The following promotion is not intended as investment advice. Your capital is at risk when you invest in shares – you can lose some or all of your money, so never risk more than you can afford to lose. Always seek personal advice if you are unsure about the suitability of any investment.

Losing money or making nothing from trading
shares for profit?

I’m not surprised, most traders end up like that
over time.

But I’ve got the antidote.

Concentrate on dividend income, allow the capital to look after itself and give up on trading.

I’m Stephen Bland and I launched

in March 2008 to advise the best way to do just that.

It works, read this communication to see how.

It’s quite simple and you have probably heard of it.

What I am offering is a Long Term Buy and Hold (LTBH) system. But it’s LTBH with a huge difference in that there are several key rules that mark my system out from a generalised LTBH approach in any old shares.

I call it the High Yield Portfolio strategy.

Here are the principal elements that characterise the High Yield Portfolios (HYPs) as featured in The Dividend Letter.

  • Income. It’s all about creating an income, an increasing one over the years. The idea is to derive this from the dividends produced by a high yield share portfolio, that income then being reinvested or withdrawn according to the investor’s requirements.
  • Reinvested dividends. Older and retired people are more likely to need the income immediately from a lump sum investment. Younger people still working may be building up their HYP by regular contributions and can reinvest the dividends in it to boost the value and consequently the final income when they need it. One can switch without cost or hassle between the two and the approach thus suits anyone of any age.
  • Yield. It invests in high yielding shares, which I define as yielding above the market when selected.
  • Size. It sticks to large companies only. Nearly all are drawn from the FTSE100 index with occasionally a few from the FTSE250. The reason for this is security of both the all-important income and the capital value too.
  • Risk. Shares are risky and no dividends are ever guaranteed. But I have found that the risk of a very large company going bust is less than that of a very small business. The risk is still there, any business can fail, but because of the many more vested interests in keeping a big business alive, in my view they tend to offer better survival prospects if the worst comes to the worst.
  • Diversification. It insists on diversification amongst industries and equal investment in each sector. This is perhaps the most important feature of all. Over the eternity holding period intended for HYPs, most industries will go through a bad patch for a variety of reasons. This is just about inevitable.

Recently for example we’ve seen oil and mining being hit with cut and suspended dividends. The defence I have worked out to fight this is to diversify the shares in my HYPs amongst many different sectors, typically 15-20 varied industries in each portfolio. This way, I minimise the effects of poor trading in any particular business sector and take advantage of the opposite, the good times for various sectors.

  • Never sell. There is no voluntary trading and the aim is to hold the shares forever. This has the effect of permitting the massive volume of day to day news constantly being published to be ignored, freeing up your time. All that stuff becomes irrelevant. This is why HYPs are the cure for the usually losing approach of trying to trade for profit. In practice there will over the years be a certain amount of mandatory corporate activity such as bids, cash returns, spin-off shares etc. that will in most instances benefit your portfolio. I devised the term “Market Trading” to describe this effect, my point being that Market Trading will almost certainly be more beneficial in time than the voluntary trading activity undertaken by people who think they are skilled.
  • Strategic ignorance. My selections utilise the principal I have developed of “Strategic Ignorance.” To explain, long ago when formulating my HYP approach, decided that neither I nor anyone else knows anything whatsoever about the distant future, whether of the global economy, the national economy, a business sector or an individual company. Yet the HYP approach is all about the distant future.

We are bombarded by forecasters from everywhere telling us what may happen in time. But these are merely opinions and I have concluded from long experience that they are without merit. History is littered with such opinion that went wrong.

I can recall several decades ago for example, and yes I’ve been around that long, when smoking was discovered to cause a range of very serious diseases. Tobacco shares were hit and there was a lot of talk of them being in terminal decline. You’d have to be crazy to invest in them right? Wrong! The truth turned out to be the precise opposite in that tobacco shares have been amongst the best shares you could have owned in the last fifty years, with outstanding returns both from increasing dividends and increasing capital values.

My defence against the torrent of totally unreliable long term forecasts is to ignore them and then build this ignorance into the HYP strategy by selecting a large range of sectors in a portfolio and investing equal sums in each with no preferences. Thus when picking sectors for a new portfolio, I studiously pay no heed to anybody’s view of what may happen to the economy or that industry. They don’t know, I don’t know and I’m backing that lack of knowledge as far superior to those who think they know. I called this concept, Strategic Ignorance.

That’s the basics of HYP construction.

Is the HYP strategy right for you?
The answer to this depends upon who you are.

You must possess, or if not, then be prepared to adopt, a certain investment personality for the HYP approach to work for you. Without the following traits, it will not work for you because of the extreme long term nature of the strategy.

  • Patience – absolutely vital. You must have the fortitude to hold a share forever without being tempted to trade it, whatever is happening to the market, the news or that particular holding.
  • Insouciance – absolutely vital. You must be above the enormous volume of constant press or broker comment, or talk on internet message boards or down the pub about markets and shares etc. You must either refrain from reading all that unimportant news and gossip or be able to resist it. Let it flow over you in the knowledge that none of it matters to HYPers who ride out everything. It’s losers who react to all that stuff. Events that seem important at the time are not. Nothing is important except sitting on your shares forever.

You might be a lump sum investor seeking immediate income or a regular contribution saver reinvesting dividends, seeking to build a pot for future income like a pension plan but without all the legal and tax baggage. HYPs can suit any investor of any age because there is no cost or hassle in switching from reinvesting to withdrawing dividends at any time, or the reverse, or just partially doing so.

You must learn to value income over capital, knowing that if you get the income right by increasing it long term, then the capital is likely, though never guaranteed, to follow. This is the reverse of what the typical share investor usually thinks.

They tend to go for capital gains but it is far, far harder to try and make repeated gains from shares than to obtain dividend income from shares. Both involve unavoidable risk but the odds of a share delivering a given dividend are enormously better than of it delivering a particular gain. It is this central reality that forms the basis of the HYP approach and you must be able to accept this in order that it works for you.

Who the hell am I to give share investment advice?

In my view an investment adviser needs a good track record of real results (and I don’t mean contrived worthless backtesting) and should be invested heavily in their own ideas, serious skin in the game, before having the audacity to advise others.

Next time you are tempted to subscribe to some tipsheet, I suggest that you ask first whether the author has both of these qualities. If not, you should question the value of what they are selling.

As for me, I’m a Chartered Accountant, qualified way back in 1971, and also a member of the Chartered Institute for Securities and Investment. The qualifications mean I can read company accounts and analyse very quickly the salient facts that I regard as essential for judging a share. But these qualifications alone don’t make me any good as an investment adviser. I know of plenty of qualified people whose investment judgement I wouldn’t trust with the loose change in my wallet.

I have a lengthy public track record of High Yield Portfolio (HYP) construction, reaching back to the year 2000 when I devised and launched my first portfolio on the Motley Fool investment website and to 2008 when I launched The Dividend Letter. As you can read later, both have demonstrated great performance for the critically important income and secondarily on capital value too.

On top of that I am very heavily invested in my own HYP. Nearly all of my personal wealth, apart from my own home, is in the strategy and it is a considerable sum, both absolutely and relative to my total worth. I wouldn’t have the hypocritical nerve to advise others on an investment approach upon which I was not prepared to bank seriously myself.

That’s me.

Why am I selling a tipsheet promoting the HYP strategy instead of just getting on with my own portfolio?

A couple of reasons. I enjoy writing and I enjoy business. Writing The Dividend Letter enables me to satisfy both. And running my own HYP as I’ve outlined above takes very little of my time, even though it is a substantial portfolio.

Another important point in answer to this question is that unlike other tipsheet authors, what I am selling is far more the idea, the strategy, the approach, rather than the actual shares I select. I want my readers to understand that it is the HYP investment method that is the real attraction here. What you’ll be paying me for if you subscribe is fundamentally the method, followed by the actual shares that go into it.

To illustrate that my HYP strategy really does what I claim and is not just hot air spouted by me to relieve you of your subscription, I show below two older demonstration portfolios with a public record. These have been recommended by me in real time with annual published updates as they occurred. For the avoidance of doubt they are not contrived back tests as used by some advisers, a method of producing “evidence” which I consider worthless.

This is the published record of the first demonstration HYP I launched to the public, which was on the Motley Fool website in November 2000. I assumed £5,000 invested in each of 15 shares so the total notional investment was £75,000. In line with my strategy, no voluntary trading has occurred. However there has been a lot of corporate activity, what I term Market Trading as explained above, so that the portfolio now has changed by quite an extent from the shares originally selected.

The annual capital values and income are as follows:

Motley Fool HYP

Year to November

Capital value £

Annual income £

Return on cost %

2001

75,414

3,451

4.60

2002

66,180

3,474

4.63

2003

72,177

3,197

4.26

2004

80,450

3,205

4.27

2005

98,367

3,546

4.73

2006

127,330

4,131

5.51

2007

140,417

4,452

5.94

2008

76,826

5,040

6.72

2009

97,485

3,187

4.25

2010

113,893

3,297

4.40

2011

114,218

3,843

5.12

2012

124,335

4,289

5.72

2013

144,000

5,828

7.77

2014

151,897

5,601

7.47

2015

149,974

6,093

8.10

Total to date

 

62,634

 
(Past performance is not a reliable indicator of future results.)

The current capital value as at 26 May 2016 is £156,435.

I prefer to tell my readers like it is, warts and all, even emphasise that first because I want you to join with your eyes wide open. So note the falls, sometimes dramatic, in both income and capital values which can occur in poor economic times like around the 2008-9 financial crisis for example.

Such periods are absolutely inevitable for long term equity investors. They will recur for certain in the future, as well as the good times. That’s why you have to stick with the HYP strategy forever and not panic in weak periods, because it is only over time that the power of this approach exerts itself. Short term, anything can happen, it’s just random. Long term, the likelihood, but not the guarantee of course, is that the aim of an increasing income will be met, with the secondary aspect of capital gain joining in too.

The primary aim of an increasing annual income target has been well met here by improving from £3,451 to £6,093 over the 15 years, up 76.6% by 2015.

The benchmark against which I measure capital performance alone is the FTSE100 index because nearly all my selections are chosen from its members. The capital in this HYP to 2015 is up 100.0% over the fifteen years.

But the FTSE? It actually fell 1.5%, specifically from 6,274.8 in 2000 when I launched to 6,178.7 at the last annual review in 2015. It means that the capital alone of this portfolio outperformed its benchmark by 103.0%, and although it is of secondary concern, this is a massive difference you’ll agree.

These capital figures do not include reinvested income, they assume it was withdrawn. A reinvesting HYPer would have done far better.

Having said all that, don’t forget that the HYP strategy is principally about income. Any capital gains are incidental though welcome of course.

I cannot of course guarantee any particular level of future performance because all equities involve risk, but it certainly doesn’t hurt to see that result in the past.

Flash in the pan? I don’t think so because here’s another example. This is the published record from my latest annual review to December 2015 of the first HYP I launched in The Dividend Letter, which commenced construction in March 2008. Same as above I assumed £5,000 invested in each share. This portfolio contained 17 shares so the total notional investment was £85,000 spread over a monthly construction period from March 2008 to July 2009.

The Dividend Letter HYP1

Year to December

Capital value £

Annual income £

Return on cost %

2009

88,834

2,897 (part year)

3.41

2010

93,861

3,359

3.95

2011

97,540

3,809

4.48

2012

107,384

4,071

4.79

2013

124,587

4,728

5.56

2014

129,077

5,670

6.67

2015

130,092

5,195

6.11

Total to date

 

29,729

 
(Past performance is not a reliable indicator of future results.)

The current value as at 26 May 2016 is £136,081.

In this portfolio the all-important income has increased from £2,897 to £5,195 over the term, up 79.3% by 2015. 2009 income was restricted because the portfolio was not completed until about midway through that year, so not every share could deliver a full year’s worth of dividends. But even if you ignore that year and consider the progress from 2010, the first year of complete income, the increase is still 54.7% up by 2015, murdering inflation.

And has this great income growth been achieved at the expense of capital neglect? No way. The capital value alone, excluding any income, of this HYP is up 46.4% in the six year period. For a reinvesting HYPer this would have been even better.

And the FTSE100 benchmark for capital comparisons? From 2009 to 2015 it moved up from 5,412.9 to 6,242.3, a gain of 15.3%. Not a big move for that many years but at least it rose a bit, you might think. But given that my portfolio rose 46.4% in exactly the same time, the capital outperformance of The Dividend Letter HYP1 is 27.0%.

Are there risks?

Yes definitely.

All equities involve risks to both the income and the capital. Dividends can be cut or suspended and in the worst case a company can go bust, losing your entire investment in it although that has never happened so far with any share I’ve selected here.

If you wish to invest in shares for the increasing income for which my HYP is designed, you must be willing to bear those risks. HYPs attempt to lower the risks with features like wide diversification and equal sector investment but although they may ameliorate risk to a good extent, it cannot be eliminated.

Unlike bank deposits for example where the capital cannot fluctuate, the capital value of an HYP will fluctuate constantly. I advise that you avoid the HYP income strategy if you cannot live with such fluctuations, which can be quite dramatic on occasion. A portfolio could easily fall by a third or more in a very poor year. That won’t happen often but it will very likely happen at some stage. Shares tend to increase in value long term but it’s a spiky ride.

The HYP aim is for an income which increases over the years. But the year on year change will never be a smooth progressive upward journey for many reasons, for example companies may cut or suspend dividends or may pay special extra dividends for one year only. The Market Trading effect will change the dividend profile of a share if it’s taken over or has a rights issue etc. In some years of weak economic activity the portfolio income will fall when there are enough shares cutting payouts compared with those increasing them. In other years there can be substantial jumps in the income.

Be aware that unlike bonds or bank savings, there can never be any guarantees with shares, neither for the income nor the capital. Companies are not obliged to pay a dividend at all, it is not contractual and is always discretionary. These risks are the price you have to pay for deriving an initially high income from shares and then if it works as planned, an increasing income over the long term.

Having said all that, bank deposits are not without risk either. Not to the capital, especially if you hold within the government guarantee amount, but to the income. As any longer term bank depositor will know, interest rates have utterly collapsed compared with, say, 15 or 20 years ago. Although the nominal capital value has been preserved, the interest income from it has been creamed. Not good news if you depend upon that return. And of course inflation will have hit the real value of your capital too over such a period.

Okay now you know briefly the purposes of The Dividend Letter, here are the details of how it’s published and the cost, but I’m not talking serious money here.

I construct the HYPs by selecting one new sector per month which is conveyed to you by post in a print edition of The Dividend Letter. Each portfolio will typically have 15-20 sectors and sometimes a sector may contain more than one share in the same industry if I see that as advantageous at the time. In those cases your sector unit investment is divided equally between those shares in it. So it takes 15-20 months to complete an HYP, following which I start on the next portfolio.

I have completed five HYPs to date since March 2008 and am presently constructing HYP6. The past portfolios are not published in The Dividend Letter but every issue shows in an alphabetic list my latest recommendation of Buy or Hold for every past share that I have selected, where it still exists as a holding in any HYP. In the same list I also show the latest and next declared dividends for those shares.

Performance of the income and capital of every completed HYP is revealed in my annual reviews each January. Remember it’s the long term portfolio income that is the overriding aim here, capital fluctuations are regarded as of little importance.

Along with the monthly print edition, I circulate a weekly email update that contains any new information as it arises on all past shares I have ever chosen and my latest opinion on them in the form of Buy or Hold advice. I don’t do Sells in the HYP strategy so they will arise only in very rare technical circumstances. As I don’t publish the email update in a week of the monthly print edition, the latter will also include the latest information too.

The cost?

It's £99 for the first year… and £159 thereafter.

I think that's a good deal.

You don't have to jump in right away, either. I've arranged a trial period so you can just see if you like it.

You can have 30 days. Read my introductory guide explaining how you construct your own High Yield Portfolio, get a few issues of the newsletter. Then decide.

Sound fair? I hope so. I've tried to make this easy.

If you want to try it out – simply click here now, take up a 30-day trial and get your own high income portfolio up and running.

You must see the potential in this by now or you wouldn't still be reading. Just give it a try and see if it’s for you. Make up your mind then.

If you're tired of second-guessing the markets and worrying about your money... do something about it.

Take the easy option and just let your money work for you.

In The Dividend Letter, I'll show you how.

Click here to try out The Dividend Letter.

Many thanks,

Stephen Bland

 


Important Risk Warnings

Past performance and forecasts are not a reliable indicator of future results.

Your capital is at risk when you invest in shares - you can lose some or all of your money, so never risk more than you can afford to lose. Always seek personal advice if you are unsure about the suitability of any investment.

There is no guarantee that dividends will be paid. Figures are calculated using the closing mid-prices on the date on which shares are first recommended. All gains are gross, and returns will be affected by dividend payments, dealing costs and taxes.

Profits from share dealing are a form of income and subject to taxation. Tax treatment depends on individual circumstances and may be subject to change in the future. Editors or contributors may have an interest in shares recommended.

Managing Editor: Stephen Bland. The Dividend Letter is issued by Fleet Street Publications Limited. Registered office 8th Floor Friars Bridge Court, 41-45 Blackfriars Road, London SE1 8NZ. Customer services: 020 7633 3609.

Registered in England and Wales No 1937374. VAT No GB629 7287 94. Fleet Street Publications Limited is authorised and regulated by the Financial Conduct Authority. FCA No 115234 https://register.fca.org.uk/

© 2016 Fleet Street Publications Limited.