10/2019
Financial professionals as a whole are seeing their reputation eroding. Advisers have a reputation of being salespeople, and money managers have a reputation for not being able to outperform the market, the very task that clients pay them fees for.
Many money managers are now fixated on the short term and beholden to whacky strategies they think will help their portfolios to outperform – these are some of the detailed feedback from my mostly LONG-REITS group of investor students who have attended my REITS classes in the past decade.
Short-termism in investing has in fact become the new anchor and focus (is definitely a mis-focus for me) in modern investing.
For example, many investment analysts made a market call on SREITS being overvalued and time to sell in early-July. Some bloggers have even advocated selling off 50 – 100% of your REITS holdings as early as April 2019 as valuations of SREITS hit an all-time high last seen in May 2013.
The basis of the SELL was –
1. Price/Book Value at > 1 standard deviation approaching 2x
2. Dividend Yields < 1 standard deviation approaching 2x
The Nikkei report dated 11 Jul 2019 cited that OCBC Investment Research, KGI Securities and UBS’s private bank downgraded REITS to a neutral outlook.
From my 30 years investment experience, pessimism is intellectually seductive in a way optimism can only wish it could be. Tell an investor that REITS will be going up as the impact of its latest acquisition will become apparent in the next quarter and you are likely to get a shrug or rolling eyeballs. Tell REIT investors that their investments are in danger of a big fall and you have their undivided attention.
Our REITS Educational approach is different as we take into account a few conceptual flaws that investment analysts make when they do their predictions –
1. Historical data and trend are mostly the study of unprecedented events, which most analysts and forecasters ironically, have used as a map of the future, let alone a valuation parameter. Actually, what I find to be the most valuable aspect of historical data and trend is in the study of how investors behaved when something unprecedented happened. It is the most consistent of behavior that will help shape future valuations and trends. However, most times, Sell or valuation reports only state statistical data. What most investors want is the interpretation of such data to an make informed and accurate investment decisions.
2. Many failures of prediction can be traced to the pointless pursuit of arbitrary benchmarks. The SREIT market started in 2002 and when it hit is first peak in 2007, +1 standard deviation from the mean in terms of yield and Price/Book Value was established and became the benchmark for calling the REIT market expensive in the subsequent peak in 2013.
Many predictions were wrong as the SREIT market established a new benchmark at +2 standard deviation from the mean before SREITS peaked in May 2013 before a correction took place. This has subsequently become the benchmark to gauge if SREITS have become expensive.
Most predictions have failed in the past as the investment analysts making them had used the previous benchmarks rather than to ascertain if indeed, this benchmark is still relevant or if a newer benchmark is achievable now. After all, studying both the AREIT in Australia and JREIT market in Japan would reveal that as the AREIT and JREIT market developed, the benchmarks for each high in terms of Yield and Price/Book Value were not arbitrary benchmarks, but rather evolving benchmarks.
3. Making Money is one of the strongest forces in the world of investments. They cause ordinary people to do great things and vice versa especially when their money and wealth are on the line. Speak to investment analysts or forecasters who do not bet their wealth on REITS and speak to the investors (at GCP Global, we have trained more than 8,000 investors from all walks of life) who put their hard-earned money in REITS for steady returns and the differences can be misunderstood and counter-intuitive.
The history of markets is, and always be, the story of things that were unprecedented until they happened. That’s hard to accept unless you have been through it yourself. In our 30 years’ experience, we have certainly experienced the Good, the Bad and the Ugly, as the cowboy song goes.
4. Analysts have used valuation models like the P/E, Dividend Yield and Price/Book Value to make their predictions, notwithstanding that these same measures are second-order model or 2nd derivative of the discounted present value of future cash flows which we at GCP Global, teach as the immutable law for determining value since Gabriel A. D. Preinreich wrote the The Nature of Dividends in 1935.
Predicting a REIT’s future cash flows can be a very difficult task in proper valuation as SREITS have been very active in acquisitions. A REIT does the best it can, but many factors like the vagaries of the economy, the secular sector trends, the intensity of competitors etc. combine to make predictions about future cash flows less than precise.
SREITS notched up $billion in acquisitions in 2018 while raising $billion. In the first 9 months of the year, they have already made $billion worth of acquisitions and undertook $billion in fund raising.
However, this doesn’t excuse us from making the proper valuation method, difficult and complicated though it may be, for as Warren Buffet have often acknowledged – “I would rather be approximately right than precisely wrong”.
Yes, forecasting DPUs and future cash flows for REITS give us only an approximation. But there are mathematical models that we teach in our REITS classes that help us navigated these uncertainties and keep us on course for determining the true value of REITS and the merits of recent acquisitions. These methodologies help us quantify risk and put us in a better position to make contrarian calls to SELL REITs in early-July.
Join us for our next Quarterly REITS class happening on 12th Oct 2019 at below link:-
As usual, we hope you had enjoyed another great monthly article from us.
GCP Global recent videos with > 2,000 FB Reached, Engagements and Views at the Singapore Corporate Awards 2019
1. GCP Global hosts Singapore’s DPM & Minister for Finance Heng Swee Kiat https://www.facebook.com/gabrielyap17/videos/2227714487540571/
2. Co-hosting the Singapore Corporate Awards 2019
3. GCP Global being presented as Asia’s Foremost Educator in REITs for the past 3 decades https://www.facebook.com/gabrielyap17/videos/740467253053012/
4. Presenting the winners for the Singapore Corporate Awards 2019
5. How to grow your REITS portfolio consistently and steadily to $36 million
6. Why REITS appeal to Malaysia’s Top Surgeons and Medical Specialists 2019
7. A Magnificent Run for SREITS in 1H2019 – What to look for next?
8. Investors Trip to Hangzhou for GCP Global investor students https://www.facebook.com/gabrielyap17/videos/1149532861866643/
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