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The 5 Major Types of REITs to Have in Your Portfolio

For many who want to invest in the Singapore property market but do not have much capital, REITs (Real Estate Investment Trusts) provide a cheap way for investors to add this asset class to their portfolio.

But what should we be looking out for when we invest in REITs?

What to look out for?

Firstly, you want to look for low gearing, which is a measure of a company’s financial leverage and shows the extent to which its operations are funded by lenders versus shareholders. Next, you want to do a quite calculation to make sure it has a high NAV (net asset value), which is measure of what its actual assets are worth. However, there numbers could sometimes be misleading.

One of my favourite approaches is to simply look for a high distribution yield, since that would be the most direct measure of your potential returns. Based on the formula, the best time to buy would be when prices are depressed and yields are high, assuming the payout does not change. This means that we also need to check the consistency of payout.

My strategy is to have a shopping list on hand, and have a preset yield in mind, for example >8%, and simply wait for prices to drop and the yield to increase and hit your target yield. Since the market moves in cycles, all it takes is an understanding of Portfolio Strategies and a lot of patience.

5 Major Types of  REITs (Real Estate Investment Trusts) in Singapore

5 Major Types of REITs (Real Estate Investment Trusts) in Singapore

 

To help you plan your shopping list, here are the 5 major types of REITs:

 

I hope that this has given you a good idea on what to look out for in REITs, and how to start building your shopping list by having a mix of different types of REITs to provide both capital appreciation and passive income.

Stay tuned for our next post! 😀

Market Seasonality and Patterns – When is the Best Month to Buy?

One aspect of market analysis is statistical analysis, which is using statistics to find correlations and patterns, where opportunities of skewed probabilities may lurk, giving you an edge over the market in the long run. For investors, this lets you know the best month to start building your portfolio, or to rebalance/adjust your portfolio allocation.

Market Seasonality and Patterns - When is the Best Month to Buy?

Market Seasonality and Patterns – When is the Best Month to Buy?

Seasonality is a characteristic of a time series in which the data experiences regular and predictable changes which recur every calendar year. Any predictable change or pattern in a time series that recurs or repeats over a one-year period can be said to be seasonal.

This is different from cyclical effects, as seasonal cycles are contained within one calendar year, while cyclical effects (such as boosted sales due to low unemployment rates) can span time periods shorter or longer than one calendar year.

For the Singapore stock market, I have done a seasonality study, showing which months are more bullish and bearish. Contrary to popular belief, October is actually a rather bullish month. Every month has its unique characteristics, which skews the probability. As a trader,anything that tilts the probability in our favour is considered an edge.

Here are the results of my research:

There are many other patterns (some less obvious) which could have a significant impact on the stock market. Although your trading decisions should not be based solely on these, they can act as a powerful confirming indicator, or help you adjust your position-aggressiveness.

Superior Long-term Investing: How to Catch the BIG Swings

There is a general misconception that chart-reading and technical analysis are only for short-term traders, but this is not true. Investors who learn to read charts and adopt long-term trend-following techniques can achieve superior returns to a pure buy-and-hold investor with the added benefit of taking on less risk.

 

Superior Long-term Investing: How to Catch the BIG Swings

Superior Long-term Investing: How to Catch the BIG Swings


 

Why the traditional buy-and-hold strategy fails

A buy-and-hold strategy only works in a prolonged bull market, or if you are fortunate enough to buy in at the start of a short bull market. As long as people keep buying a particular stock, the stock price will continue to rise, thus buy-and-hold enthusiasts will sit through minor corrections or occasional bad news, because these small events do not affect the strong fundamentals of the company.

However, when the economy turns bad, and the stock market plunges, all stock prices will plunge together. A stock with stronger fundamentals may plunge to a lesser degree, but losing less money is not the same as making money.  In a prolonged bear market, the stock beomes cheaper and more under-valued as prices fall. Many investors go on a buying spree until they run out of capital, and become locked-in, waiting for prices to “revert to true value” while the market continues to fall. It could take years for them to breakeven, let alone profit.

In such scenarios, does it make sense to hold onto long-term investments for the next few years as losses accumulate, or to add more positions since stocks are now “cheaper”? Is there a better way to avoid this pain? This brings us to the new idea of trend-following investing.

Case Study of Buy-and-hold vs. Trend-following Investing

Let us examine the chart below. This is a weekly chart of the Straits Times Index, showing the period from 2003 to 2008. This is a hypothetical case study showing 2 investors – investor A and investor B.

 

Case Study of "Buy-and-hold" vs. "Trend-following"

Case Study of “Buy-and-hold” vs. “Trend-following”

 

Both investors managed to buy near the start of the bull market, near 2003. Investor A is die-hard Warren Buffett fan, adopting a pure buy-and-hold mentality, believing that “a good company is one that can be held forever.” Note that the Straits Times Index is made up of the 30 strongest blue-chips. Investor B is an investor who uses charts to time the big market trends, willing to take profits based on charts and turn short when the charts give a clear signal.

After 5 years, investor A finds that he has made a measly 10% return, having given back most of his profits while holding on though the decline. I did not include dividends here,because investor B would also have got those dividends, for the sake of fair comparison. Investor B, having locked in a 200% return (this is not picking the top, notice that he did not sell at the exact top), goes short and makes another 50% on the decline,raking in a grand total of 200%.

Since our goal in the market is to make money, it makes sense to adopt the approach that gives us the maximum returns within our time horizon and within our risk appetite. This means acquiring skills that give us an edge over the markets.

“I believe there are no good stocks or bad stocks; there are only money-making stocks.” – Jesse Livermore. Do you agree that for any stock, regardless of its fundamentals or value, if you buy and sell at the right time, you can make money from it?

The Random Walk Myth: Theory vs. Practice

The random walk theory, which started off from academic offshoots, put forth the idea that one should give up trying to predict or beat the markets because it was impossible to do so. In theory, this theory sounds plausible, but in practice, financial history has proven otherwise, with both investors and traders consistently beating the markets.

 

The Random Walk Myth: Theory vs. Practice

The Random Walk Myth: Theory vs. Practice

 

The random walk  theory states that price history is not a reliable indicator of future price direction because price changes are “serially independent”. In other words, there is no definable relationship between the direction of price movement from one day to the next. This does not mean that prices meander aimlessly or irrationally, but it means that prices have no patterns of order within the chaos.

We know that prices are determined by a balance between supply and demand. Random walk theory asserts that prices reach that equilibrium level in an unpredictable manner, moving in an irregular response to the latest information or news release. New information, being unpredictable in content, timing and importance, is therefore random in nature. Consequently, the theory puts forth that price changes themselves are random.

Try this interesting optical illusion:


While price changes might seem random in nature, the trend of prices themselves are not. In reality, price movements contain well-known components of trend, seasonality and cycles which are not random in nature. Although these are mostly clear when prices are considered over the long-term, if one observes prices very closely in the short-run, price trends or patterns are also readily recognisable.

Technical analysis and chart-reading analyses the impact and action of market participants in response to the latest news or information. As a result, it is possible to understand what the different market participants are doing, and which way the market is likely to trend next. Besides, the market is not perfectly efficient, and reading the actions of the smart money will often alert traders to what is happening in the markets.

 

“The illusion of randomness gradually disappears as the skill in chart reading improves.” – John Murphy