Dod101 wrote:Arborbridge wrote:One should look at the HYP criteria first which reduces the pool of shares considerably, and then look in further detail - which would include the other factors you are concerned with.
To put the "other factors" first means wasting time examining a load of non-HYP shares.
Sorry to be pendantic, but it does seem your remark puts the cart before the horse, as regards procedure.
You are speaking as a true HYPer. I am not. That is the difference. I tend to start with the business sector, then the companies within it, ...
I don't really see the difference, because the guidelines include diversification by saying that a HYP approach invests in "a diversified portfolio of shares". I filter the available companies down to a shortlist of companies I think are worth looking at more closely, and the way I filter them down includes looking at their business sector as well as the more obvious HYP criteria like high yield. For example, if I were to be looking for a HYP company to buy at present (which I am not), all miners would be filtered out, because my HYP already has a significantly higher percentage of its income being supplied by miners than I'm really comfortable with.
Basically, every investor needs a way to come up with a shortlist of companies to analyse in greater detail, because life is far too short to analyse all the companies around. How any individual HYPer chooses to do that is not laid down in the guidelines, and so HYPers end up doing it in various different ways. Those different ways are a practical aspect of running a HYP and so well worth discussing on this board - not from the point of view of deciding which of them is the 'correct' way to go about it, but from the point of view of sharing tips about the process others might find useful (*). What is laid down in the guidelines is some characteristics that the portfolio resulting from the way a HYPer selects their shares must have.
There is a tendency for people posting here to concentrate what they say on the more obvious HYP criteria rather than diversification. There's a good reason for that tendency: basically, diversification information is not usefully shareable between HYPers - for example, the information that I'm not buying miners because I'm already overweight in them is of zero use in any other HYPer's share selections, because their diversification criteria need to use data about their HYP, not about mine! So I'm not saying anything needs doing about that tendency, other than being aware that it exists and may well affect the overall impression one gets from the board about what matters to HYPers...
(*) An example of where things go wrong: I've seen many posts describing the "list the available shares in descending order of yield and work down that list until you find one that's acceptable" method of HYP share selection pretty much as if it's the one-and-only correct way for a HYPer to select their shares. But if you look back at its origins in pyad's original HYP article, what he said was:
Whatever the money available, even very large sums, no more than about 15 shares are necessary to take strip out the excessive risk of too few shares. Stick to FTSE 100 companies and spread the holdings around sectors. I would do it by ranking the shares in the index by descending yield, then work down the list choosing one from each sector, but doing a bit of research on each potential candidate. You don't want excessive debt, for example. Another useful clue is to pick only those companies that have increased dividends regularly over the last few years.
In that, most of what pyad said was about how he would choose the shares and gave a couple of "clues" about things to watch out for - he wasn't dictating that others must use that method and those clues, but making suggestions that others might find useful. (Admittedly the sentence "Stick to FTSE 100 companies and spread the holdings around sectors" is rather more imperative, though he somewhat undermined the imperative nature of the first part by saying a week later that "To obtain a little more choice, I went marginally outside the FTSE 100 index and set £1.5b as my minimum capitalisation filter." But regardless of how imperative one regards that sentence as being, it's not about the "list the available shares in descending order of yield and work down that list until you find one that's acceptable" method of HYP share selection.)
Gengulphus