Bad day for REITs

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livesoft
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Re: Bad day for REITs

Post by livesoft »

xram wrote:
livesoft wrote:?.....So it was time to rebalance anyways, so folks sold.

Perhaps a stupid question. But when someone sells, someone has to buy, right?

So were people selling off or buying up today?
If I submitted a limit order to buy a REIT fund like VNQ, I would set my bid lower than the prevailing asks and wait for the folks who submitted sell orders to lower their ask price down to my limit price. They would be selling off. I would not really be buying up since I would not change my limit order higher.

If I was selling and set my limit price higher than the prevailing bid and let the buyers slowly change their limit prices (their bids) until they reached my ask, then I would be selling up in your terms.

That is, whoever adjusted their limit price towards to other person's limit price would be the person taking action.
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bayview
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Re: Bad day for REITs

Post by bayview »

InvestorNewb wrote: It's just critical that this account grows by A LOT by retirement because I may not have a pension.
I have to say that this sentence is scaring the pants off of me. :shock:

I understand looking at an inadequately-funded retirement and being scared, but the way to improve your odds is to increase your savings, not to desperately grab some savings vehicle that you convince yourself is superior. By definition, any asset that might provide high returns can also tank. Counting on REITs or anything else to keep you off the Alpo aisle is no different from playing the lottery or hoping for a run in Vegas.

I picked up a second part-time job, which I worked for years, saving almost every paycheck. The nice thing about a second job is that not only do you increase your income, but you're too tired and have no free time to spend it. :D

But seriously, you need to be a lot more realistic about what you can expect from your investments. You are NOT going to beat the averages.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri
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Kevin M
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Re: Bad day for REITs

Post by Kevin M »

xram wrote: Perhaps a stupid question. But when someone sells, someone has to buy, right?
Kind of. I'm no expert, but when I watch CNBC for entertainment, I hear the traders talk about order imbalance. My understanding is that if there is more volume on the buy or sell side, the market makers have to make up the difference until the price moves to a point where the balance is restored, or something like that. If markets are efficient, I would think price would move to that point fairly quickly, but order imbalance is part of what causes it to move.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
Valuethinker
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Re: Bad day for REITs

Post by Valuethinker »

Kevin M wrote:
xram wrote: Perhaps a stupid question. But when someone sells, someone has to buy, right?
Kind of. I'm no expert, but when I watch CNBC for entertainment, I hear the traders talk about order imbalance. My understanding is that if there is more volume on the buy or sell side, the market makers have to make up the difference until the price moves to a point where the balance is restored, or something like that. If markets are efficient, I would think price would move to that point fairly quickly, but order imbalance is part of what causes it to move.

Kevin
Precisely.

Supply always equals demand.

But if there are more sellers than buyers, price falls until there are enough buyers (ie buyers for all the stock offered for sale).

What you tend to see in bear markets is a 'buyer's strike'-- the volumes drop. Prices can fall a *long* way (Crash of 1987) before anyone starts buying.

That has its own unpleasant dynamic. If holders are leveraged or in any way subject to margin call (Portfolio Insurance in 1987, a derivatives strategy that forced selling into a down market; Long Term Capital Management in 1998) then as the prices fall, they get called, and are forced to liquidate, selling even more stock.

See 'bonfire of the quants' in August 1987 when a big quant hedge fund started to liquidate, starting a rush for the exit.
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InvestorNewb
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Re: Bad day for REITs

Post by InvestorNewb »

gkaplan wrote:InvestorNewb, do you have an ISP? Just judging from all your posts, I don't think so.
I do in my head, but just not on paper. I have 4 accounts:
  • Corporate (taxable) account:
    70% Total Stock (VTI) / 30% Total Int'l Stock (VXUS)
  • Tax-deferred account:
    100% REITs (VNQ)
  • Tax-free account:
    100% FTSE Canada (VCE)
I like it this way because everything is very simple. I also did some calculations, and REITs make up about 16% of my overall portfolio, which is not as high as I initially thought.
zaboomafoozarg wrote:
InvestorNewb wrote:My understanding is that over the long-haul, REITs actually outperform the S&P 500 index. This is what I read on fool.com. I also bought into REITs because of their high dividend yield and to take advantage of my tax-deferred space. Also: If you look at the history of the REIT index, it just seems to go up over time - with the exception of 2008 of course.
I think that understanding is incorrect. From what I'd seen, their returns have been comparable to the S&P 500, maybe a little less. The main reason for holding them is for diversification. At times they have behaved differently than the rest of the market, which has lessened overall volatility and improved returns.

Will that be the case in the future? Check back in 30 years and I'll let you know :D

As for me, I'm at 10% of US stocks in VNQ and 10% of international stocks in VNQI, and plan on staying that way throughout my accumulation years.
I tried to find the source link, although I can't seem to find it. I remember reading it somewhere.
bayview wrote:
InvestorNewb wrote: It's just critical that this account grows by A LOT by retirement because I may not have a pension.
I have to say that this sentence is scaring the pants off of me. :shock:

I understand looking at an inadequately-funded retirement and being scared, but the way to improve your odds is to increase your savings, not to desperately grab some savings vehicle that you convince yourself is superior. By definition, any asset that might provide high returns can also tank. Counting on REITs or anything else to keep you off the Alpo aisle is no different from playing the lottery or hoping for a run in Vegas.

I picked up a second part-time job, which I worked for years, saving almost every paycheck. The nice thing about a second job is that not only do you increase your income, but you're too tired and have no free time to spend it. :D

But seriously, you need to be a lot more realistic about what you can expect from your investments. You are NOT going to beat the averages.
I may just keep what I have in REITs for now but allocate any new money in my tax-deferred account to something else that is more broad. This way as time goes by, my REIT allocation will get smaller. It's either that or sell my REITs now while I'm still somewhat ahead, although I would rather not do this.

I didn't start investing in REITs until the end of February 2013, so I'm not up the full amount YTD. I suppose what has me concerned is a combination of a) REITs falling in price over the last several days (consecutively) and b) W. Bernstein's post on the message boards.

It wouldn't be fun seeing a big drop - knowing the amount of shares I could have bought if I waited.
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)
donaldfair71
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Re: Bad day for REITs

Post by donaldfair71 »

"I didn't start investing in REITs until the end of February 2013, so I'm not up the full amount YTD. I suppose what has me concerned is a combination of a) REITs falling in price over the last several days (consecutively) and b) W. Bernstein's post on the message boards.

It wouldn't be fun seeing a big drop - knowing the amount of shares I could have bought if I waited."

I am no expert (far, far from it), but doesn't the dropping price mean that you are getting REITs at a discount from, say 2 weeks ago? In other words, if you just stay on your course of action allocation-wise, aren't you now guaranteed to get more REITs during your buying than you would have gotten then? I mean, they will go up again. Could be 20 years from now. Could be tomorrow. When they do, and you sell what you just bought in February, you will be kicking yourself for not buying more as the price lowered.

It seems like you are getting into a game of market-timing. That's all fine and well, but realize it could drive you crazy playing the "could have" game.
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InvestorNewb
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Re: Bad day for REITs

Post by InvestorNewb »

Did we just pass the "dark cloud" that was alluded to in W. Bernstein's post about REITs?

i.e. There was about a 10% drop in the last month or so. I'm debating about making a new contribution in my tax-deferred account to buy more shares of VNQ.
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)
dbr
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Re: Bad day for REITs

Post by dbr »

InvestorNewb wrote:Did we just pass the "dark cloud" that was alluded to in W. Bernstein's post about REITs?

i.e. There was about a 10% drop in the last month or so. I'm debating about making a new contribution in my tax-deferred account to buy more shares of VNQ.
Wouldn't it make more sense to set an asset allocation and a re-balancing band and proceed accordingly instead of having to debate?
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HomerJ
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Re: Bad day for REITs

Post by HomerJ »

InvestorNewb wrote:I want to hold the funds that are most likely to outperform the S&P 500 over the long haul.
You probably should be happy with just matching the S&P 500 over the long haul... i.e. own the S&P 500...

Trying to beat it is going to cause you all kinds of stress. Stress that will make you make poor decisions that will end up making you under-perform the S&P 500 over the long haul.
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HomerJ
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Re: Bad day for REITs

Post by HomerJ »

InvestorNewb wrote:It's just critical that this account grows by A LOT by retirement because I may not have a pension.
You said you have 41 years... If the market returns 7%, your money will double every 10 years. Is 4 doubles enough?

If you have $200k invested, 4 doubles equals $400k, $800k, $1.6 million, $3.2 million. And that's without saving another cent..

Do you really need to "beat" the market?

And like others have said... in the next 40 years, there WILL be a crash... And you will lose 30%, 50%, maybe more... But if you can stay the course and not panic, it'll come back. You need to be prepared for that.
fulltilt
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Re: Bad day for REITs

Post by fulltilt »

InvestorNewb wrote:Did we just pass the "dark cloud" that was alluded to in W. Bernstein's post about REITs?

i.e. There was about a 10% drop in the last month or so. I'm debating about making a new contribution in my tax-deferred account to buy more shares of VNQ.
Would make new contributions if you thought that the return on REIT contributions was going to be negative or at most 1.5% for next decade?
Walk a single path, becoming neither cocky with victory nor broken with defeat, without forgetting caution when all is quiet or becoming frightened when danger threatens. -- Jigoro Kano
letsgobobby
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Re: Bad day for REITs

Post by letsgobobby »

Mr. Newb, again I implore you to reduce your risk allocation from 100% to something closer to 60%. I am convinced that with the next 50% decline, you will sell out at the bottom.
Default User BR
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Re: Bad day for REITs

Post by Default User BR »

fulltilt wrote:Would make new contributions if you thought that the return on REIT contributions was going to be negative or at most 1.5% for next decade?
A central principle if my investing strategy is that I don't know enough to time any market. I have an allocation to REIT, it will be maintained according to the rules set out in my IPS as represented by the rebalance formulas embedded in the Big Spreadsheet.

This has the advantage of not requiring me to think, worry, or try to predict the future.


Brian
Valuethinker
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Re: Bad day for REITs

Post by Valuethinker »

letsgobobby wrote:Mr. Newb, again I implore you to reduce your risk allocation from 100% to something closer to 60%. I am convinced that with the next 50% decline, you will sell out at the bottom.
In some ways you cannot fight Darwin's laws.

However much you tell someone about investing, they 'get' and 'hear' the bit that they find attractive. Wisdom of experience counts for 'nought as they say in Yorkshire.

The OP will take his/ her strategy, which is not really what is suggested as a strategy around here, and go over a cliff. Sell out at the bottom.

They 'get' the bit about high long run returns from equities, and they have the recency of the last 4 years that equities have done well. So they 'buy the dips'. In other words, I get no sense from OP that he/she understands what a grinding bear market is like, has lived through one, has seen the charts of 1968-1980 for example or 1929-1939. In their minds they *always* buy in the low periods-- they ignore the bit where you go over the cliff (1929-1933 etc.).

it's a product as much as anything of a limited ability to delay gratification. They have found this new toy, the stock market, and it's got to work *now*.

That's why I am calling it evolution, because evolution/genetics/ upbringing hands us different levels of ability to delay gratification. Or we learn it, the hard way-- I am certainly less rich than I was in 2000.

Maybe then they'll come back and get religion. Or maybe they will simply move on to other forums with other strategies and approaches.

You can't stop people making stupid mistakes *unless* they want to listen to you. I have been reading a lot of James Lovelock recently and have kind of come to that conclusion about bigger, societal issues, too.
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