Stephen Bland advises Fools to resist the temptation to tinker with their portfolios.
High Yield Portfolio (HYP) investors will immediately recognise the word Tinkering with a capital T for the specific meaning that it represents in the strategy -- trading. I'm not sure when HYPers jargonised this word but as far as memory serves, which ain't too far at my age I can tell you, it is not one of the words in the HYP vocabulary that I coined. Good job too because according to the OED, the verb to tinker means:
To attempt to repair or improve something in a casual or desultory way, often to no useful effect.
Not what those HYPers who indulge in tinkering intend it to mean, of course. But by a nice irony, the dictionary definition appears closer to what, subconsciously, I believe they are actually doing compared to what they think they are doing.
In other words as I'm sure nearly all HYPers must be aware, I'm against tinkering. I repeat this oft-stated opinion of mine in the hope that it might influence beginners who have not yet decided on the subject.
I have noticed as far as the HYP board readers are concerned that there is a loose inverse relationship between the length of time a person has been investing in shares in general or HYPs in particular, and their desire to tinker. The longer people have been following the strategy, the less likely they are to think that tinkering is advantageous. Probably through bitter experience of making too many poor decisions.
On the other hand newcomers who tinker will produce various reasons why it is of great merit to any HYP and why it is little short of insanity to simply sit on a portfolio for decades. I've heard that some go even to the extent of modelling an imaginary tinkered long term future HYP with some spreadsheet nonsense. "Model" in this sense is a loathsome jargon expression which is almost certain to deliver misleading results. The mere use of the word makes me cringe. Only a complete beginner would do this and only a complete beginner would then place any merit on the results.
The difficulty for those that are undecided on tinkering is that the board is not, I believe, representative of all the hundreds of HYPers out there. It attracts the more vociferous who are more likely to be tinkerers than not, and it attracts a number of beginners who proffer advice without having any experience behind it. People just love to be heard even if they know they do not possess the necessary whatever to back it up.
Thus the view that a beginner might perceive from reading the HYP board is that tinkering is virtually compulsory for success. The reverse of what I believe to be the best way. The type of posts that particularly concern me are those advisory ones which make a sort of phoney virtue of their lack of experience. The sort of messages that begin "I've only been doing this for two weeks but..." or end with "what do I know?"
I never know whether to laugh or lachrymate when a new investor arrives on the board and announces their intention to tinker. On what basis I always wonder did they base this decision? Somebody knowing little or nothing about shares and having been advised that tinkering is on balance probably negative for HYPs in the long run, decides to go the opposite way. Why? I dunno really but I would guess that all those messages on the HYP board advocating tinkering from those who have no idea what works on HYP street, are partly to blame.
Also to blame is the general and false public opinion that money from shares generally is made by trading. But the fact is that almost all private individuals who trade lose money or never make any worthwhile amounts. The more they trade the poorer their results. I stress that this is not merely my opinion based on experience with many investors, brokers have confirmed it. And the reverse is true in general, the less people trade the better their results.
Taken to its extreme I believe that never trading voluntarily is the way to go for HYPers. But newcomers, especially if they have never been in shares at all before, may come to HYPs with the mindset that some sort of trading must be preferable. That's how you make money in shares, right? Wrong for most. They simply can't believe that merely holding shares forever is a highly attractive approach. It seems somehow counter intuitive.
In any event critics of non-tinkering seem to ignore the fact that an eternity portfolio will change quite a lot by natural means anyway over time as a result of various corporate activities. In other words, involuntary tinkering will be forced upon even the most diehard eternity HYPer. Looking at my HYP1 which started in November 2000, I guess that at least half of the original shares have gone through some sort of serious change. Many have disappeared altogether through takeovers, others have made substantial cash returns, floated off new companies or become different businesses etc.
Unfortunately I can't prove that tinkering is more likely to be disadvantageous for HYPs than holding. All I have is my own experiences at seeing many investors and the comments of brokers. Like the HYP itself, to tinker or not is essentially an act of faith. But if you seek some sort of external input into your decision, you should give far less weight to those who can't possibly have any sound basis for their opinion and are merely theorising.
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