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A conversation with a reader:
Reader says...
Thank you for a great post again, this time with the Singapore Savings Bond, you always have a clear way to put it - your opinion vs general and helps people like me to make my own decision.
I've been your blog reader for few years, and haven't written or comment at your blog for a while.
I had bought into some Singapore Reits over the years for passive income, and this email I'd like to seek your sharing of experience in "selling" of Reits.
I had bought into some Singapore Reits over the years for passive income, and this email I'd like to seek your sharing of experience in "selling" of Reits.
I have a long term view for Reits, and keep it for income, but this particular one is putting me to a spot now - sell now or hold. First Reit.
I bought it at around $1 and it has now appreciated to 40% and DPU is consistent for past years, they have further acquisitions and developments in Indonesia in upcoming future.
But at this stage, at a capital appreciation of more than 40% , I'm considering if I should sell it off because I made this rough computation in my head as:
But at this stage, at a capital appreciation of more than 40% , I'm considering if I should sell it off because I made this rough computation in my head as:
with a 8% yearly dividend yield, if I sold off at 40% capital appreciation, it covers the next 5 years of dividend, and if crisis comes within these 5 years, I could then buy it again and accumulate again as passive income (provided all else remains equal that it is still a good company to invest in).
But then questions put me at a stop - what if price never falls any much lower, how to calculate the $$ value of both options - hold and collect dividend vs sell off and buy back later at x $ price.
But then questions put me at a stop - what if price never falls any much lower, how to calculate the $$ value of both options - hold and collect dividend vs sell off and buy back later at x $ price.
Last week I met a several people at the AGM sharing about such problem or challenge in making decision - how to decide to hold and collect the dividend or take in the capital appreciation and put in the money somewhere else?
A senior guy for e.g had bought in Ascendas when it was $0.60 and sold off at $1.50 and never imagined it would raise up to over $2 now. so he has no conclusion or idea why and when to hold or sell of a Reit.
A senior guy for e.g had bought in Ascendas when it was $0.60 and sold off at $1.50 and never imagined it would raise up to over $2 now. so he has no conclusion or idea why and when to hold or sell of a Reit.
hope to hear more of sharing your experiences of strategies to sell and take in profit, and thank you in advance, for time to read this long post. :)
AK says...
Always question our motivations.
Are we investing or are we trading?
If we are investing for income, if the investment is still doing the job we expect it to do, generating attractive income for us, then, there is really no reason to sell unless we feel that there is another investment out there that can do a better job.
As for wondering if the market will crash in the next 5 years, no one knows for sure.
That is in the realms of speculation.
In the meantime, income generated from my investments fill my war chest.
If there should be a meaningful decline in prices, all else remaining equal, I will be able to load up using my war chest.
Of course, for people who mix investing and trading, if a stock is up from $1 to $1.50, for example, they could consider selling two thirds of their investment to recover their capital.
Their remaining position is free.
Don't mind me. I am just talking to myself.
Now the reader will start talking to herself. It is a contagious disease:
Reader says...
Thank you AK for the response!
I can always trust you to put it in clear steps and points. now my brain is able to do some talking to myself, after what you talk to yourself :D
looking forward to your posts.
Related posts:
1. When to BUY, HOLD or SELL?
2. A simple way to a double digit yielding portfolio.
3. Singapore Savings Bond: Good or not?
4. Do not love unless it is worth the loving.
Bloggy Award
8 comments:
Hi AK,
If reits have to pay out 90 % of their income as dividends, leaving 10% as payment to interest only.
This means the principal is rolled over by loans.
Most Reits hold leasehold.
What happens as REITS depreciate along the way? Does this mean that RIGHTS are common then, resuting in a return of dividends earned if one is to hold it all the way?
What happens when REITS ends their leasehold rights...who to pay the principal.
U seem to like Saizen and i agree that the freehold and the amortizing nature of the loan as u mentioned is comforting ( i did not look at the financials , justg basing on your previous posts.)
My point is REITS is just a ticking timebomb that is a return of capital.
Hi TOOTB,
Before putting money into anything, understand their characteristics and question if they are suitable for us. Of course, we have to remember that entry prices are always important too.
The answers to the concerns you raised in your comment could be found in links provided in my blog's right sidebar in a box titled "INVEST IN S-REITs". You might want to take a look.
If you have already decided that REITs are ticking timebombs, then, it could be best for you to avoid them. :)
AK71, can you please enlighten me on this 'fact' that ThinkOutOfTheBox mentioned?
I wasn't aware that the remaining 10% not payed out to shareholders is used to pay interest only... :O !
Are put the question another way, how do most Singapore REITs eventually pay off their debt? Thanks!
I count First Reit as one of my regrets which i did not get invested in. hahaha
When i 1st started out, i was a growth investor, only looking at stocks which can potentially give me capital appreciation in due time.
While i am reasonably rewarded in my growth stocks, i also come to the conclusion that i can do reasonably well in income investing. It requires less monitoring of share price movement and need to make fewer decision on when to sell.
Over time, i have been making adjustment to my methods. Income investing has formed a core portion of my overall portfolio.
As long as one is vested in First Reit at a good price where dividend yield is excellent, this stock is for Keep.
Hi Ted,
Sounds like you might not have done your research thoroughly before getting into REITs. ;)
You might want to read up on S-REITs and how they operate. There is a comprehensive write up by the M.A.S. and here is the link.
Most S-REITs do not take on amortising loans. S-REITs are leveraged real estate investment intruments. I don't think it is in their mandate to pay off their debts. It is more about using debt judiciously to improve yield for unit holders.
As for distributing at least 90% of their income and retaining only a maximum of 10%, you might be interested to know that many S-REITs don't even retain 10%. They actually distribute 100% of their income to unit holders.
So, if they do retain 10% of their income, it is not to pay interest as TOOTB said. They could use that to pay down their loans, if they so wish. Well, there are other ways they could use the money to improve value for unit holders. It depends on the quality of the management how well this is done.
Hi Solace,
I agree that First REIT is for keeps, provided that the entry price wasn't too aggressive. ;p
As one of my top 3 investments in S-REITs, it is an important income generator for me and is likely to remain so for years to come. :)
Reader:
Thanks to you, I bought Croesus REIT. I am tempted to sell and lock in gains. Any thoughts?
AK:
Aiyoh. Bad idea to buy something because I bought. Now, you don't know what to do. Stress. :(
This reminds me of a story.
If the reader had sold his investment two years ago, would he have done better? I blur.
Reader says...
Do you mind sharing if you sold any when it (i.e. QAF) went to around $1.5? If not, how do you not feel heart-pain or beat yourself up for not selling before it turned downwards? Afterall, if one manage to sell at $1.5, now they would have more capital to buy more...
Hope I can learn to have a more resilient heart and mind like you!
AK says...
It shouldn't matter to anyone if I sold or bought anything.
We have to be clear what we want and what we do will have to match.
I am investing mostly for income and I have an idea of what an investment is worth. So, there is no reason to sell unless things have changed.
Hindsight is always perfect. After so many years as an investor, I no longer let such things affect me. ;)
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