Timing the market has given better results than time in the market

[pendas]

It would seem that timing the market has given better results than time in the market in this[Aviva] instance.

Moderator Message:
Moved from Aviva results topic in HYP-P to HYP-G to try and keep that topic focussed. - Chris

[Itsallaguess]

It would seem that timing the market has given better results than time in the market in this instance.

It shouldn't come as too much of a shock to learn that specific examples can be found of such cases, especially with the benefit of hindsight....

This is why a portfolio approach is taken with regards to income-investment, to smooth out and help compensate for such occurrences...

If company-specific issues like this never happened, we could simply pour our capital into a single company and forget about it....

We take a portfolio approach because we know that single-company-risk exists, but then 'single-company-risk' exists with almost *all* investment strategies, so why some people seem compelled to only point out such risks where investors might choose to pursue an high-yield income-investment approach is beyond me, and that is doubly so where they seem to be incapable of coming up with any real alternative proposals themselves, despite repeated requests to do so....

Cheers,

Itsallaguess

[Alaric]

It would seem that timing the market has given better results than time in the market in this[Aviva] instance.

It's an example of the premise that volatility equals risk. Investors over some time periods will have done well out of Aviva, others badly.
http://tools.morningstar.co.uk/uk/stock ... E%24%24ALL

By contrast, investors in some other shares, Diageo being an example would always have done well provided they held for long enough.
http://tools.morningstar.co.uk/uk/stock ... E%24%24ALL

[Itsallaguess]

By contrast, investors in some other shares, Diageo being an example would always have done well provided they held for long enough.

Real life investing is about looking forwards, and not backwards....

If I'd have put my mortgage on Grittar, I'd have been a very wealthy lad.

Sadly, I'm not able to do so from here......

Cheers,

Itsallaguess

[Alaric]

The investments you hold today are the ones you selected at some time in the past.

If you have a dodgy selection today, why not look back at how you selected those investments if you are still using the same or similar rules? Selecting by yield would have worked well in 1999 or 2000 as it proved for Woodford and would have avoided the stocks priced at ten times what they were really worth. Selecting by yield now has the issue as to whether you are just picking up the next Carillion.

[tjh290633]

The investments you hold today are the ones you selected at some time in the past.

If you have a dodgy selection today, why not look back at how you selected those investments if you are still using the same or similar rules? Selecting by yield would have worked well in 1999 or 2000 as it proved for Woodford and would have avoided the stocks priced at ten times what they were really worth. Selecting by yield now has the issue as to whether you are just picking up the next Carillion.

So what is your alternative for anyone seeking income? What criteria would you suggest? And kindly avoid selling shares to provide income.

TJH

[Itsallaguess]

If you have a dodgy selection today, why not look back at how you selected those investments if you are still using the same or similar rules?

Alaric,

How do you square the above statement with the many people here using the same high-yield selection-criteria, who are actually happy with their income portfolios?

If you don't answer any other question, then can you please answer that one?

Many of those high-yield income investors have been happy for many, many years, and many are happily retired and continue to use the strategy, or one very similar to it.

A portfolio approach to income investment helps to mitigate the effects of poorly performing single-investments.

Such cases are impossible to avoid, and that's a simple fact of personal-investment life, no matter which strategy we choose to use....

We will never be able to avoid them, but just because a particular strategy might result in picking the odd dud, that does not make the strategy itself a poor one.

Why do you refuse to see this, and continue to disparage a strategy by pretending that everyone's income portfolios are chock full of duds?

That is clearly not the case.....

In addition to the above, can you not see that you're only able to point at companies like Carillion as an example for your criticism of a high-yield strategy, because the strategy itself is known and visible, and this then enables you to see evidence that it's been chosen in the past as an income-investment using it.

You, however, refuse to deliver an alternative strategy that people could use to actually invest at a portfolio level. As this is the case, it's clearly impossible for any criticism of such an invisible strategy, or to see which companies such an invisible strategy might have picked in the past.

As we've said before - pointing backwards is great, we can all do it, but pointing forwards is difficult, and your continued refusal to describe an actual alternative strategy rather proves that point, wouldn't you agree?

Cheers,

Itsallaguess

[IanTHughes]

Selecting by yield now has the issue as to whether you are just picking up the next Carillion.

The "next Carillion" as you put it, could just as easily be currently a low-yield share. Does that mean one should avoid low-yield shares as well as high-yield shares?

Of course both such arguments are complete nonsense! Avoiding high-yield shares will not guarantee one avoids the "next Carillion" and nor will avoiding low-yield shares! The only sure way would be to have the ability to see into the future. You cannot do that any more than I can.


Ian

[Alaric]

So what is your alternative for anyone seeking income?

The idea I am working on is that the long term return on a share can under some conditions of theory be established from the sum of the dividend yield and the dividend growth rate. That might not give enough immediate income to those wanting income today, but should not be a barrier for those seeking deferred income. You also have to accept that the relevant metric is market value.

Using the dividend data site I've established a ranking order for the sum of current yield and five year growth. I can use the site to filter out those shares who have suspended and reinstated their dividend as well as those who have cut. What I'm now looking for is a filter to exclude those shares where the dividends are mostly distributions of retained earnings. A one year or perhaps three or five year total return or share price movement might be enough, trusting the market's pricing opinion. It's a bit of a lengthy process if I have to go stock by stock.

Some unfamiliar names come up. Without the performance filter the top 10 from the FTSE 100 are

NMC NMC Health 97 0.89% 32.69%
MCRO Micro Focus International 74 5.78% 20.77%
STJ St. James's Place 82 5.12% 21.11%
IMB Imperial Brands 28 9.19% 10.02%
RMV Rightmove 90 1.31% 17.78%
ITRK Intertek Group 46 1.80% 16.62%
LSE London Stock Exchange Group 23 0.93% 17.08%
DLG Direct Line Insurance Group 99 7.15% 10.62%
WPP WPP 37 6.12% 11.21%
SDR Schroders 55 3.94% 11.55%

Headings are Epic, Name, Rank by capitalisation, dividend yield, 5 year annualised growth rate

NMC would fail a one year performance test, being down approaching 50%.
Microfocus is up over one year and down over three.
St James's Place is well down over one year and below the FTSE 100 over three

[Alaric]

Of course both such arguments are complete nonsense! Avoiding high-yield shares will not guarantee one avoids the "next Carillion" and nor will avoiding low-yield shares! The only sure way would be to have the ability to see into the future. You cannot do that any more than I can.

If a low yield share is the next Carillion, it will likely become a high yield share first when the share price starts to crumble. The market has, or thinks it has, an ability to see into the future. Business planning attempts to see into the future, so I don't think it's as blind as you suggest.

[tjh290633]

Alaric, wouldn't cash flow give you an adequate filter?

Interesting that IMB features in your list.

TJH

[Alaric]

How do you square the above statement with the many people here using the same high-yield selection-criteria, who are actually happy with their income portfolios?

I did for a while select shares by yield. By a lucky accident I sold Carillion before it went really bad even if it was at a loss. That caused my to rethink the idea of selecting shares by yield. It's obvious really. Yield is dividend divided by price, so a high value for yield is a low value for price. That particularly applies to shares that move into high yield territory.They've got there because the price has fallen. You could bet on a recovery. With Vodafone that may have come off following their "Masts plc" announcement.

I also reject the premise of ignoring market value as a measure of success and the near religious fervour that seems to surround the self invented three letter abbreviation.

[Alaric]

Interesting that IMB features in your list.

It's well known for having both a high dividend and a high dividend growth rate. But isn't that coming to an end soon?

It's been loss making in terms of Total Return over one and three years. Tobacco stocks are under a cloud as discussed elsewhere on the site. Whether that is because of a general decline in demand for the product or a more specific fear that medical costs will somehow be pinned to the major manufacturers remains to be seen. But a dividend yield of 10% even if increasing at 10% is not much value when the price drops 20%.

[IanTHughes]

Of course both such arguments are complete nonsense! Avoiding high-yield shares will not guarantee one avoids the "next Carillion" and nor will avoiding low-yield shares! The only sure way would be to have the ability to see into the future. You cannot do that any more than I can.

If a low yield share is the next Carillion, it will likely become a high yield share first when the share price starts to crumble.

So what? If one buys it now, with a low-yield, and it subsequently goes high-yield and then bust, how has buying it now, as a low-yield, saved one from the eventual total loss? it has not! Not only that but, by buying at a higher price - low-yield- one will end up losing even more! Not much of a solution in my view!

Sorry, you will just have to accept the reality that one cannot tell the future of any share investment based on the yield only and to believe otherwise would be foolish in the extreme!

The market has, or thinks it has, an ability to see into the future. Business planning attempts to see into the future, so I don't think it's as blind as you suggest.

Oh please! Any study of forecasts Vs actual results should soon disabuse anyone tempted to believe that wishful thinking!


Ian

[Alaric]

So what? If one buys it now, with a low-yield, and it subsequently goes high-yield and then bust, how has buying it now, as a low-yield, saved one from the eventual total loss?

The warning sign is when it starts to appear on high yield selection lists. But do you assume it's cyclical and will recover or it's on the way out? I'd rather not even consider such shares in the first place and high yields are warning signs.

[IanTHughes]

So what? If one buys it now, with a low-yield, and it subsequently goes high-yield and then bust, how has buying it now, as a low-yield, saved one from the eventual total loss?

The warning sign is when it starts to appear on high yield selection lists.

But if you have already bought it, you are already heading for the disaster! A disaster that you are erroneously claiming would be avoided, because one bought low-yield! High yield is no such warning sign but even it were, the warning is too late!


Ian

[Itsallaguess]

How do you square the above statement with the many people here using the same high-yield selection-criteria, who are actually happy with their income portfolios?

I did for a while select shares by yield. By a lucky accident I sold Carillion before it went really bad even if it was at a loss.

That caused my to rethink the idea of selecting shares by yield.

Thanks Alaric, but you've said above why you are not happy with high-yield as an income investment strategy, which isn't really answering the question.

I asked, if it really was such a poor investment strategy,, how there can be many people here at various stages of happily using it, including some being happily retired and living for many years on the income derived from such a strategy?

Have they been lucky, or were you unlucky?

Are they able to live with a portfolio approach that is likely to fall foul of such slips, and you are perhaps not?

I should add here that I'm an income investor myself, who has moved away from a 'classic' HYP approach because I found it difficult to live with such individual-holding slips myself, but I'm very happy to admit that this is a failing on my part as an investor, and not a failing of the strategy itself....

I also reject the premise of ignoring market value as a measure of success and the near religious fervour that seems to surround the self invented three letter abbreviation.

On the particular 'religious fervour' point, can you at least see that you might recently have been part of that problem?

Some might see people questioning your recent criticism of the HYP strategy as 'religious fervour', but some might equally simply see it as people seeking enlightenment on your proposed alternative suggestions, which until today have not been forthcoming...

I hope you're able to see that, as I think the distinction is an important one....

Cheers,

Itsallaguess

[IanTHughes]

I also reject the premise of ignoring market value as a measure of success and the near religious fervour that seems to surround the self invented three letter abbreviation.

HYP is an Income Strategy, designed to generate Income! It is not, repeat not, designed to generate Capital Value! The "market value" is not the metric by which the success or otherwise of the Strategy will be measured. When will members of the anti-HYP cult, such as yourself, understand this?


Ian

[Alaric]

It is simply that the "market value" is not the metric by which the success or otherwise of the Strategy will be measured.

Ignoring market value, as I just said.

If you had portfolio A whose latest result is

market value before reinvestment 250
reinvestment 10
market value after reinvestment 260

and portfolio B whose latest result is

market value before reinvestment 220
reinvestment 20
market value after reinvestment 240

are you saying that B is to be preferred because the amount available for reinvestment had been double that for A?

If you needed that 20 as income to live off, I can follow that, but not when you are just reinvesting.

[IanTHughes]

It is simply that the "market value" is not the metric by which the success or otherwise of the Strategy will be measured.

Ignoring market value, as I just said.

If you had portfolio A whose latest result is

market value before reinvestment 250
reinvestment 10
market value after reinvestment 260

and portfolio B whose latest result is

market value before reinvestment 220
reinvestment 20
market value after reinvestment 240

are you saying that B is to be preferred because the amount available for reinvestment had been double that for A?

If you needed that 20 as income to live off, I can follow that, but not when you are just reinvesting.

If I was investing for income, whether using HYP or another Strategy, I would "prefer" the portfolio that produced the "best income result"! I really do fail to see why you cannot grasp such a simple explanation!


Ian