06/2020
This time, it is different!
The Covid-19 Pandemic pushed the global economy into a recession of historic proportions and halted the longest-lasting equity bull market. As infections spread globally and exponentially, economic activities collapsed and came to a standstill. Then policy makers responded and markets recoiled strongly.
The Covid-19 crisis provided a real-time case study of what happened to the income of Real Estate Investment Trusts (REITs) and their flow-through impact on the REIT’s dividends during times of unprecedented stress. This directly challenged the long-held perception among investors that REITs were safe vehicles for investments as they were mandated to pay out at least 90% of their taxable income as dividends to achieve tax transparency. The market down, in terms of the speed and magnitude, was indeed fast & furious and unprecedented.
For the first-time ever, S-REITs collapsed 367.98 points which was a humongous 37.91% as the FTSE REIT Index crashed from 970.62 on Wed 19 Feb 2020 to 602.64 on Mon 23 Mar 2020, over a period of just 22 market days!
The sell-off and subsequent quick rebound vindicated what we have been teaching in our REITs Quarterly and Master classes over the past 31 years –
Our Quarterly REITs class in 4Q2018 where we had predicted that REITs will soar in the upcoming year, 2019. Indeed S-REITs skyrocketed in 2019 with the Top-10 Performing REITs soaring by between 25 – 41% in Total Returns, one of the best years for S-REITs
1. Do not listen to financial forecasters as more than 90% will be wrong
When the Covid-19 Pandemic and crisis hit a bottom on 23 Mar 2020 with the FTSE REIT index at 602.64, a fierce and strong rebound followed.
As the rebound entered week 1, many financial forecasters predicted that it was a dead cat bounce.
As the rebound entered week 2, many financial bloggers added that it will not be a V-shape recovery.
As the rebound entered week 3, many analysts added that it will likely be a U-shape recovery that will take up to next year to achieve.
As the rebound entered week 4, many prognosticators, confidently predicted in the public media that it will be an extended L-shape recovery and it may only take up to 2022 for the recovery to happen.
As the rebound entered week 5, many fund managers added that markets have rebounded more than 50% of the decline and are poised for a pull-back.
As the rebound entered week 6 and the markets went side-ways, all the above prognosticators from the financial forecasters, not-so-well-informed bloggers right to the well-informed fund managers were predicting that for sure the markets have reached its rebound exhaustion point and poised for a severe pull-back as there is a “huge disconnect between what markets are doing and what the real economy is doing”.
Fast forward 11 weeks after markets hit bottom on 23 Mar 2020, we saw the S&P500 crossed above 3,000 and above its 200-Day Moving Average on Tue 26 May 2020. It ended the week at 3,044, 38.9% higher from the bottom at 2,191 on 23 Mar 2020. The FTSE REIT index ended the week at 821.86, up by a substantial 219.22 points or 36.37% from the 23 Mar 2020 low.
The S&P 500 chart looks like this –
If this is not a V-shape rebound, I really don’t know what V look like.
Similarly, the FTSE ST REIT chart looks like this –
Again, if this is not a V-shape rebound, I really don’t know what V look like.
So why is it that the financial forecasters, bloggers, prognosticators, well-informed fund managers were so wrong and we at GCP Global had been so accurate and prescient (see our weekly Facebook Live sessions on Navigating the Current Crisis) where we have handheld and guided our student investors from Korea to Kuantan, from Sapporo to Singapore to catch and trade the V-shape rebound from the onset?
2. If you cannot anticipate, you will be annihilated
Risk is complicated which is why not many investors are great at dealing with it. It is more than just something bad happening, in this case it’s the virus killing and infecting thousands with high fatality rates. We have always emphasized that going into a crisis, fundamentals and technical take a back seat while our rich experience in dealing with the 1987, 1989 stock market crash, the 1997 – 1998 Asian Financial Crisis, the 2000 Dot.com Bubble and the 2007 – 2009 Global Financial Crisis take the front seat.
How risky something is really depending on whether you the investor is prepared for it. If it is big event like the Sino-US trade wars that have plagued markets throughout 2019, many can handle it as it did not just happen. A deadly risk is one that no one is talking about it which means that no one is prepared for it when it finally hits home. And when it hits home, the damage will be amplified.
The biggest risk events are where damages are amplified over a short period of time – the 9/11 terrorist attack in 2001, the first invasion of Kuwait by Iraq in 1990, the attack on Pearl Harbor which brought the US into World War II saw immediate damages when they happened.
The damages were great as these risks were hardly or never talk about prior. So, it is highly likely that they were not physically or mentally prepared for the pre-emptive strikes. What they could do was to only react, amid the panic and chaos. If you cannot anticipate, you would be annihilated. The same goes for an investor’s investment portfolio.
3. The unbelievability of seeing your REITs and stocks being annihilated by consecutive days of 10% limit down would have blinded you to trading and profitable opportunities that a crisis brings
A few things happen to us humans when we are caught wrong footed by events and Risks. We become vulnerable as there will be no protection against an event that you have not talked about or even considered, let alone protect against. The other is that the unbelievability of seeing your REITs and stocks being annihilated by consecutive days of 10% limit down would have blinded you to trading and profitable opportunities that a crisis brings, hence our constant tagline since the crisis began – “Times like this are When Fortunes are Made”.
If you had listened to the same financial forecasters, bloggers, fund managers and analysts who were all very optimistic and calling for BUYs prior to Covid-19, they would probably be in a high state of shock and panic when economies started to go into lock-downs. Would they be in a state of mind to recognize opportunistic buy and trading positions as the markets went into a strong rebound?
Paying attention to known risks is smart. But the sharp and smart REIT investor must always be cognizant of what we cannot see, what we have yet to talk about and are not prepared. From our experience, these are the kinds of risk which are more consequential than all the known risks combined.
This is one reason why we have been teaching and educating investors for the past 31 years and recognized as Asia's Foremost Educator in REITs .
Our Business Times Interview on 10 Apr 2017 – we have been known to Bet Big at the Right Time in many crisis and we successfully did it again this time round, while guiding and handholding GCP Global worldwide student investors
4. Market timing is the greatest source of wealth generation in a crisis
Many are bad at forecasting the stock market as the lingo in financial markets and fund managers sales pamphlets and brochures clearly acknowledge that they do not know what to do on market timing, hence the need to do averaging on one’s investments. From the onset, we have always taught in our classes that effective market timing is the greatest source of wealth generation in a crisis, speaking from a personal perspective as well. In our classes, we teach about perfecting our market timing skills. So, if the fund managers and prognosticators already knew that they cannot or are poor in market timing, then you will be a greater fool to listen to the same people blurting out their forecasts over public media.
Do join us for our next Beginner/Intermediate online class on 20 Jun 2020 as we help strengthen your basics of understanding and making money from REITs.
OUR LATEST MEDIA INTERVIEW ON MARKET CORRECTION –
1. The Good, The Bad & The Ugly in S-REITS
2. Omny.fm/shows/money-fm-893/singapore-reits-what-you-need-to-know?fbclid=IwAR11Z-ZedWqxKwVUrzxYDIVVJO6nA0hwHPxMgUvYcQQGcN9gWja5rVY8Vzw#.Xl45zWyDUL8.link
OUR PREVIOUS PUBLICATIONS ON MARKET CORRECTIONS –
1. A Fiasco in the Making – What the Smart Investor should learn from this Corona Virus Crisis
2. The Beautiful Correction 2
3. The Best REIT investing advice that I learned from my two-year old baby
OUR RECENT TOP REIT VIDEOS –
1. Making Your Millions in REITs
2. Distinguishing the Value Traps in REITs vs the Top Performers
GCP Global being presented as Asia’s Foremost Educator in REITs for the past 3 decades
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