 2019, 11:50 pm

tjh290633 wrote:
Luniversal wrote:As I wrote, in the 2010 annus horribilis 27% of companies cut, passed or remained dividendless compared with 2009.

For 2000-16 percentages of companies declaring anything worse than a dividend maintained in real terms year on year were:

2009: 45
2010: 37

That's not 27%, almost double in fact.

TJH


No, 45% refers to the total 'less than ideal' share of declarations, including freezes and subinflationary rises; whereas '27%' means only companies that reduced or eliminated nominal payouts. In 2016 under one in ten companies did so.

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Re: On the Dividend Letter's demise

#199774

Postby Itsallaguess » February 8th, 2019, 5:33 am

88V8 wrote:
Anyway.... there is a fundamental difference to me, apples and oranges, between a 15 share HYP purchased as a lump and immediately drawn upon - the original concept- and an HYP constructed brick by brick over many years in anticipation of retirement.

The former, Dorisianly unmanaged, could with luck and a fair wind see the holder through to the next life.

The latter in contrast will certainly need tinkering. Methods of managing that tinkering, of resisting the Sweetshop Syndrome and consequent diworsification to which I have been prone, are to be welcomed.

But much of this debate is and has been about apples and oranges.


The underlying problem with these types of debates is, and almost always has been, that those proclaiming to hark on high about the underlying simplicity of the original rules, where, as you say, they predominantly talk about a single-shot HYP purchase, is that the number of people either carrying out that specific process, or being able to be in a position to do so at any given time, is really quite small.

The majority of posters here, coming to the strategy or currently using it, are HYP builders, and it's only right that where they see improvements to the original idea that can help their building processes, and the management of a growing income-portfolio, then I think it's only right that they are 'allowed' to think that those improvements are valid.

Given that this is the Strategies board, I suppose I'm allowed to discuss Investment Trusts, so I'll raise a point related to the above regarding Luni's baskets....

Luni has always claimed that any of his IT baskets 'must' be purchased in a single-go - a one-shot delivery of a very large capital outlay turned into a varied IT income-portfolio.

It's almost as though we're not allowed to buy income-investments any other way, and doing so 'won't work' if we fail to follow the original rules....

Cheers,

Itsallaguess

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Re: On the Dividend Letter's demise

#199798

Postby Walrus » February 8th, 2019, 8:48 am

Itsallaguess wrote:
88V8 wrote:
Anyway.... there is a fundamental difference to me, apples and oranges, between a 15 share HYP purchased as a lump and immediately drawn upon - the original concept- and an HYP constructed brick by brick over many years in anticipation of retirement.

The former, Dorisianly unmanaged, could with luck and a fair wind see the holder through to the next life.

The latter in contrast will certainly need tinkering. Methods of managing that tinkering, of resisting the Sweetshop Syndrome and consequent diworsification to which I have been prone, are to be welcomed.

But much of this debate is and has been about apples and oranges.


The underlying problem with these types of debates is, and almost always has been, that those proclaiming to hark on high about the underlying simplicity of the original rules, where, as you say, they predominantly talk about a single-shot HYP purchase, is that the number of people either carrying out that specific process, or being able to be in a position to do so at any given time, is really quite small.

The majority of posters here, coming to the strategy or currently using it, are HYP builders, and it's only right that where they see improvements to the original idea that can help their building processes, and the management of a growing income-portfolio, then I think it's only right that they are 'allowed' to think that those improvements are valid.

Given that this is the Strategies board, I suppose I'm allowed to discuss Investment Trusts, so I'll raise a point related to the above regarding Luni's baskets....

Luni has always claimed that any of his IT baskets 'must' be purchased in a single-go - a one-shot delivery of a very large capital outlay turned into a varied IT income-portfolio.

It's almost as though we're not allowed to buy income-investments any other way, and doing so 'won't work' if we fail to follow the original rules....

Cheers,

Itsallaguess


Rightly or wrongly, my strategy is to buy income generating assets when I consider they looks good value and to hold until I retire. I intend to follow this approach for the foreseeable. Recent buys in that space were HEFL in October when it looked particularly cheap. It is reassuring to see how the income is growing each year and gives me confidence that I will actually be able to retire at some point!

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Re: On the Dividend Letter's demise

#199800

Postby tjh290633 » February 8th, 2019, 8:53 am

Luniversal wrote:
tjh290633 wrote:
Luniversal wrote:As I wrote, in the 2010 annus horribilis 27% of companies cut, passed or remained dividendless compared with 2009.

For 2000-16 percentages of companies declaring anything worse than a dividend maintained in real terms year on year were:

2009: 45
2010: 37

That's not 27%, almost double in fact.

TJH


No, 45% refers to the total 'less than ideal' share of declarations, including freezes and subinflationary rises; whereas '27%' means only companies that reduced or eliminated nominal payouts. In 2016 under one in ten companies did so.

My recollection is that about 90% of higher yield companies saw an effect of some sort in that time. I take it that your 47% is the proportion of all (FTSE100?) companies so affected?

TJH

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Re: On the Dividend Letter's demise

#199808

Postby OhNoNotimAgain » February 8th, 2019, 9:07 am

Luniversal wrote:What happened to the period from 2008 to 2010? Many companies paused or held their dividends static in that period.

Recovery took a long time.


As I wrote, in the 2010 annus horribilis 27% of companies cut, passed or remained dividendless compared with 2009.

For 2000-16 percentages of companies declaring anything worse than a dividend maintained in real terms year on year were:

2001: 11
2002: 27
2003: 30
2004: 24
2005: 6
2006: 15
2007: 12
2008: 13
2009: 45
2010: 37
2011: 25
2012: 22
2013: 24
2014: 25
2015: 21
2016: 32

AVERAGE: 23

A three-in-four success rate over time should provide a rising real income in most years. Smooth purchasing power can be firmly buttressed by income reserving (average ~12% of the natural inflow seems OK) while one lets the invisible hand of market trading refresh the selection.

My impression is that dividends became a mite choppier in 2017 and 2018, but I no longer keep records. The LuniHYPs are doing all right, though :D.


Looking at it that way ignores the difference between companies paying massive dividends and tiddlers that pay virtually nothing. Remember only 10 companies contribute 62% of all dividends paid by UK listed shares. But the 10 companies that made a major contribution to the £73 billion of dividends in 2007 are not entirely the same as the 10 companies that make the largest contributuions to the £107 billion being declared now.

All you need to get a share of this income stream is a small slice of every company that pays a dividend. HYP's problem is that it has too few stocks and never rebalanbced.

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Re: On the Dividend Letter's demise

#199851

Postby 88V8 » February 8th, 2019, 10:55 am

Itsallaguess wrote:The majority of posters here, coming to the strategy or currently using it, are HYP builders, and it's only right that where they see improvements to the original idea that can help their building processes, and the management of a growing income-portfolio, then I think it's only right that they are 'allowed' to think that those improvements are valid.

I agree.

And Luni recognised the 'building' process by posting his monthly picklist of preferred shares, in two sizes of Sturdyness. However, he parted company on aspects such as trimming - selling one's winners as I think of it, a debate that will go on forever I expect.

However, I do recall regular calls for him to show proof of this n that. Pretty impossible to prove anything if one is constantly tinkering.
Much more robust if one can say well here's this HYP that I constructed then according to these criteria and here's this one that I constructed then, and so forth.
He was trying to evolve a simple methodology that did not require analysis of company accounts, even though he was well qualified academically and practically to analyse had he wished.

Itsallaguess wrote:Given that this is the Strategies board, I suppose I'm allowed to discuss Investment Trusts, so I'll raise a point related to the above regarding Luni's baskets....
Luni has always claimed that any of his IT baskets 'must' be purchased in a single-go - a one-shot delivery of a very large capital outlay turned into a varied IT income-portfolio.


I'm not sure that's so. He was trying to demonstrate the efficacy of a one-shot portfolio constructed under certain criteria. Blurring the lines of a portfolio by constantly adding to it, makes it hard to see whether the methodology worked.
Gen, in contrast - where is Gen, have I missed something? - was demonstrating a brick-by-brick method of building a portfolio. I do agree that in practice that was perhaps more representative of how things are done, certainly in my case.

The trouble with all methods is that by the time they are proven or disproven, the goalposts have moved. They moved hugely when dividends became taxable,. It dunnarf influence one's stock picking, knowing that the Gubmt will steal 32.5% of the income. A nice problem to have, you may think; but isn't it a problem to which we all aspire?

V8


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