REIT question

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REIT question

Postby trkymn6f0 » Tue Aug 13, 2013 7:36 pm

What are the current and future prospects of these fund types? specifically VGSIX?

thanks
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Re: REIT question

Postby Call_Me_Op » Tue Aug 13, 2013 7:42 pm

Nobody can give you a definitive answer to this. Over very long periods of time, it is not unreasonable to expect returns and volatility comparable to the past.
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Re: REIT question

Postby G-Money » Tue Aug 13, 2013 8:56 pm

What makes you think anyone knows? And if someone did in fact know, wouldn't they be better off using that information for their own benefit?
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Re: REIT question

Postby trkymn6f0 » Tue Aug 13, 2013 9:00 pm

let me rephrase the question...do reit funds typically fall or rise with increases in interest rates? don't reits invest in
properties through margin accounts and acquire more assets when mortgage interest rates are lower?

we are headed towards higher interest rates. that's why I ask.
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Re: REIT question

Postby G-Money » Tue Aug 13, 2013 9:34 pm

trkymn6f0 wrote:let me rephrase the question...do reit funds typically fall or rise with increases in interest rates? don't reits invest in
properties through margin accounts and acquire more assets when mortgage interest rates are lower?

I've read that REITs are very sensitive to interest rate changes. But in practice, I'm not sure how true that is. Look at a year-to-date growth-of-$10,000 chart of VGSIX at Morningstar. Compare it to a high quality investment grade bond fund (VBMFX, vfitx, etc.). You'll see how the bond funds reacted when interest rates started rising in April. REITs didn't move in lockstep with bonds.

trkymn6f0 wrote:we are headed towards higher interest rates. that's why I ask.

Maybe. Interest rates already have risen about 1% since March (based on 10-year Treasury). What happens in the future is just a guess. Nothing in investing is inevitable.
Last edited by G-Money on Tue Aug 13, 2013 9:35 pm, edited 1 time in total.
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Re: REIT question

Postby tibbitts » Tue Aug 13, 2013 9:34 pm

trkymn6f0 wrote:let me rephrase the question...do reit funds typically fall or rise with increases in interest rates? don't reits invest in
properties through margin accounts and acquire more assets when mortgage interest rates are lower?

we are headed towards higher interest rates. that's why I ask.

I believe that reits have tended to not react favorably to rising rates. But, depending partly on why rates rise, equities in general may also tank at the same time - the whole "don't fight the fed" thing. It might not make you feel a lot better if your reits are down 40% and your other equities are down 39%.

More importantly, I don't think you'll find general agreement here that you can predict interest rates nearly as reliably as you think you can.

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Re: REIT question

Postby telemark » Tue Aug 13, 2013 10:00 pm

The claim I've seen is that many REITs are heavily leveraged, which makes them sensitive to interest rates. On the other hand, if rates rise due to an improving economy that should be good for commercial real estate. Ask me in five years and I'll tell you how it came out :happy
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Re: REIT question

Postby trkymn6f0 » Tue Aug 13, 2013 10:12 pm

i'm considering starting a position in VGSIX and just thought i'd ask the professionals
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Re: REIT question

Postby georgewall42 » Tue Aug 13, 2013 11:06 pm

In 1994, interest rates rose, and the year was not an easy one for bond funds. Intermediate bond prices fell about 10%. Fidelity Real Estate (a REIT fund focused on capital appreciation) fell about the same amount during the same period, but at one point that year was down as much as 18%. SP500 was flat that year.

Bottom line is that the 2-4% yields the REITs generate today will look a lot less attractive once interest rates rise, given the fact that the underlying securities are essentially stocks, not bonds. However, forecasting interest rates is typically a fool's errand. Had you sold REITS at the start of 1992 in anticipation of interest rates going up, you would have missed out on a nice 20% gain over the subsequent 2 years. Also, even if you did buy at the start of 1994, you would have been made whole by mid-year 1995.

Finally, interest rates are only one factor in REIT performance. Compare REIT performance to a chart of a bond fund in 2008-2009, a period of declining interest rates.

The only prediction that is likely to be most often correct is that future results are unpredictable.
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Re: REIT question

Postby nedsaid » Wed Aug 14, 2013 12:05 am

My expectations for REITs would be sub par returns for a while. People looking for income have bid these up and these no longer represent value. I have owned them a long time and continue to own them because historically REITs have returns similar to the stock market with low correlation to the market.

So buy them as part of a diversified portfolio. Own them as a good diversifier to stocks. These are not screaming values right now. This is not the time to be backing up the truck to load up on these.
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Re: REIT question

Postby Call_Me_Op » Wed Aug 14, 2013 8:20 am

trkymn6f0 wrote:let me rephrase the question...do reit funds typically fall or rise with increases in interest rates? don't reits invest in
properties through margin accounts and acquire more assets when mortgage interest rates are lower?

we are headed towards higher interest rates. that's why I ask.


REITs are stocks and their price is determined by what investors are willing to pay at any time - just like other stocks. You will probably find that the correlation to interest rates is not consistent.
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Re: REIT question

Postby trkymn6f0 » Wed Aug 14, 2013 8:25 am

nedsaid wrote:My expectations for REITs would be sub par returns for a while. People looking for income have bid these up and these no longer represent value. I have owned them a long time and continue to own them because historically REITs have returns similar to the stock market with low correlation to the market.

So buy them as part of a diversified portfolio. Own them as a good diversifier to stocks. These are not screaming values right now. This is not the time to be backing up the truck to load up on these.



this is the evaluation I was expecting. thank you
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Re: REIT question

Postby abuss368 » Wed Aug 14, 2013 9:27 am

That is more of a market timing question than anything.

There is a lot of evidence that REITs may in fact be a separate asset class. Stocks, Bonds, Real Estate, and Cash.

REITs often react differently than common stocks in the market. However, when it hits the fan everything tanks.

We like REITs for their additional diversification, income stream, etc.

If you made a decision to invest in Real Estate, now is as good of a time as any.
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Re: REIT question

Postby LH » Wed Aug 14, 2013 2:43 pm

1) you do not know if interest rates will go up medium or even long term, see Japan.

2) If you are seeking timing information, you have come to the wrong place

3) From my perspective, you are looking at the question "wrong".

REITS from a passive indexing point of view either 1)represent a unique asset class of land ownership with income derived from rents (versus business activity income, or income from renting out capital/money). The main asset classes are land, business, capital/bonds. 2) or just another subclass of stocks, the main asset classes are stocks and bonds. depending on which side of the philosophical divide one finds oneself one. I fall strongly in class 1. Others who are knowledgeable seem to fall in class 2.

Regardless of the above:

Passive indexing is about, correlation relative to portfolio and return (both expected).

REITS have stock like return expectation (near 7 percent real annually) and good correlation with stocks and bond asset classes.

So what to expect?

1)historically, that past return and correlation patterns will continue because "past is prologue" basically.
2)empirically, that past return and correlation patterns will continue due to land being a unique asset, with income derived from rent of land, versus stocks income from business activity, versus renting capital for interest.

I do not see anything on the horizon that would expect REITS to not continue to be what they have been, a good addition to a portfolio of stocks and bonds due to its expected return and expected correlation.

Nothing is guaranteed. Also realize the past info we have, is not statistically significant.

Now what interest rates do, and then what REITS do short medium term, I have zero idea. Deflation? Inflation? Interest rates up or down? If you can really answer those questions in a timed based fashion, you need not be here.
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Re: REIT question

Postby LH » Wed Aug 14, 2013 3:01 pm

trkymn6f0 wrote:
nedsaid wrote:My expectations for REITs would be sub par returns for a while. People looking for income have bid these up and these no longer represent value. I have owned them a long time and continue to own them because historically REITs have returns similar to the stock market with low correlation to the market.

So buy them as part of a diversified portfolio. Own them as a good diversifier to stocks. These are not screaming values right now. This is not the time to be backing up the truck to load up on these.



this is the evaluation I was expecting. thank you



Just realize, and no offense to the poster, that this post has ZERO expectational worth in terms of "value" of REITS. 99 percent of post is dead on, and maybe even 100 percent, depending on what he really means.

But realize, if the poster was able to detect when something was a "good buy" he could beat the market. The poster, expectationally, cannot beat the market.

Nobody really can expectationally.

"sub par returns for a while"

That begs some questions:

Well, sub par to what? how long is a while?

I really doubt the poster could specify anything per se. Its just vaguish "locker room" type talk usually, that does not mean much if you ask the person who said it, he would probably say its a wild ass guess, dont put much stock in it.

But you have to realize, that what you are asking for, is meaningless talk. Its whats on financial TV 24/7, its what is referred to as financial porn.

Again, the poster just gave you what you asked for, coupled with good advice on what to actually do, and what he actually does. Which is basically ignore his own feeling of valuation, and buy and hold.

If you are seeking timing info, read "markettimers" long thread here. Then if you still want timing, I would go elsewhere, where people actually attempt timing.
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Re: REIT question

Postby LH » Wed Aug 14, 2013 3:07 pm

trkymn6f0 wrote:let me rephrase the question...do reit funds typically fall or rise with increases in interest rates? don't reits invest in
properties through margin accounts and acquire more assets when mortgage interest rates are lower?

we are headed towards higher interest rates. that's why I ask.


Out of curiosity....

When are the higher rates coming? How high will they go?

You seem to be making a prediction here of some sort, that you are going to base financial action on?

Its best to be a bit more explicit, because at any given time, we are always headed to both higher and lower rates expectationally..... just depends on the time frame, and the magnitude of the change.

Its really a meaningless statement I posit unless fleshed out. But so is about 90 percent of what is said in finance on TV and such. Try to flesh it out, then see what you can post more specifically.
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Re: REIT question

Postby Houston_investor » Wed Aug 14, 2013 4:42 pm

I'm not going to try and predict the future regarding REIT's, but I will say that Vanguard's REIT index has tended to average higher returns than its total stock market index, but has been shown to be much more volatile.

For this reason holding a REIT is generally recommended as part of your equity position, but usually not much more than around 10% of your total equities.
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Re: REIT question

Postby abuss368 » Wed Aug 14, 2013 5:05 pm

Read "Unconventional Success" by David Swensen. He recommends 20% (30% of equity) allocated to REITs. He specifically mentions the Vanguard REIT fund (not the international fund).
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Re: REIT question

Postby nedsaid » Wed Aug 14, 2013 11:15 pm

I am not attempting to time the market or make a precise prediction on REITs.

What I am saying is that you have to pay attention to valuations. I am also saying that REITs are an excellent diversifier to stocks. So a person who wants them as an asset class should buy them for diversification. You are just not going to make a killing on them.

Your future expected returns on an asset class are better if you can buy it at depressed prices. The prices of REITs are not depressed and in fact have bid up by income investors looking for yield. My expectation is that at this point you won't get returns that exceed the broad stock market. In fact, I would not be surprised if they underperformed for a while.

So I am not market timing as such but suggesting that investors pay attention to valuations. If an asset has been "hot" and run up in price and is popular, it is proper for an investor to look at valuations. Ask yourself the question, would I buy in at these prices? This is not irrational thinking. Warren Buffett and many successful investors do this.

Look at the the Bogleheads that are agonizing over bonds right now. Their investment policy statement might tell them to buy more bonds but their brain is telling them that this asset class might be richly valued after a 30 year bond bull market.

Valuations matter and they matter a whole lot.
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Re: REIT question

Postby LH » Thu Aug 15, 2013 12:04 am

Valuations do not matter in any meaningful sense when investing.

If valuations matter in a meaningful financial sense, then timing works.

You buy when valuations good, sell when valuations bad. Success!

Unfortunately, this does not work.

Period.

If it works, then active managers could exploit it..... They fail though.

Good luck,

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Re: REIT question

Postby nedsaid » Thu Aug 15, 2013 12:28 am

Baloney.

Of course valuations matter.

As one poster brilliantly said, would you rather buy low and sell high or buy lower and sell high?

I have pointed out myself the Money Magazine article that noted that markets tend to go up when P/E's are low and tend to go up when P/E's are high. The Price/Earnings ratio in itself won't predict whether the market will go up or go down. What it can do is give you an idea of market returns going forward. Or as Mr. Bogle would say, how much of your return is from the underlying businesses and how much of it is from speculative return?

In 1974, the market P/E reached a low of approximately 8. In 2000, the market P/E reached a high of approximately 32. Under which scenario could you expect higher future returns? Under which scenario would your odds for investment success be better?

If all your friends suddenly become stock market experts and start giving you stock tips, is that not a clue? If everybody is talking about how great the stock market is and people borrow against their house to invest, does this not give you pause?
Don't you pay attention to the extreme swings in market sentiment?

Ignore market valuations at your peril.
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Re: REIT question

Postby nedsaid » Thu Aug 15, 2013 12:41 am

You are also arguing something that I am not advocating.

There is no scenario that I would be 100% out of stocks or any other asset classes that I am investing in for the long term.

I am not a believer in market timing other than opportunistic buying and selling at extremes of market sentiment and valuation.

Rebalancing your portfolio is also a version of buy low and sell high. Selling stuff that has recently done well and buying things that have not done so well.

I am suggesting that it is not irrational to check the price of something before you buy it. It is not irrational to look for opportunities when asset classes trade below their historic averages or at the low end of their historic ranges. My gosh.
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Re: REIT question

Postby nedsaid » Thu Aug 15, 2013 12:58 am

I am also reminded of Jack Bogle's point that investors actual returns in mutual funds is less than the returns of the funds themselves. This is due to performance chasing. Piling into funds or asset classes after they have performed well. By the way, this is true for the Vanguard Index funds as well.

Part of what I am saying is not to chase hot stocks, hot sectors, hot asset classes. Common sense. Reversion to the mean. A reason for reversion to the mean is the perception by institutions that the hot stock, sector, asset class has become overvalued and that it is time to sell.

If valuations didn't matter, then investors could performance chase to their hearts content. What you are saying is that you are as likely to get good performance from "hot" and high performing stocks,sectors, asset classes as you would from "cold" and underperforming stocks, sectors, asset classes. I can't think of anything that would back that up.

Your arguments that valuations don't matter just don't hold water. They matter to the large institutions and the large institutions are what drive the short term ups and downs of the market.
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Re: REIT question

Postby abuss368 » Thu Aug 15, 2013 9:47 am

I have been a REIT investor for many years. Back in the evil stock picking days, I invested in many equity and mortgage REITs. I learned my lesson regarding mortgage REITs (and stock picking in general a long time ago)!

I have always been happy with this asset class in terms of the returns and additional diversification. The downturn of 2008 - 2009 did not bother us in terms of REITs. They dropped like everything else and presented a great rebalancing opportunity. In highsight, it was a good decision to follow Rick Ferri's advice during that period: buy, hold, and rebalance.
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Re: REIT question

Postby Valuethinker » Thu Aug 15, 2013 12:40 pm

telemark wrote:The claim I've seen is that many REITs are heavily leveraged, which makes them sensitive to interest rates. On the other hand, if rates rise due to an improving economy that should be good for commercial real estate. Ask me in five years and I'll tell you how it came out :happy


It's double whammy. REITs have leverage. But other owners of office buildings have higher leverage. And financial crashes are associated with banking problems, and commercial real estate lending is associated with many of the banking crashes of recent history (not so much this time in the USA, but 1990 in New England for example; the whole S&L debacle at the same time; UK early 1990s etc.).

And the factors that depress the economy hit commercial RE quite hard: consumer spending goes down and that hits retail and leisure. Apartments tend to be quite stable (people rent not buy). Offices get pummeled (companies cut space and sometimes go broke). Industrial ditto.

So you have:

- bad fundamentals
- leverage
- the possibility of a banking meltdown, repossession and fire sale (further hitting valuations and rents)

Commercial property crashes are impressive. Barclays in 1992ish owned 10% of all commercial RE in the UK (as lead creditor to Canary Wharf). Toronto the Bay Adelaide Centre started in 1989, and began again about 2005. You drive around and see what Americans call 'see thrus'-- buildings you can see through because untenanted. Calgary a building built in 1980 was still empty in 1992.

Every time someone tells me this time is different and the RE and banking industry have learned their lesson, I pause and wonder if that is really true.

There is no doubt a case for REITs, but do look at the volatility, day by day, 2008-09 and make sure you can live with that.

TIAA RE Annuity is a somewhat different animal.
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Re: REIT question

Postby Tigermoose » Thu Aug 15, 2013 12:56 pm

The problem with making decisions based on valuations is like the problem of Truth.

Everyone knows that there is such a thing as True statements. The problem comes when you have to evaluate whether A statement IS true.

Sure, if we had direct access to the knowledge that Value = High, then this would be easy. The problem is that we can't really evaluate high valuations based on any kind of static standard of truth. Markets are too dynamic. By your standard, a stock price might be high in 2013, but then go on to increase in value for the next 5 years before going down in price to your "standard" price. You just missed out on 5 years of dividends and return that could have then be rebalanced into lesser performing assets.

You (Nedsaid) assume there is some kind of "really real" standard underlying the markets that they must revert to. That's not how I see it. There are flows between the market for innumerable reasons

What helps me get into an asset that I need for my IPS is a very gradual, month by month investment into the asset. It is difficult to pull the trigger and buy an asset all at once up to your desire asset allocation. This is what I'm doing with REITs.
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Re: REIT question

Postby InvestorNewb » Thu Aug 15, 2013 3:00 pm

When the Total Stock Market Index zigs, REITs are supposed to zag. This hasn't been the case lately.
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Re: REIT question

Postby abuss368 » Thu Aug 15, 2013 3:18 pm

InvestorNewb wrote:When the Total Stock Market Index zigs, REITs are supposed to zag. This hasn't been the case lately.


In 2008 and 2009 sure, I would agree. Everything tanked and correlation did not mean as much.

This year? A Total Stock Market year by far. REITs have been left in the dust!
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Re: REIT question

Postby InvestorNewb » Thu Aug 15, 2013 3:48 pm

abuss368 wrote:Read "Unconventional Success" by David Swensen. He recommends 20% (30% of equity) allocated to REITs. He specifically mentions the Vanguard REIT fund (not the international fund).


With REITs down lower than what I bought my shares at 6 months ago, I'm thinking about buying more. I have some room in my tax-deferred account.

Is David Swensen still recommending 20% allocation to REITs? I thought he brought this down to 15% or so. I'm curious why he doesn't mention the international fund. Maybe it's too new, but it would be good to get expert opinions on VNQI.
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Re: REIT question

Postby Valuethinker » Fri Aug 16, 2013 4:39 am

InvestorNewb wrote:When the Total Stock Market Index zigs, REITs are supposed to zag. This hasn't been the case lately.


That, and as Wbern (William Bernstein) pointed out in an earlier thread, you are starting from a 3% yield not a 7-8% yield. These things are not cheap by any historical measure.

So you have an asset whose purpose is widely recognized to be income return (compared to conventional stocks, the total return from REITs is much more skewed towards dividends) and that starting yield is low.
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Re: REIT question

Postby Valuethinker » Fri Aug 16, 2013 4:41 am

InvestorNewb wrote:
abuss368 wrote:Read "Unconventional Success" by David Swensen. He recommends 20% (30% of equity) allocated to REITs. He specifically mentions the Vanguard REIT fund (not the international fund).


With REITs down lower than what I bought my shares at 6 months ago, I'm thinking about buying more. I have some room in my tax-deferred account.

Is David Swensen still recommending 20% allocation to REITs? I thought he brought this down to 15% or so. I'm curious why he doesn't mention the international fund. Maybe it's too new, but it would be good to get expert opinions on VNQI.


The international fund has been discussed in a number of threads and Larry Swedroe has opined. Note the fund has a lot of Real Estate Operating Companies-- REITs are a relatively rare thing outside the USA. It's really a Real Estate stocks fund (with UK Canadian Australian Japanese Hong Kong REITs thrown in).
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Re: REIT question

Postby tibbitts » Fri Aug 16, 2013 8:59 am

Your future expected returns on an asset class are better if you can buy it at depressed prices.

True. Problem: approximately equally good arguments can be made that none of the following are currently at depressed prices , or have positive earnings outlooks: domestic and international stocks and bonds, cash, precious metals, real estate, and SPIAs. Leaving a person to invest in... ?

"Depressed" is often only obvious in retrospect.

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Re: REIT question

Postby abuss368 » Fri Aug 16, 2013 11:33 am

InvestorNewb wrote:
abuss368 wrote:Read "Unconventional Success" by David Swensen. He recommends 20% (30% of equity) allocated to REITs. He specifically mentions the Vanguard REIT fund (not the international fund).


With REITs down lower than what I bought my shares at 6 months ago, I'm thinking about buying more. I have some room in my tax-deferred account.

Is David Swensen still recommending 20% allocation to REITs? I thought he brought this down to 15% or so. I'm curious why he doesn't mention the international fund. Maybe it's too new, but it would be good to get expert opinions on VNQI.


I attended a lecture of David Swensen's last year and he recommended the portfolio as noted in Unconventional Success and not the so called "revised" portfolio in his interview with Yale Magazine during March/April 2009. Interesting. At the end of the day, I wonder why investors argue over these two portfolio's? There is only a 5% difference between REITs and Emerging Markets. Personally I would rather have the additional Real Estate allocation than Emerging Markets.

Now then, I have wondered many times David Swensen's thoughts and perspective on International REITs. I would imagine he would recommend them but I could be mistaken. I base this on his high allocation to REITs and Real Estate and his large allcoation to International Equities in general.

Unfortunately, "Unconventional Success" was written in 2005 and unlike his other book "Pioneering Portfolio Management", he has not yet updated it. I did try to email him at Yale but did not receive a response. I did see however he was out for a while unfortunately due to cancer treatments but is back now.

Here is his email address from the Yale website:

david.swensen@yale.edu

http://directory.yale.edu/phonebook/vie ... u%3DPeople

You could try to email him and if you are lucky you may get a response. Perhaps he will be fine with you sharing it here on the website. Someone did do this years ago, and he responded, regarding the duration of Treasury securities and noted it was fine to post.

Thanks.
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Re: REIT question

Postby dbr » Fri Aug 16, 2013 12:40 pm

It can hardly make sense to try to arrive at specifications of the nature of "REITs should be 20%." Trying to do asset allocation by following recommendations for specific percentages in books is an exercise in futility.

That does not mean it wouldn't be interesting to ask Mr. Swenson or anyone else what the rationale for what they wrote might be. The interest would not be, however, in somehow actually resolving a definite answer as that is not going to happen.

It would be cool to get everyone we could round up into one room and not let them out until they had arrived at the "one true" asset allocation plan we should all follow, down to the percent. I wonder if they would adopt the prime number rule.
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Re: REIT question

Postby zaboomafoozarg » Fri Aug 16, 2013 12:45 pm

dbr wrote:It would be cool to get everyone we could round up into one room and not let them out until they had arrived at the "one true" asset allocation plan we should all follow, down to the percent.


Thus in effect sentencing everyone to life in prison :D
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Re: REIT question

Postby nedsaid » Sat Aug 17, 2013 1:18 pm

In another post, I told someone asking for advice that it helped to view your portfolio as a giant ship that turns slowly.

I am actually quite cautious about making changes in my portfolio, particularly big changes. I certainly don't advocate going in and out of asset classes based on some preconceived idea of valuation. Make changes only with a lot of thought and careful planning.

Where I am coming from is that someone will read an article and get really excited and go overboard on a particular asset class. For example, a friend of mine is in the financial industry. He had a client that invested a million dollars in REITs in about 2006-2007 (just before the crash) despite advice to diversify has portfolio. Real Estate had been hot and a lot of people where excited about it. A classic case of performance chasing a hot asset class. This often ends in tears as I suspected it did for this client.

Or people on this forum who get excited about Small Cap Value and want to make that their whole equity allocation. No amount of discussion deters them. Oh well, they will have to learn the hard way.

So even though I think REITs are richly priced, they are worth holding in a portfolio. If someone didn't have REITs in their portfolio and wanted to buy in, perhaps working towards their desired allocation in REITs over time would make sense. If REITs were a bargain, such an investor could feel more comfortable jumping in all at once to his desired allocation. Man oh man, is this such radical thinking?

When I make comments about paying attention to valuations, people have the mental image of some wild day trading maniac. In and out.

I have to admit that the idea that paying attention to valuations is somehow some wild idea that came out of no where seems odd to me. When you make a purchase, don't you check the price? Don't you try to snatch a bargain? Why is investing any different? Don't you want to have an idea of how much of your future return is from business return and how much is from speculative return?

So the comments I get from some folks just boggles the mind.

Of course valuations matter. And of course valuations matter a lot.
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Re: REIT question

Postby InvestorNewb » Mon Aug 19, 2013 10:15 am

abuss368 wrote:
InvestorNewb wrote:
abuss368 wrote:Read "Unconventional Success" by David Swensen. He recommends 20% (30% of equity) allocated to REITs. He specifically mentions the Vanguard REIT fund (not the international fund).


With REITs down lower than what I bought my shares at 6 months ago, I'm thinking about buying more. I have some room in my tax-deferred account.

Is David Swensen still recommending 20% allocation to REITs? I thought he brought this down to 15% or so. I'm curious why he doesn't mention the international fund. Maybe it's too new, but it would be good to get expert opinions on VNQI.


I attended a lecture of David Swensen's last year and he recommended the portfolio as noted in Unconventional Success and not the so called "revised" portfolio in his interview with Yale Magazine during March/April 2009. Interesting. At the end of the day, I wonder why investors argue over these two portfolio's? There is only a 5% difference between REITs and Emerging Markets. Personally I would rather have the additional Real Estate allocation than Emerging Markets.

Now then, I have wondered many times David Swensen's thoughts and perspective on International REITs. I would imagine he would recommend them but I could be mistaken. I base this on his high allocation to REITs and Real Estate and his large allcoation to International Equities in general.

Unfortunately, "Unconventional Success" was written in 2005 and unlike his other book "Pioneering Portfolio Management", he has not yet updated it. I did try to email him at Yale but did not receive a response. I did see however he was out for a while unfortunately due to cancer treatments but is back now.

Here is his email address from the Yale website:

david.swensen@yale.edu

http://directory.yale.edu/phonebook/vie ... u%3DPeople

You could try to email him and if you are lucky you may get a response. Perhaps he will be fine with you sharing it here on the website. Someone did do this years ago, and he responded, regarding the duration of Treasury securities and noted it was fine to post.

Thanks.


Thanks for this. I emailed David this morning and said this was a hot topic on the forums.

I also provided a link to this thread and requested (with his permission) to post the reply here.
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Re: REIT question

Postby LH » Mon Aug 19, 2013 10:40 am

Valuations

A valuation is produced when one person sells, and another person buys, the same thing, at a given price, taken in aggregation, produces the market valuation.

What one is saying when a valuation is high, is that the buy side paid too much. When you say valuation is low, that the sell side sold for too little.

What you are also saying, is that the market itself is irrational, because there is a bargain to be had by buying or shorting, the market is missing this, but YOU see it, by saying that valuations high or low, or whatever opinion you may hold.

Reality is, that is expectantly false. The markets price decision, it's valuation, is better than what you think on average, period.

If the above is not true, timing would work, timing does not work.......

Timing does not work. This is simply true expectantly.

Now your gut, or yours or mine human gestalt, just does NOT buy this. We will ignore all evidence, and say, hey, I have to look at valuations! It "matters"! Where matters mean it influences ones buy sell decisions.

Well if no expert can say, go to cash when high, buy back in when low, or any permutation based on said valuation, and beat the market when =Tracked=, why do you think your untracked valuation moves will succeed?

Rhetorical question, it's because you, me are human, and hard wired to do it, believing otherwise feels irrational to us.
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Re: REIT question

Postby Ice-9 » Mon Aug 19, 2013 11:14 am

nedsaid wrote:Rebalancing your portfolio is also a version of buy low and sell high. Selling stuff that has recently done well and buying things that have not done so well.


I rebalance when I hit rebalancing bands, but I also partially rebalance when adding new money by directing it to the asset class that needs it most. For most of the last year, that was international stocks. I noticed on my rebalancing spreadsheet the other day that my International allocation has recently caught up with my target allocation and REITs are now the asset class where I should be directing the "new money," although I'm still nowhere near the rebalancing bands to actually rebalance via an exchange.
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Re: REIT question

Postby hsv_climber » Mon Aug 19, 2013 11:24 am

LH wrote:Valuations

Timing does not work. This is simply true expectantly.

Now your gut, or yours or mine human gestalt, just does NOT buy this. We will ignore all evidence, and say, hey, I have to look at valuations! It "matters"! Where matters mean it influences ones buy sell decisions.
.



"Smart investors know that while there's little to no evidence that you can successfully use valuations to time the market, valuations do matter. " - Larry Swedroe

http://www.cbsnews.com/8301-505123_162- ... to-expect/
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Re: REIT question

Postby Valuethinker » Mon Aug 19, 2013 11:39 am

InvestorNewb wrote:
abuss368 wrote:
InvestorNewb wrote:
abuss368 wrote:Read "Unconventional Success" by David Swensen. He recommends 20% (30% of equity) allocated to REITs. He specifically mentions the Vanguard REIT fund (not the international fund).


With REITs down lower than what I bought my shares at 6 months ago, I'm thinking about buying more. I have some room in my tax-deferred account.

Is David Swensen still recommending 20% allocation to REITs? I thought he brought this down to 15% or so. I'm curious why he doesn't mention the international fund. Maybe it's too new, but it would be good to get expert opinions on VNQI.


I attended a lecture of David Swensen's last year and he recommended the portfolio as noted in Unconventional Success and not the so called "revised" portfolio in his interview with Yale Magazine during March/April 2009. Interesting. At the end of the day, I wonder why investors argue over these two portfolio's? There is only a 5% difference between REITs and Emerging Markets. Personally I would rather have the additional Real Estate allocation than Emerging Markets.

Now then, I have wondered many times David Swensen's thoughts and perspective on International REITs. I would imagine he would recommend them but I could be mistaken. I base this on his high allocation to REITs and Real Estate and his large allcoation to International Equities in general.

Unfortunately, "Unconventional Success" was written in 2005 and unlike his other book "Pioneering Portfolio Management", he has not yet updated it. I did try to email him at Yale but did not receive a response. I did see however he was out for a while unfortunately due to cancer treatments but is back now.

Here is his email address from the Yale website:

david.swensen@yale.edu

http://directory.yale.edu/phonebook/vie ... u%3DPeople

You could try to email him and if you are lucky you may get a response. Perhaps he will be fine with you sharing it here on the website. Someone did do this years ago, and he responded, regarding the duration of Treasury securities and noted it was fine to post.

Thanks.


Thanks for this. I emailed David this morning and said this was a hot topic on the forums.

I also provided a link to this thread and requested (with his permission) to post the reply here.


Last I read he was on leave for cancer treatment.

It will be interesting if he has the time to reply.
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Re: REIT question

Postby Tigermoose » Mon Aug 19, 2013 12:20 pm

hsv_climber wrote:"Smart investors know that while there's little to no evidence that you can successfully use valuations to time the market, valuations do matter. " - Larry Swedroe

http://www.cbsnews.com/8301-505123_162- ... to-expect/


In horse racing, it is obvious that the speed of the horse matters in a race. The trouble is, before the race, you just don't know which one is going to be faster in that particular race.
Institutions matter
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Re: REIT question

Postby nedsaid » Sat Aug 24, 2013 6:57 pm

I looked at my portfolio recently and puzzled why a value tilted portfolio is now just barely tilting value. Something shifted and I investigated why. Why is my value oriented portfolio less value-ee?

Part of the answer came from the individual styleboxes on my REIT funds. REITs have for a long time been in the mid-value stylebox. Shazzam!! My REIT funds were all in the mid-growth stylebox.

This tells me that Valuations on these things are not so compelling. I have never thought of REITs as growth stock investments. I also noticed that the yield on the Vanguard REIT EFT is up to 3.59%. Not long ago, it was more like 3%. So this adds to my perception that these things have been bid up. In the past, these have yielded about 6%.

As interest rates have been rising, the price of REITs have been falling. One of my REIT funds is down about 1/2 of one percent year to date where bond funds have fallen a tad over 3% (if you are in the intermediate term bonds).

So more evidence in favor of my comments about REIT valuations.
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Re: REIT question

Postby abuss368 » Sat Aug 24, 2013 8:37 pm

nedsaid wrote:I looked at my portfolio recently and puzzled why a value tilted portfolio is now just barely tilting value. Something shifted and I investigated why. Why is my value oriented portfolio less value-ee?

Part of the answer came from the individual styleboxes on my REIT funds. REITs have for a long time been in the mid-value stylebox. Shazzam!! My REIT funds were all in the mid-growth stylebox.

This tells me that Valuations on these things are not so compelling. I have never thought of REITs as growth stock investments. I also noticed that the yield on the Vanguard REIT EFT is up to 3.59%. Not long ago, it was more like 3%. So this adds to my perception that these things have been bid up. In the past, these have yielded about 6%.

As interest rates have been rising, the price of REITs have been falling. One of my REIT funds is down about 1/2 of one percent year to date where bond funds have fallen a tad over 3% (if you are in the intermediate term bonds).

So more evidence in favor of my comments about REIT valuations.



I am not sure if you are referring to Vanguard's Portfolio Watch. If so, I emailed Vanguard a month or so ago on the exact same thing - the US REIT classification. I had noted that the fund was previously classified as a blend in the midcap range. Their response was that REITs are a growth story. Not sure why. I read REIT magazine from www.reit.com and there is easily an argument for both value and growth based on the company.
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Re: REIT question

Postby nedsaid » Sat Aug 24, 2013 10:30 pm

I saw this on Morningstar. All three of my REIT funds were in the mid-cap growth category.
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Re: REIT question

Postby JoMoney » Sat Aug 24, 2013 10:43 pm

Here's somebody bullish on REITs:
http://online.barrons.com/article/SB500 ... rticle%3D1

I'm not sure I've heard a good "value" argument for REITs today. Most of the fundamental valuations seem to be above what would qualify them as "value".
But "value" as a category doesn't really offer anything unless it's high-yield. I want my stocks to be "value" when I buy them - then move quickly to "growth" :happy
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Re: REIT question

Postby longview » Sun Aug 25, 2013 2:39 pm

abuss368 wrote:Read "Unconventional Success" by David Swensen. He recommends 20% (30% of equity) allocated to REITs. He specifically mentions the Vanguard REIT fund (not the international fund).


But isn't he dealing with endowments (which don't pay taxes)? I would think taxes of REITs vs taxes of equites need to knock REITs down a few pegs, at least for the highest tax brackets.
(To color my comments: my situation is ER trying to make a large portfolio that is 99% taxable last 45 years)
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Re: REIT question

Postby abuss368 » Mon Aug 26, 2013 8:57 pm

longview wrote:
abuss368 wrote:Read "Unconventional Success" by David Swensen. He recommends 20% (30% of equity) allocated to REITs. He specifically mentions the Vanguard REIT fund (not the international fund).


But isn't he dealing with endowments (which don't pay taxes)? I would think taxes of REITs vs taxes of equites need to knock REITs down a few pegs, at least for the highest tax brackets.


Correct. David Swensen is the Chief Investment Officer for the Yale University endowment. He has authored two books: Pioneering Portfolio Management for endowment investing and Unconventional Success for individual investing.

In Unconventional Success he states that Real Estate is a separate asset class and specifically mentiones the TIAA-CREF fund and the Vanguard US REIT fund.
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Re: REIT question

Postby nedsaid » Sat Aug 31, 2013 11:49 am

I wanted to respond to LH on the topic of valuations.

Can markets be irrational? Yes. When internet stocks with no earnings and in some cases no revenue got bid up and up, this is irrational. That whole internet craze and dot com craze was a classic market mania. Was there efficient pricing there?

What you are ignoring is human emotion, human nature, and human behavior. What we do know is that there are cycles of greed and fear in the market. We can see these cycles in thousands of years of human history.

You are assuming that markets are rational and that investors are rational. That is a very big assumption. I would assert that quite often they are not. Over the longer term, markets are very efficient and very rational. In the short term, the market can experience emotional meltdowns and exhibit a high degree of irrationality. Exhuberance in a market mania or sheer terror in a panic can have a dramatic effect on the price the market puts on assets. It is irrational to take advantage of these events when they occur?

I will say it again, if valuations did not matter, one could chase performance at their hearts content. Chase performance and it wouldn't matter. Your odds for success in the stock market would have been just as high in 2000 at the peak of the mania than they were in early 2009. Of course, no one really believes that.
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Re: REIT question

Postby Pajamas » Sat Aug 31, 2013 12:26 pm

As others have pointed out, this question makes a presumption that interest rates will rise.

I remember thinking that interest rates would rise ten years ago in 2003 or 2004 and discussing with a retirement plan adviser what a bad time it would be to invest in bonds. Interest rates did rise a bit over the next couple of years but are significantly lower now and bonds would have made a good investment.

On the other hand, I encouraged relatives to invest in i-bonds in 2001 thinking interest rates would go lower, which they have. They have been happy that they locked in the 2001 base rates on the i-bonds instead of putting cash in CDs or money market funds.

Bottom line, you don't know what interest rates will do over the next couple of years. They could stay roughly the same or go higher or perhaps even go lower. You should invest with the awareness that you cannot predict what interest rates will do in the future.
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