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Five steps to take in REIT investment.

Monday, January 7, 2013

Now, I would not tell people if it is a good time to buy or to sell anything in the stock market. Regular readers know this. It is only on hindsight that we could tell if it was a good time to buy or to sell. Everyone has perfect hindsight. Not very useful, is it?

I know I have many more than a thousand blog posts by now and it would probably take quite a bit of time to trawl through them but I have hand picked a few and provided hyperlinks in the right side bar for your easy reference.

In this blog post, I want to share what I think I can safely share with anyone without getting into trouble and that is my general approach to the issue of investing in REITs. I try not to be repetitive but it is hard to avoid repeating at least some of the stuff I have said before in earlier blog posts.

Step one, know what is a REIT. Yes, don't laugh! People buy things just because it is the flavour of the month or year sometimes. It is true! Know what is a REIT and whether it fits your investment objectives. If you don't know what you want out of your investments, please leave your money in your bank account. 

Step two, if investing in REITs fits your investment objectives, look at the numbers of the different REITs available and see if you like them. If you read my blog posts on the different REITs I am vested in over the last 2 to 3 years, you will get an idea of what I look out for when I examine their financial reports. My approach is by no means fool proof but I believe that it does a pretty decent job.

Step three, if you like the numbers of certain REITs even at their current unit prices, then, they are still good investments for you! Doesn't sound like a difficult conclusion to arrive at, does it?

Step four, decide how much of each REIT you want to buy into at the current unit prices. As a percentage of your total investible cash, how much would you be comfortable with investing? Now, this is a very personal question. Some people are conservative while some are bolder. Two people could have the same belief that being partially invested while keeping a war chest ready is the way to do it but differ as to the proportion of investible cash to use.

Step five, buy, hold and monitor. Yes, don't think that everything is hunky-dory after making your investments. You want to monitor how they are doing on a quarterly basis. Keep track of macro trends and think how these could affect your investments. If you stay on top of things, you will feel confident in your investments and if there should be opportunities to buy more on the cheap, you would be able to act decisively. By the same token, you would also know when prices are somewhat rich and that partial or full divestment could be a good choice.


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mark said...

Thanks AK. :)

AK71 said...

Hi Mark,

My pleasure. ;)

Jay said...

Hi AK!

Happy New Year, and thank you for the good reminder of how and why to invest in reits. I like especially your first point.. so easy to forget when you just look at NAV, yield etc.. e.g. how reits compare with developers, companies like CMA, business trusts like PCRT (which I missed to buy at 49c.. damit).

Just catching up on about 4 weeks of your blogs: Congratulations to your 2012 results! Very impressive, and well deserved! You are a great example how a thoughtful, holistic and patient approach yields great results over time (I love your seven step approach to investing). I'm still 5x away from that.. but getting there! ;-)

Similar to you, I'm a bit wondering what to do with my portfolio of reits, after the nice run of last year. I want to keep most for income, but I have placed a few stop losses recently, as it would be a shame to lose a good deal of the gains again.. same with CMA.. very fast ascent, so I better place SL at 2.00. I hope to buy back at 1.80.. ;-)

All the best to you and your family for 2013! Hope to read more good insights into your journey.

AK71 said...

Hi Jay,

Thank you for the thoughtful comments and encouragement.

I see people referring to REITs as stocks and I got worried. Hence, I included the reminder in "Step 1". ;)

My positions in CMA and PCRT are both nicely in the black. I believe that both are beneficiaries of the Chinese consumption story.

Most certainly, there is nothing wrong with taking profits and your stop loss approach works in this respect. Technically, we are likely to see some pulling back after a nice run up, after all.

Happy New Year and I hope it will be a good one for all of us. :)

ang said...

Hi AK71,

I'm an avid reader (silent reader) of your blog although this is my first post :p.

Under what circumstances do you sell your REITs? You recommended a partial or full divestment of the REIT when the prices are somewhat rich.

Since REITs are purchased not for the purpose of capital gains but for the distribution yield, do you simply sell them when the price is substantially above than the NAV?


AK71 said...

Hi ang,

I am pleased that you decided to comment in my blog. :)

I think I answered a similar question recently. Let me get the link for you.

Here it is:
Question from jojo and my answer.

Apart from this, you might want to read this blog post:
Staying positive on S-REITs.

Know when to stay positive on S-REITs and we might know when to be less so. ;)

SnOOpy168 said...

Good morning AK

Thanks for the summary reminders.

With investing for regular income in mind, the compressed yields of REITs today are a bit far cry from that of yesterdays. With current yields around 5-6%, i think there may be other counters with similar dividends yields. Just that they don't pay quarterly or semi-annually.

Do you have any favourites or target counters ?

SnOOpy168 said...

just a note, Super Banana's result announcement is on the 17 Jan. If acquired before that day, your friend could be receiving his 1st payout fair quickly.

AK71 said...

Hi SnOOpy168,

You have hit the nail on the head! :)

If my favourite industrial S-REITs should start giving me distribution yields of 5+%, there could possibly be other investments which could deliver the same yield but with a lower payout from earnings. Will have to keep an eye out for such.

AK71 said...

Hi SnOOpy168,

Indeed so. However, the unit price has been rising in recent sessions, probably in anticipation of the coming income distribution. ;)

ang said...

thanks AK for your reply :)

AK71 said...

Hi ang,

You are welcome. :)

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