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Portfolio Allocation: Critique Welcome

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  • ColdIron
    ColdIron Posts: 10,014 Forumite
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    Audaxer wrote: »
    If you invested say 5k in an IT when it was at a premium and if the share price then rose by say 50% in 5 years to be worth £7.5k would it matter whether it was then at a 10% premium or 10% discount if you were going to sell it?
    It's obviously the share price that matters when you buy or sell and the premium/discount will be a factor in this, but if you are using ITs for income then you should be a LTBH investor and more focussed on their income producing properties; good, reliable and sustainable dividends. I have no intention of selling my ITs until I need someone to wipe the drool off my chin in a decade or two's time with any luck. The absolute share price and its divergence from NAV when that comes is a lesser concern to me
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    I agree, premium/discount is a different (and extra) risk over and above the NAV. As is obvious from recent IT returns there's lots of money to be made, but also lots to be lost. I expect many people will be patient and will profit form selling ITs at both higher NAVs and higher premiums than when they were purchased. But the converse is also true. I have a friend who bought PHK a while back.....right now he's in a big hole and I wonder how it will keep paying 12%, but if he's patient maybe it will come back.

    Holding trackers does mean you move with the herd, and so your chances of getting picked off by a lion are reduced - it's a good survival strategy for most of the antelope that don't have the consistent speed to beat the lion every time.

    We all learn from our investment mistakes and experieces. Many people fail to follow the most basic rules of investing at the outset. We all think that we know better.

    Herd mentality is how people behave. Absolutely nothing to do with being picked off. As a small investor I can be nimble. A single % point here or there can be extremely rewarding over time. "Be fearful when others are greedy, and be greedy when others are fearful!"
  • Audaxer
    Audaxer Posts: 3,547 Forumite
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    Thrugelmir wrote: »
    Likewise I sell\top slice a holding at a premium, if I've identified what I consider to be a better opportunity elsewhere.
    But presumably you would only sell if the share price has also risen. If an IT had moved from a 10% discount to a 10% premium, would the share price also have risen at roughly the same rate? What I can't understand is why the discount/premium is as important as the share price?
  • Audaxer
    Audaxer Posts: 3,547 Forumite
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    ColdIron wrote: »
    It's obviously the share price that matters when you buy or sell and the premium/discount will be a factor in this, but if you are using ITs for income then you should be a LTBH investor and more focussed on their income producing properties; good, reliable and sustainable dividends. I have no intention of selling my ITs until I need someone to wipe the drool off my chin in a decade or two's time with any luck. The absolute share price and its divergence from NAV when that comes is a lesser concern to me
    Thanks. Yes, I would be using them for income and they would be a long term buy and hold. However just interested in learning what affect the discount/premium percentage has on the share price as I'm still not sure. Although yours are LTBH do you need to rebalance your IT portfolio at all?
  • ColdIron
    ColdIron Posts: 10,014 Forumite
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    edited 26 November 2017 at 3:30AM
    Audaxer wrote: »
    Thanks. Yes, I would be using them for income and they would be a long term buy and hold. However just interested in learning what affect the discount/premium percentage has on the share price as I'm still not sure.
    All things being equal you would expect a change in premium/discount to be reflected in the share price, although in reality it's the other way around. It's the change in share price that causes the premium to change as it's just a measure of the difference between the share price and the NAV. However, sometimes it can be more complex than that. Earlier in the year I bought HICL for the attractive, government backed and inflation protected yield and as a diversifier to equities, bonds and property. It was at a premium of nearly 15% which I was happy to accept. Following John McDonnell and Stella Creasy's recent pronouncements the share price for me has fallen about 5% due to investor sentiment but the NAV increased (the money is still rolling in regardless) so the premium has narrowed to under 5%. It still has the qualities that drew me to it in the first place and the dividend return in pence per share may even increase as it has done for several years. Naturally, given the choice, I would prefer to buy at today's price, not because I wouldn't have a small loss but because I could buy more income producing shares than I did
    Although yours are LTBH do you need to rebalance your IT portfolio at all?
    I am not expecting much in the way of capital growth from some of my higher yielding investments so they will need attention but I'll probably do this by topping up the laggards rather than sale and purchase where this is practical
  • DairyQueen
    DairyQueen Posts: 1,858 Forumite
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    badger09 wrote: »
    There are also free courses available.

    https://www.futurelearn.com/courses/managing-my-money

    Several regular posters (including colsten IIRC) have done this one and spoken well of it. Apologies if this is too basic for you.

    I'm not sure exactly how I would define my knowledge level. I am streets ahead of most in my circle but miles behind most posters here. I doubt anything is too basic.

    Many thanks for the suggestion.
  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
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    edited 26 November 2017 at 1:53AM
    Thrugelmir wrote: »
    We all learn from our investment mistakes and experieces. Many people fail to follow the most basic rules of investing at the outset. We all think that we know better.

    Indexers way if "knowing better" is to accept that they don't "know better". I admire the optimism of the active investor looking to time a yield curve or a stock price, but it's only the successful ones that seem to post on these forums. I suppose they have survived the lions. Those that fail to beat an indexing approach probably die of embarrassment rather than in a lion's jaws.
    Herd mentality is how people behave. Absolutely nothing to do with being picked off. As a small investor I can be nimble. A single % point here or there can be extremely rewarding over time. "Be fearful when others are greedy, and be greedy when others are fearful!"

    A herd is certainly a defense against a getting picked off. I agree that small percentages add up and I like to get those from keeping fees low. But isn't active investing still more popular than indexing, so which herd are we talking about. Your final truism is good to follow and is an argument for rebalancing.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • Audaxer wrote: »
    But presumably you would only sell if the share price has also risen. If an IT had moved from a 10% discount to a 10% premium, would the share price also have risen at roughly the same rate? What I can't understand is why the discount/premium is as important as the share price?

    You're right, the share price is what matters when buying or selling. The discount/premium is the amount the NAV differs from the share price. So if you see the NAV going up, strong yields and a premium increase because people want to get in, then it's G&Ts all round.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    ColdIron wrote: »
    It was at a premium of nearly 15% which I was happy to accept. Following John McDonnell and Stella Creasy's recent pronouncements the share price for me has fallen about 5% due to investor sentiment but the NAV increased (the money is still rolling in regardless) so the premium has narrowed to under 5%. It still has the qualities that drew me to it in the first place and the dividend return in pence per share may even increase as it has done for several years.

    The fund's holding in Carillion (amongst other matters )is the dark cloud hanging over it. Carillion is in severe financial difficulties. With it's own share price having slumped 91% since July to 2p. As concerns grow that it may even go bust. HICL has 15% of it's assets (contracts) tied into Carillion.
  • Audaxer
    Audaxer Posts: 3,547 Forumite
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    Thrugelmir wrote: »
    The fund's holding in Carillion (amongst other matters )is the dark cloud hanging over it. Carillion is in severe financial difficulties. With it's own share price having slumped 91% since July to 2p. As concerns grow that it may even go bust. HICL has 15% of it's assets (contracts) tied into Carillion.
    I see that HICL's premium is now down to 3.84%, and the share price is down by 1.92% this year, but the NAV is up 7.14% this year. Does that indicate it would be a good time to buy it, or in view of what you are saying is it one to avoid?
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