[Stephen Bland]

Hello Phil

The cost of, or profit on, your original investment in Sky is not relevant for this purpose.

What matters is the amount of cash realised from the Sky proceeds and how this compares with the current average sector value in your portfolio. This calculation will vary amongst every reader that held Sky so I could not show the actual effect on each holder’s portfolio individually. What I could demonstrate was my method of how I dealt with it in those HYPs of mine which held Sky.

What I suggest is that you calculate your current average sector value, excluding the Sky cash. This sum is the maximum amount to invest in any new sector(s) so as not overweight them at cost. If large enough, the cash could be adequate for two new sectors or even more. This is what happened with HYP6 where it was adequate for two whole new sectors and then some left over with which I chose to top up GNK. It does not mean the same would apply to you necessarily.

Hope this helps.

[Stephen Bland]

It’s a good question Phil and one that I’ve been asked many times.

The answer is that I believe large companies are more secure in general and less likely to have problems. That doesn’t mean they cannot have problems causing a dividend cut or suspension, or even go completely bust, it just means that in my view this is less likely to happen than with smaller businesses. I do occasionally select shares from the FTSE250, which consists of the next 250 shares ranked by capitalisation below the FTSE100, but that is only when I run out of suitable candidates from the 100 index required to maintain the essential diversification of the strategy.

Remember that I select shares to be held forever as an absolute minimum, so that only what I term Market Trading will alter a portfolio. Nobody can know what will happen to a company even in the short term, let alone forever, so I have to consider the chances of it surviving and continuing to pay dividends over such a long period. There are no guarantees because dividend income is risk income but my view is that a large company has a better chance of doing so than a smaller one in general.

One of the features of my HYP strategy is to try and reduce risk because investors will be depending upon the income. The risk cannot be eliminated but some reduction measures can be utilised. Diversification is the main one and sticking to big caps is another, as I see it.

[Stephen Bland]

Phil, as I wrote in TDL very recently, SKY holders should formally accept the Comcast bid because it has become mandatory. So you should have done this by now. If not, do not just leave it, that will only delay payment and could create other problems for you. The process is to complete and return the form you will have received if you held direct. If you held your SKY shares in nominee form, which includes an ISA, then you must inform your nominee to accept the bid on your behalf.

The cash should be paid fairly soon to holders making a formal acceptance, within 14 days according to the document.

On reinvestment, as I said in TDL, after the cash is paid out I will be commenting in TDL on how I allocate this in the various HYPs that held SKY.

[Stephen Bland]

This is nothing to do with me. Have a look at the recent thread Stock Market Crash which asked a similar question.

[Stephen Bland]

I presume this is addressed to me.

My HYP was initially built up long ago, before I founded TDL. It’s a very substantial portfolio and these days I am more likely to top-up existing holdings if I have some additional cash to invest. Consequently I do not hold every single share I select and WPP is not the only one shown in TDL that I do not hold personally. Going the other way, there are some shares I hold in my HYP which I have never selected in TDL.

Other reasons include my own rules regarding sector diversification and not over weighting sectors etc. to which I adhere. This also could cause me to refrain from purchasing a share I’ve selected if I’m already up to full weight in that sector from other holdings in the same industry.

So there can be several reasons why I do not hold any particular selection in TDL, none of them having anything to do with my views on the quality of the share.

[Stephen Bland]

Will you be selling your portfolios?

I leave you to guess the answer to that.

If we don’t get the crash who holds these people to account or can they just put this rubbish out with no comeback.

They can just put this out with no comeback.

Incidentally and to make it clear, Southbank is my publisher but I am not employed by them nor do I have anything to do with the management of the company or any other publications or promotions from them etc. Consequently I have no influence over anything they release apart from TDL and the communication you mention is nothing to do with me.

[Stephen Bland]

As you indicate Jeff, my advice is to have just one HYP and not several. Topping up then follows the procedure I have described.

Where a portfolio was originally constructed from one of my earlier HYPs, then if the investor wishes to add new sectors from my later selections, that’s easily done whilst still maintaining just a single portfolio. The amount to be added into a new sector is the then sector average value as I mentioned in the latest TDL.

If for some reason you have operated multiple HYPs and wish to keep them that way, then logically you should treat each portfolio separately when using my topping up procedure. Thus the average sector values will vary between portfolios. But that’s really a clumsy and unnecessarily complicated way to run things and I don’t advocate this.

I suggest you should reconsider all your HYPs as one single portfolio, thereby making it simple to add new sectors or top up existing ones. In answer to your final point, when topping up you should never overweight a sector, you add only to the underweight sectors and even then just enough to bring it up to the new average. (ie. including the new money). Again this will be solved in your case buy merging all your HYPs into one. You’ll then know exactly how many sectors you have, the total portfolio current value and consequently the average sector current value and the margin available for topping up below average sectors or alternatively, adding new ones.

[Stephen Bland]

Your thinking is correct in that it doesn’t matter which sector received top up cash in the past because past events are irrelevant for this purpose. The calculation for topping up is always based on the current situation, regardless of what happened earlier.

No need to apologise for asking further questions, I’m happy to deal with any queries.

[Stephen Bland]

If you hold your shares in an ISA, which for tax reasons is probably the most advantageous way to hold a portfolio up to the annual contribution limit, then these will have to be in a nominee account as there is no choice.

CREST applies only to direct holdings outside an ISA and is a compromise between being on the share register and permitting electronic trading. But it costs. Only a few brokers offer personal CREST accounts and there is a regular charge involved. So in practice CREST is really only worthwhile for larger portfolios.

For direct holdings apart from CREST there are two options, nominee accounts or paper certificates. Paper is quite rare these days and does not allow for electronic trading, but it does put your name on the share register. Paper though attracts higher dealing charges than nominee accounts. The advantage of the latter is low charges and electronic trading, but there is the very slight risk of failure of the nominee company and the holder’s name is not on the share register. Investors should be covered to a large extent by compensation schemes but the problem is that it would take ages to sort out and you may not recover all your investment value in the event of failure. Despte this very slight risk, I’d guess that the great majority of small private investors use nominee accounts these days.

It’s your choice, outside of an ISA, which holding method you select.

[Stephen Bland]

It’s the 14 sectors that you now own, excluding Carillion, which should be used to determine the average sector value. That’s because original cost is not relevant for this purpose.

Adding new money for an addditional sector or topping up an existing one both use average current sector value but in slightly different ways. In the former situation that average value is the amount to be invested in the new sector. In the latter, the idea is to locate those sectors which are below the average. These then form a short list from which to choose where the top-up cash will be allocated, normally the highest yielders which are Buys at the time.

The amount by which the sector is to be topped up is the sum sufficient to bring the chosen sector up to the current average but not above it, approximately. A few pounds here or there is not important.

[Stephen Bland]

Yes, do nothing for the time being.

[Stephen Bland]

Good question. The answer is that there are no succession plans at present.

[Stephen Bland]

I’ve always said that I’m willing to include a lower yielder in a portfolio if I think that the return is sufficiently compensated by other factors, which I believe is the case here. The effect on portfolio yield of such a share is negligible.

[Stephen Bland]

On your first point on switching from SKY to ITV, the default HYP position in the great majority of bid situations like this is to do nothing, a policy that on balance, in my opinion, will deliver the optimum long term benefit for HYPers rather than switching. A similar case could have been made when the first bid for SKY at 1,075p arose back in December 2016. Doing nothing has paid off handsomely with the sharply increased bid and in addition, SKY resumed dividends after a hiatus. Note also that HYPing, my style, in any event involves no trading for the same reason that I believe, for most, that doing nothing delivers the optimum long term rewards.

On your second point, the dividend schedule in each edition of TDL shows my latest Buy or Hold status for every share I have ever selected that still exists in any earlier portfolio, to enable readers to check such status or perhaps make selections of their own from them. When adding a new share to the current portfolio under construction, I do not look back at the old completed ones to capture shares or sectors because each new portfolio selection is based on my view of the share and market at the current time with no regard to the past at all.

I specifically wish to avoid being influenced in my current selections by any past selections, so as to prevent emotional attachments to shares. As I usually say with new selections that are repeats, this is due merely to coincidence in that the share is still attractive on a current view – good HY shares can remain so for years in some cases – and not in any way because I picked it before.

Incidentally the old portfolios are not forgotten, I publish an annual review of all completed ones each January.

Thanks for your kind words of encouragemement Birwa.

[Stephen Bland]

Thanks Ron, I appreciate your comments. Glad it’s worked well for you so far but as you realise, six months is far too short to draw any long term conlusions from a portfolio designed to be held for all eternity.

I stress too that I design and promote HYPs principally for income, not capital growth or total return. The latter two effects may well follow over time, taking a portfolio as a whole, because the strategy utilises elements of value and contrarian concepts but growth and total return, welcome as they are of course, are not the purposes of the HYP approach.

Going further with that, one of my didactic aims with the strategy is to wean investors away from the whole idea that the reason to buy a share is to sell it later for a profit, and on to the view that the reason to buy a share is for its good yield and potential to increase its dividends long term.

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