Stop Loss

[Christopher Evans]

Stephen,
It is interesting to see three major losses that you have highlighted, two of which I have/had, Carillion and FirstGroup, (I still have carrillion but sold firstgroup) the hold forever strategy I understand but would it not be a good idea to have some level of stop loss strategy to minimise future major losses, its not like we expect to get any divis. from these two in the distant future? Either way I would value your wisdom how to carry out a stop loss strategy via support levels.

[Stephen Bland]

Stop losses have no place in an income strategy like HYPs because share prices are of little or no concern. Therefore there is no reason to sell a share in my strategy just because its price has fallen. Overwhelmingly, price falls are just market noise.

Stop losses are used principally by traders attempting to make money from capital gains but trading is not part of the HYP approach. In fact the opposite is true, non-trading is part of the HYP approach.

Eternity hold exists with me because on balance I believe, and have seen, that most shares will recover. Enough to vindicate this approach on balance.

It would be contradictory for me to advise you on using stop losses in my strategy when I totally disagree with their use in HYPs and also, it would constitute personal investment advice which I am legally prohibited from giving to individual readers.

You use the expression “support levels” which is a chartist term. Charting, or technical analysis, is for traders trying to profit from price action so I see no place for it within HYP income investing where the sole aim is to earn dividends. In contrast your message is focussing on capital values which is entirely the wrong way to consider the method. HYPers buy a share exclusively for its income potential, not for its price potential.

[Christopher Evans]

Thanks Stephen for your response, do you therefore believe at no time will you sell any shares, even after four years of zero income on investment (like FirstGroup) it delivers no dividend / return?

Surely it is better to cut your losses before the capital and most likely the dividend drops out for the worst of these particular companies? I think I know your answer but thought I would ask anyway.

Happy New Year Chris

[Stephen Bland]

Thanks Chris

FGP is not the worst offender of suspended dividends amongst the three. That dubious honour goes to RBS as I said in the article.

As mentioned, the eternity hold approach is based on the likelihood that on balance, sufficient suspender shares will recover payouts to justify holding but by taking this overall view, it follows that there will be some poor performers that take far longer than expected to recover. The approach will also capture some good recoveries too such as for example BP and Persimmon which both suspended dividends in the past. We know with hindsight how things turned out but it’s not necessarily clear at an earlier date so how long do you give it? I decided that forever was probably long enough.

But it’s your money so if you feel you should dump such shares you must do so, TDL is only advisory.

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