Time to buy REITS?

[cute fuzzy bunny]

As an investor in vanguards reit fund, i'm a little concerned about the numbers not adding up. I dont think its anything nefarious, just a sloppy screwup. The investing world appears to be rife with sloppy data screwups. The only problem is there are a lot of people who make big decisions on such bad data.

As far as it being time to buy reits, I'm going to take some money off the table with my vanguard reit investment in April. I'm getting a nosebleed from the price. Havent decided where to slide it, but I'm thinking small cap value or emerging market.

[Whakamole]

I know the good folks over at FundAlarm seem to think REITs are a tad overvalued... that's probably because they are very attractive if you want an income stream. But they're getting a bit pricey now... M* says Vanguard's REIT fund has a yield close to 5% which isn't great historically.

There's a lot of money out there chasing asset classes. I've been trying to find the undervalued one but it's getting difficult.

[charlie]

Thanks for all your comments.

I have not heard from the REIT fund manager or
a flunky yet, but decided to go ahead and start
value averaging into the REIT fund at the rate
of $5000 each quarter. This will take about
3 years to reach my goal, mas o minos, depending
on the whims of the market. If the REIT fund
tanks 10-15% I will probably jump in with both
feet. If the fund manager ever responds to my
letter, I will let you know.

Cheers,

Charlie (aka Chuck-Lyn)

[charlie]

Has anyone noticed that the Vanguard REIT Index
fund has dropped 4.8% in the last 2 trading
sessions? The fund seems to be trading like a
long term bond fund with respect to perceived
risk of rising interest rates. For those of you
who have been keeping your power dry, get
ready!

Cheers,

Charlie (aka Chuck-Lyn)

[cute fuzzy bunny]

Rising rates are supposed to affect REITS like a bond fund, but LATER and generally AFTER rates have already gone up.

I think its just after the end of Q1 and with the reit runup some people are taking some money off the table. Check the fund in and outflows, I'll bet the outflows just added a zero on the end.

[charlie]

The Vanguard REIT Index fell another 4.08% today
while the bond funds rose. That is 8.66% off the
peak YTD on 4/1. The fact that REITs fell while
bonds rose shoots down my comment that they
are trading like long term bonds. Something else
is going on. It just proves that REITS are indeed
a different animal. Keep alert .... the time to
jump in may soon be upon us.

Cheers,

Charlie (aka Chuck-Lyn)

[cute fuzzy bunny]

Yep, its really taking some shots.

I'm still up 2% from where I bought in.

Was thinking about adding some to my taxable portfolio to pick up a little more dividend yield.

[markplus4]

I had sold off most of my REITS due to valuation...the latest carnage has gotten me interested in a few of my faves. I'm not 100% sold that higher rates/inflation are right around the corner.

[Bob_Smith]

Hey Charlie,

Thanks for the heads-up! Any idea what's driving this? At what point are you planning to pull the trigger?

[charlie]

Bob, I really have no idea whats happening. At
first I thought it was reaction to the job growth
numbers and perception of impending interest
rate rise. However today REITS took a 4.08%
hit while long term bonds rose. Go figure.
I plan to take a 1/3 position if/when the NAV
drops to $15.28 . This is 10% off the 52 week
high of $16.98. If/when the NAV drops to $14.43
I will add another 1/3. Then I will wait until
evidence of recovery starting to add the final 1/3.
If none of this comes to pass, I will continue "value averaging" at $5k per quarter. They say it is
not wise to try to "catch a falling knife", but I feel
comfortable with this strategy. The dividend will
keep REITS from falling too far.

Cheers,

Charlie

[unclemick]

Speculation? - Mr Market may be repricing REITs relative to 'other' stocks/bonds due to the new div. tax rules. Just a two cent guess.

[cute fuzzy bunny]

Just to point out, vanguard REIT is still almost over where it was on 1/1/2004, where I considered it significantly overvalued...its still up over 35% vs 1/1/2003.

I'm reminded of a couple of purchases I made in 2000 when the nasdaq had dropped to 3000 and later to 2000, both price points I bought in at and what I thought at the time to be considerable bargains.

Capital losses are good things when its tax time, but I'd rather have the money

The dividend yield is all over the place, but its a good one. Note that you cant sell the shares within a year without paying a 1% back end load.

I might wait another 15% minimum before buying.

[renferme]

Today, REITs are on the way back up again.
HCP up 4.59% right now.
EOP up 1.29%
FRT up 1.74%
ASN up 2.99%
ANH up 0.86%
NNN up 1.79% all as of 2:56pm 4/7/04
Motley fool says 'stay the course' , don't panic.

[unclemick]

Investors in the Vanguard REIT Index need 'a strong stomach and good memory' per John J. Brennan.

I'm sitting here reading the Vanguard REIT Index fund report's shareholder letter. After detailing the good news, Mr Brennan reminds us of the -17.3% in 99 and closes with the strong stomach/good memory reminder.

No need for a strong stomach! - It's just an asset class - They are not going to be all winners.

If you have a plan, you don't have to watch, worry and then wonder if you should buy or sell.

You just go fishing!

[unclemick]

I suspect that might have been Brennan's point - but being PC - he couldn't say:"Listen you knotheads(shareholders) rebalance when your asset class gets too high - and/or too low to hold the % asset classes in your overall portfolio in their preselected range.

[charlie]

Cut-Throat, unclemick,

Re-balancing is one thing, getting into an asset
class is another. I think it would be stupid to
jump into a new asset class like REITS all at
once when there is ample evidence that they
are overvalued. Neither Bernstein nor Bogle
advocate plunging in all at once. I hope you
are not suggesting the contrary. At my age, 70,
I can't afford the luxury of being wrong like you
whipper snappers can.

Cheers,

Charlie

Charlie,

Most of the books I have read suggest putting 50% in an asset class now and then 50% in 6 months. And hope that the asset class plunges after the first 50%.

Most all agree that you should be fully invested within a year. How you get there is up to you. DCA, Value Average, or the above method.

But the reality of the situation is that 10 years down the road, it won't probably make a large difference of which method you chose, as long as you invested.

And yes, some of your asset classes are going to be losers. And maybe you don't want to be in REITs anyway. Berstein says that you really only need to be in 4 asset classes to be a successful investor and Bonds are 1 of them.

But, the whole point of this is not to have to fret and sleep well at night. - I'm sleeping well and hope you will also!

[sgeeeee]

. . . Re-balancing is one thing, getting into an asset class is another. *I think it would be stupid to jump into a new asset class like REITS all at once when there is ample evidence that they
are overvalued. *Neither Bernstein nor Bogle advocate plunging in all at once. *I hope you are not suggesting the contrary. *At my age, 70, I can't afford the luxury of being wrong like you whipper snappers can.

Actually, it depends a lot on where you are moving the money from. If you are talking about moving money from cash to REITs, your odds are better to do it as an immediate lump sum. If you are taking the money out of other investments, it depends on how much the other investments will rise or fall while you hold and try to time the market.

[wabmester]

If you are talking about moving money from cash to REITs, your odds are better to do it as an immediate lump sum.

Historically, that has been true for US stocks, but is there any evidence that's also true for REITs?

The underlying value for real estate is rental income. Most REITs own commercial real estate. My impression of the commercial market is oversupply and declining rents. I can't imagine why anybody would want to jump into this market anytime soon, unless they know something about increasing rental demand on the horizon.

The other significant difference between REITs and stocks is leverage. How many banks would loan you 90% of the value of your company? REITs should be *very* sensitive to interest rate changes.