kcchongnz blog
Investing in Real Estate Investment Trusts (REIT) kcchongnz
"When you locate a bargain, you must ask, 'Why me, God? Why am I the only one who could find this bargain?'" - Charlie Munger
“Dear KC Chong, May i get your opinion, I am planning to use margin to trade reit, let say put 100k in FD, can use 250k for margin.....FD rate around 3.5% and interest ( 6.85-2= 4.85%), if REIT can give 6% per year, that mean i earn 6+3.5= 9.5%, net i earn 4.65% (9.5- 4.85= 4.65%), can this idea works?”
My reply to the margin financing part to “trade” Reits was instantaneous and instinctive, like seeing or encountering a devil:
“No! No margin finance. Any margin financing for buying stocks is a bad idea. Read here:
http://klse.i3investor.com/blogs/kcchongnz/61822.jsp
Read it. Understand it and get it into the “save” button in your head and remember well.”
I didn’t know if he heeded my opinion. If he didn’t, it is no big deal as although the market has dropped quite severely at the second half of December 2014, it has recovered somewhat but still a few percentage point loss since then. But what is the point of investing when you have to encounter sleepless nights, and instead of earning some reasonable return, ended up paying for the upfront and setting up fees and interests for the margin financing? And now still have sleepless nights worrying if the market is going to crash soon?
What about the second part, “borrow at 4.85% and get 6% distribution every year for a net gain of 1.15%?” Some more another “3.5%” capital gain (?) is added by him above to give an amplified return of 4.65%. Isn’t this a perfect risk-free arbitrage? I love risk-free arbitrage.
“Sounds fantastic. Why not sell all your underwear also and borrow more to buy loads of them, 10m, 100m margin finance?” I said tongue-in-cheek to him.
The above is the perfect sales pitch of an investment banker advising his wealthy client to use margin finance for investment.
What is REIT?
A real estate investment trust or REIT is a tax designation for a corporate entity investing in real estate which reduces corporate income taxes. The REITs, in return, are required to distribute 90% of their income into the hands of the investors. The structure of the REIT is designed to provide a similar vehicle for investment in real estate as unit trusts provide for investing in stocks.
Listed REITs are traded on Bursa like shares of common stock. This allows investors to become exposed to real estate without having to involve themselves in private investment outfits or direct ownership. Typically, real estate investment trusts own offices, apartments, and other kinds of commercial real estate, including warehouses, shopping malls, hospitals and hotels.
The Pros of REIT
Many rich individuals in Malaysia own a number of properties. Property investment has been a very popular investment in Malaysia, Singapore, New Zealand, Australia, China, Hong Kong and almost everywhere in the world. It is the source of enormous wealth. Unfortunately, it’s not an easy one for most investors to gain access to. Each property is unique, transaction costs are very large, sales occur only occasionally, and market knowledge is often local and restricted, making this an insider’s market.
Many investors want to invest in real estate but do not want to deal with the problems associated with owning property directly such as getting tenants, dealing with tenants who damage your property, managing the properties, chasing monthly payments from tenants, paying quit rents and assessment etc. Real estate is far from passive. Many people, have bought and then subsequently sold their properties because of this.
Real Estate Investment Trusts (REIT) solve those problems. REITs are special investment vehicles that hold real estate and distribute 90% of their income to unit holders as required by the statutory. This often provide a yield of 5%-6% each year, higher than the bank fixed deposit rate. Hence this appeals to retirees who depend on some regular income in retirement. It also appeals to investors who like to use other people’s money, like the above, borrow at 4.85% and get a total return of 9.5%, an arbitrage gain of 4.5%, so they think. There are tooth fairies flying around everywhere in Bursa.
Another argument of proponents about REIT is it is a good hedge against inflation. As inflation rises and things become a lot more expensive, REITs which holds portfolios of properties will rise in price according to the rate of inflation. How about investing in individual property stocks? Don’t property stocks also hedge against inflation, and why must they be Reits?
Financial advisors also work in cohort with unit trust funds promoting investing in Reits claiming that they have little correlation to the stock markets. They claim that when the market goes down, Reits are little affected (but not the other way, they said). That means they are good candidates for diversification and can over time reduce portfolio risk and increase returns in a properly structured portfolio.
With a volatile market now, more people are contemplating to invest in REITs as a safe investment, for a higher dividend yield and hence better and more dependable return from the market, so the story goes.
The Cons of REITs
Nothing in this world is perfect, so is investing. The following summarises some of the cons in investing in REITs.
One of the major problems when buying REITs is the lack of control. When buying you make a number of assumptions that you may not be aware of such as the value of the assets they hold and the benefits of professional management. You have to trust that they are doing a good job and are not using Hollywood Accounting.
There are significant problems with the valuation of real estate in today’s market, you also have to consider that REIT’s will also take a severe hit if valuations of real property fall.
As a REIT is bounded by regulation to distribute at least 90% of its taxable annual income to unit-holders, but there is no guarantee that the REITs will be able to continue to rent out its properties. Hence there is no guarantee that you will get that income.
After distributing the bulk of its income, very little is left to engage in expansion programs. Therefore, REITs tend to require the injection of new funds from either its existing owners (in the form of rights issues) or new owners (in the form of private placements; which will dilute the interest of minority shareholders) when it needs to acquire new properties. As an investor, the implication is that investing in a REIT might require you to fork out additional capital once in a while to subscribe for those rights issues. Many investors buy into REITs for their high dividend yields for a potentially large stream of passive income. But, a REIT’s fund raising exercises might just result in an overall cash inflow that’s tiny, or in the worst case scenario, even negative.
REITs are like stocks. Their share price fluctuate with the market. When the market drops 30%, it can drop 30% too. If you use margin to invest and if that happen, you have to top up your margin, failing which the broker will force sell your shares, at any price to protect themselves. If that happen, you have no chance to recover, even though the market will recover eventually.
When looking at real estate investment trusts (REITs), many investors are usually fixated on their financial figures like the growth in their distributions per unit (DPU), distribution yields, gearing ratios and the price-to-book (PB) ratio. However, many may fail to see that there’s another important aspect of a REIT to look out for: The amount of fees paid out to the manager of a REIT. Generally, there are four main type of fees that the managers would be entitled to. These are the killers. With all these fees, how can shareholders make money?
- There is a base fee that unit-holders have to pay the managers regardless of the performance of the REIT. This ranges from 0.1% to 0.5% of its total asset.
- Then, there is a performance fee where the managers are rewarded based on meeting certain targets. However, there is no standard structure for the performance fee and each REIT has its own version of performance fee.
- Lastly, there are acquisition fees and divestment fees for the managers every time a property is bought or sold. This ranges from 0.5% to 1.5% of the transacted amount.
The bottomline is; do Reits provide better total return including dividend and capital gain with less risks for investors? What are the evidences for Reits listed in Malaysia?
The total return of Malaysian REITs in the last 5 years
I managed to list out 12 REIT stocks listed in Bursa which have a record of long enough 5 years price history from 1st March 2010 to 28th February 2015 as shown in the chart below.
The daily share prices of the REITs were obtained and downloaded from Yahoo Finance website below with the prices adjusted for all distribution.
https://nz.finance.yahoo.com/echarts?s=5106.kl
Out of the 12 REITs, all outperformed the broad market of a total cumulative return (TCR) of 41.9% of KLCI for the last 5 years as shown in Table 1 in the Appendix. The average TCR of the 12 Reits was 81.1%, or a compounded annual return (CAR) of 12.2%. The TCR of the twelve Reits doubles that of the broad market. It is not bad at all.
The best REIT to invest in was Axis-Reit which provides a TCR of 158%, close to 4 times the TCR of the broad market. The next are Alaqar and SunReit which return 133%, more than 3 times the TCM of the broad market. Atrium Reits (92.1%) and Hectar Reit (94.7%) did very well too. So far for the experience in Malaysian Reits, they were really great investments.
But how are their returns as compared to individual property stocks? There were really plenty of good and undervalued property stocks 5 years ago, weren’t there? Let us look at some of property stocks which many of them were asked by i3investor forumers a couple of years ago when we were discussing about some investment strategies such as the Magic Formula, Graham Net Current Asset Valuation and ColdEye five yardsticks etc for investing. I didn’t specially pick them for comparison.
Return of Some Property Stocks
Table 2 in the Appendix shows the property stocks we were talking about. Imagine if you have invested in Hua Yang 5 years ago, your TCR is 915%! How is this compared to Axis Reit of 158%? Even if you invest in some other property stocks such as MKH (+331%), KSL (+298%), PJDevelopment (+262%), Tambun (+228%), or Crecendo (+199%), their TCR are still much better than Axis Reits of 155%. The average TCR of the portfolio is 243%, 6 times the TCR of the broad market of 42%, and exactly three times the TCR of the portfolio of Reits of 81.1%. Every single stock outperformed the broad market by a very wide margin. Figure 2 below shows the results.
Oh I forgot about one of my “favorite” stocks as shown in my post here, Ivory Property:
http://klse.i3investor.com/blogs/kcchongnz/45373.jsp
During the same period, Ivory Property lost 68% of its value when its price fell from RM1.30 to just 41 sen. Does it justify my continuous hammering the management of this company?
What about the claim of lower risk of investing in Reits? Or is it?
Performance of some Reits during the US Sublime Housing Crisis in 2008
During the US sublime housing crisis in 2007-2008, the broad market dropped by 40% in just 10 months from 1445 points to 864 points in 30th September 2008. Axis Reit dropped from the adjusted price of RM1.90 to RM1.01, or 47%. Hectar Reit performed even worse. It dropped by 52% from RM1.55 to just 74 sen during the crisis.
So are Reits that safe? They don’t correlate with the falling market? What would happen if you have taken a margin financing to buy some Reits and encounter such a market fall?
So Should You Buy A REIT?
Go ahead and buy if you think the real estate market fundamentals are still healthy. However, if you think that current valuations of real property are too high, don’t buy REITs as an alternative…they’re just as vulnerable. The values of their assets are linked to the real estate markets.
REITs are not as safe as bonds which bond holders have the first right of the claim of a company’s assets before the equity or Reits shareholders in case of liquidation of the company. If you buy the bond of a company with stable earnings and cash flow, and a healthy balance sheet, it is much safer than a Reit.
Most of all, the Reit management is pressured to buy properties even if they are expensive as they have to prove that they are wisely investing shareholders money. The management can’t sit around with piles of cash even when they should. That won’t be the best interest of shareholders. The management also has their incentives and self interest, which often are not be the same as yours.
And most of all, don’t use margin, or leverage, to “trade” in REITs, or any other stocks for that matter. If you haven’t taken anything from my articles, please at least take this one.
And doesn’t it justifiable to have some analytical skill to chose a good company to invest at a bargain price as there is a wide divergence in return investing in individual stocks? Isn’t it important to know the language of business, ie know how to read and analyze financial statements, some valuation techniques to find winners and avoid the potential losers?
For enquiry, please contact me at
ckc15training2@gmail.com
K C Chong (8th March 2015)
Appendix
Table 1: Five year return of Reits
|
No |
REIT |
Code |
1/03/2010 |
28/02/2015 |
Return |
CAR |
|
1 |
AHP |
4952 |
0.750 |
1.14 |
52.0% |
8.7% |
|
2 |
AMFirst |
5120 |
0.650 |
0.950 |
46.2% |
7.9% |
|
3 |
Alaqar |
5116 |
0.600 |
1.40 |
133.3% |
18.5% |
|
4 |
Arreit |
5127 |
0.670 |
0.900 |
34.3% |
6.1% |
|
5 |
Atrium |
5130 |
0.63 |
1.21 |
92.1% |
13.9% |
|
6 |
Axreit |
5106 |
1.43 |
3.69 |
158.0% |
20.9% |
|
7 |
Hectar |
5121 |
0.76 |
1.48 |
94.7% |
14.3% |
|
8 |
Qcapita |
5123 |
0.72 |
1.24 |
72.2% |
11.5% |
|
9 |
Sunreit |
5176 |
0.7 |
1.63 |
132.9% |
18.4% |
|
10 |
TWRreit |
5111 |
0.82 |
1.27 |
54.9% |
9.1% |
|
11 |
UOAreit |
5110 |
0.94 |
1.57 |
67.0% |
10.8% |
|
12 |
YTLreit |
5109 |
0.59 |
1.03 |
74.6% |
11.8% |
|
KLCI |
1283 |
1821 |
41.9% |
7.3% |
||
|
Mean |
81.1% |
12.2% |
||||
|
Median |
73.4% |
11.6% |
Table 2: Return of some property stocks
|
No |
Company |
Code |
1/03/2010 |
28/02/2015 |
TCR |
|
1 |
Crecendo |
6718 |
0.84 |
2.51 |
199% |
|
2 |
Daiman |
5355 |
1.27 |
2.60 |
105% |
|
3 |
Glomac |
5020 |
0.43 |
1.00 |
133% |
|
4 |
Hua Yang |
5062 |
0.20 |
2.03 |
915% |
|
5 |
KSL |
5038 |
0.55 |
2.19 |
298% |
|
6 |
Mahsing |
8583 |
0.97 |
2.03 |
109% |
|
7 |
MKH |
6114 |
0.71 |
3.06 |
331% |
|
8 |
PJD |
1945 |
0.42 |
1.52 |
262% |
|
9 |
Plenitude |
5075 |
1.30 |
2.32 |
78% |
|
10 |
Tambun Indah |
5191 |
0.57 |
1.87 |
228% |
|
Mean |
243% |
||||
|
Median |
213% |
||||
|
KLCI |
1283 |
1821 |
42% |
||
|
Ivory Property |
5175 |
1.30 |
0.41 |
-68% |
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Discussions
6 people like this. Showing 50 of 50 comments
This fact surprised me
"Performance of some Reits during the US Sublime Housing Crisis in 2008
During the US sublime housing crisis in 2007-2008, the broad market dropped by 40% in just 10 months from 1445 points to 864 points in 30th September 2008. Axis Reit dropped from the adjusted price of RM1.90 to RM1.01, or 47%. Hectar Reit performed even worse. It dropped by 52% from RM1.55 to just 74 sen during the crisis."
I always thought that dividend paying stocks were defensive and wouldn't drop as much in bear markets. I guess when market is irrational, there is no place to hide.
2015-03-07 22:30
That is Right Noby. That is the Story of Supply Side Banker who promotes REIT.
2015-03-07 22:38
To be fair I am not saying it is Bad. But it will be sub par return over a long period of time compared to good property companies.
2015-03-07 22:44
if u look at warren buffett's investment records, reits is definitely one of his buy.
2015-03-07 22:46
Why KC Chong never recommend Hua Yang. If you read his blogs carefully he recommend Plenitude and Daiman. He condemned Ivory. Can someone check whether Cold Eye ever own it?
2015-03-07 22:59
Yes, Reit is not defensive.
I bought Hektar Reit at RM1.00 & Sold off at RM1.40 before Lehman Brothers Debacle. Later I bought back Hektar Reit around 70 cents. Hektar Reit crashed 50%
Look at it this way.
Suppose you have a collection of 20 houses giving an average of 10% rental yield a month. In a Market Crash Property Values do fall together with rental. Why?
If people suffer lost in share market they might be forced to liquidate their properties. And for those who rent they will move out to cheaper rental properties. So the collective value and yield of 20 properties will fall in tandem.
That's Why ALL REITS LIKE HOUSES, SHOPS & FACTORIES Will Also Fall Down in A Market Crash. And since Management Still Take a fee in good or bad times Reits Will Even Bleed More Losses in Bad Times.
2015-03-07 22:59
Think about the whole process of Reit creation.
It starts with a good property companies with Rich property on hand which then wants to liquidate them for certain reasons.
If we like REIT so much, we should really like the good property company which can have the ability to create another REIT, fair?
2015-03-08 00:28
KC, for trading matters as you mentioned few times. I have seen some extra ordinary successful commodity traders with good trading systems. Sometimes, very extraordinary gain. Sometimes small gain, sometimes small losses, sometimes few losses in a row. But overall result is fantastic month over month. Their trading records is there for you to verify.
Not in trading stocks as in stocks market we are dealing with very long term trend Not so much with short term trends and volatility.
2015-03-08 00:55
ks55, I kind of agree with you that REITs are more suitable for passive investors who need regular income as they are obliged to pay the dividends.
But the dividend is not guaranteed, what you see as 7% today is based on 90% of historical earnings. If their future earnings drop by 50%, the dividend yield will drop correspondingly as they have little or no excess cash to maintain dividend payout. So while it is compulsory for them to pay a dividend, the payment will be only based on a percentage of their earnings.
I do agree that beta for REITs is lower than other stocks. This is more related to the perception of the public that this type of asset class is more defensive (due to its dividends) despite the fundamentals suggesting otherwise.
2015-03-08 01:41
wah...i am really learning a lot here.... thanks for sharing KC, ks55, Noby, Kean leong and all who are coming out with some tangible infos.
2015-03-08 01:49
It surely is part and parcel of asset allocation much alike fixed income. If price drops, yes, we should Buy more.
In market, we nonetheless should focus on Business which has ability to Grow and create value for shareholders for a period of time. Well, surely if management fails to deliver, price will be punished. In times of uncertainty, price will be much more volatile.
Still, i totally agree this is Not the market to Trade.
2015-03-08 01:55
But dont mix up cash and REIT as we thought cash and REIT is same. As i mentioned if price of REIT drops you Buy more. But now we dont have anymore cash, how are we going to Buy more?
So cash is a different asset class of its own.
2015-03-08 02:01
Posted by truthseeker1 > Mar 7, 2015 10:59 PM | Report Abuse
Why KC Chong never recommend Hua Yang. If you read his blogs carefully he recommend Plenitude and Daiman. He condemned Ivory. Can someone check whether Cold Eye ever own it?
Me: This is a very interesting comment and I wondered why was it flagged. It is interesting as the writer of that comment is a perfect object for study of psychology; the psychology of the mindset of negative people of energy vampires.
1) Yes, you are right. I never recommend Hua Yang, neither do I recommend Crecendo, MKH, Tambun etc. In fact those who read my posts they will know I have said I know little about property companies and I admitted it a number of times, and I never recommend anyone to buy any share. As I have mentioned in this thread, they were raised by other forumers in my thread such as the Magic formula, Graham net net, Coldeye etc and I gave my comments after looking at their annual reports.
I wrote about KSL (+298%), Daiman (+105%, Plenitude (+78%), and PJD warrants (+100%+)in i3, quite a lot. But those articles were for knowledge sharing, and not stock recommendations. The return of Daiman at 105% and Plenitude of 78% is more than twice the return of KLCI of 42% during the same period. Anything wrong with my sharing of those articles? What about KSL which returned 298%? You never mentioned it in your post?
See what I mean by "Energy Vampire"?
2) I condemn Ivory? No lah, I share my analysis and comments on the management actions and the extremely poor performance of Ivory, and many other lemons, many times in i3. Ivory share price dropped by 68% while the broad market went up by 42% during the same period.
So what is wrong with my analysis, and what are your complaints?
If you heed my comments, you would have made tons of money investing in KSL, and save your heavy losses in Ivory. Some more acts like an energy vampire, all the time, endlessly. Padan muka.
3) Cold Eye owns Ivory? I don't know and don't care. But you mean everyone must own Ivory when Cold Eye bought it a few years ago, like you do? What is your investment thesis in Ivory? Cold Eye asks you to "cheak sai" you also cheak ah?
For me, I have written something about it here plus many comments in i3:
http://klse.i3investor.com/blogs/kcchongnz/45373.jsp
Where is your writeup? No I am not going to condemn you making a mistake in its share price or for promoting this thrash, knowing very well nobody can predict share price movement, but just to discuss with you your investment thesis on Ivory if you have any.
Ivory is just one of scores of stocks in ColdEye's portfolio. He made tons of money in his other stocks. He did make some mistakes in a few stocks. Doesn't everyone make any mistakes in investing?
Of course, no one is as good as you; never lose money in any stock, never made any mistake.
2015-03-08 02:45
Thanks for the research kc. My experience tells me the only time to invest in REIT is when interest rates are rock bottom and every other asset class is already inflated. This situation forces investors hungry for yield to pile into reits. Being supposedly conservative, they are often the last asset class to appreciate. This happened circa 2011-2012 in Malaysia and 2014 in Australia. Reits in australia returned in excess of 20% in share price appreciation alone last year. I made a nice sum from boustead REIT during this period, but otherwise I won't touch it.
2015-03-08 07:55
Posted by Kian Leong Lim > Mar 8, 2015 08:06 AM | Report Abuse
What we usually learn from smart people are how to make mistakes?
There are indeed a lot of smart people in this thread. But with your mindset and mentality, your sentence is not right above. You have to change that "we" to "I".
For others people, please change the word "make" in your sentence to "avoid".
2015-03-08 08:37
KC, the best way to deal with these clowns is to just ignore them. One is a tin kosong who acts like an expert and another is a just a problem maker. Dont waste time writing long replies to them as they probably dont ynderstand even 10 pct of what you say. Their comments are not worth to respond to. I think 99pc of the i3 members appreciate what you hv contributed.
2015-03-08 09:01
kcchongnz, how about getting margin finance and buy risk free bond like sukuk?
2015-03-08 12:00
Tell me your margin fiance rate, cost of setting up, Sukuk price, face value, its coupon rate, year to maturity, your intention for holding for how long you intent to hold etc.
Otherwise can't answer you.
I doubt the return can cover your costs, even if it does, doubt you have any worthwhile margin.
2015-03-08 12:11
And if interest rate goes up, you lose value in Sukuk bond, or any bond for that matter. And your margin finance interest rate will go up as it is based on base lending rate. A double whammy.
Margin finance doesn't sound good for any investment thing, generally, not for ordinary people.
There ain't tooth fairy in investment banks.
2015-03-08 12:18
value88...dont la neglect clown...we also need them.
If the person is sincere and very confused...we need to help them out laa...
2015-03-08 15:45
what about the second part, “borrow at 4.85% and get 6% distribution every year for a net gain of 1.15%?” Some more another “3.5%” capital gain (?) is added by him above to give an amplified return of 4.65%. Isn’t this a perfect risk-free arbitrage? I love risk-free arbitrage.
kc
Some more another “3.5%” capital gain (?)
3.5% is not capital gain la maksud dia 3.5% FD interest rate on his 100000 la
jadi net gain dari reit 1.15% tambah FD 3.5%...4.65%
kalau beli reit tu masa harga masih murah mungkin dapat capital gain lagi... semua risk free kalau market ok
2015-03-08 18:03
kc
Oh... nanti nanti
I silap sikit kc u pun dah silap sikit....
Total return dia bukan 4.65% je
REIT return is 1.15% on 250000 = 2875
FD is 3.5% on 100000 = 3500
All 6375... and capital dia 100000 only so return 6.375% risk free
2015-03-08 18:14
Nampak ok kan
Maybe dont use margin to full 250000 guna 225000 ke 200000 ke can sleep la
2015-03-08 18:16
kc
Now that u see correct return is 6.375% risk free, macam mana can pakai or not cara ni guna leverage beli REIT... lagi risk free.. lagi mungkin capita gain lagi
guna margin financing for leverage dan beli REIT lagi... all against your advise
2015-03-08 18:51
Posted by AzmiMerican > Mar 8, 2015 06:51 PM | Report Abuse
kc
Now that u see correct return is 6.375% risk free, macam mana can pakai or not cara ni guna leverage beli REIT... lagi risk free.. lagi mungkin capita gain lagi
guna margin financing for leverage dan beli REIT lagi... all against your advise
Me: Correct return? Risk free? Capital gain?
Non of such thing in Bursa. None of them in investing in Reits, or any investment.
"When you locate a bargain, you must ask, 'Why me, God? Why am I the only one who could find this bargain?'" - Charlie Munger
Try understand what the article is trying to convey, and read some of the good comments in this thread and you may understand.
I am giving my opinion, not advising you. If you still think it is a good idea to use margin finance, go ahead. It is your choice.
2015-03-08 19:06
I silap sikit kc u pun dah silap sikit....
Total return dia bukan 4.65% je
REIT return is 1.15% on 250000 = 2875
FD is 3.5% on 100000 = 3500
All 6375... and capital dia 100000 only so return 6.375% risk free
6.375% return salah ke... abih correct return berapa??
2015-03-08 19:13
Azmi, you kira saham naik saja. Kalau saham yang dibeli turun dan kena margin call, macam mana kira?
2015-03-08 19:16
Azmi how you justify the REIT return is risk free ? The REIT cannot lower the dividend ? The REIT price cannot fall ?
2015-03-08 19:16
Reit dan semua saham subject to drop kan?? Semua sama subject to market kan?? Saham Reit semua
2015-03-08 19:20
Azmi should be correct. But personally speaking 6.375 pct is not worth the risk of taking margin finance.
2015-03-08 19:41
Instead of using 100K FD to get 250K margin, He should use that 100K cash to buy shares first, then use these shares to apply for 150K margin. Now his anticipated return would be (100K*0.06+150K*(0.06-0.0485))/100K=7.725%.
2015-03-08 20:26
BDB adalah rezeki sikit.
Saya pun tahu main margin bahaya, market tak tentu kan. Terima kasih la I ucapkan for your advise.
2015-03-08 22:45
Wong Heam Kiew
Wah... you betul betul know benda ni... maksud you 100000 pun jangan put in FD sebab return tak cukup.
You mesti kaya la... you pernah try in real live??
Ada tricks lain??
2015-03-09 00:23
Wah Azmi, bahaya... you mesti faham kalau pledge shares bahaya ialah bila bila masa bank boleh designate itu share.. makna kalau exposure bank too high on one particular share , nilai cagaran saham itu boleh dikosongkan begitu sahaja... Masa tu, kalau you leverage maximum, you mesti kena margin call... advise is kalau nak guna margin, pastikan faham betul betul risiko kerana kalau menang, menang besar, tapi kalau kalah pun kalah besar...
2015-03-09 09:32
Posted by Wong Heam Kiew > Mar 8, 2015 08:26 PM | Report Abuse
Instead of using 100K FD to get 250K margin, He should use that 100K cash to buy shares first, then use these shares to apply for 150K margin. Now his anticipated return would be (100K*0.06+150K*(0.06-0.0485))/100K=7.725%.
Good comment here. Let us put aside your own money of 100k which subjects to the same risk return of investing aside and focus on your 150k margin.
Your expected return on Reits of 6% less of the interest of 4.85% gives you a return of just 1.15%. Actually the future outcome can be better, say 10%, we just don't know. but since we are more concern about risk, let us focus on this risk thingy.
Your risk can be the broad market can drop by say 40% and individual Reit by 50% as shown in the US Sublime crisis which affected Bursa in 2008 and as described in this article itself.
Does an expected return of 1.15% justifies the potential loss of 50%?
Wont happen? Didn't I say it just happened in 2008 (-40%), or 7 years ago? Heard about the Internet bubbles in 2001 (-42%), the 1997 Asian financial crisis (-57%) followed by Anwar saga (-58%)? The Second board meltdown in 1997 (-68%)? A small scale but still significant down market in 1994? Black Monday in 1987 (-46%)?
This time is different? Are you aware that the market cycle is about 5-7 years as shown in the history of US market as well as the more frequent happenings in Malaysia? And when was the last big market down turn and just how many years ago?
Still envy of people saying they made millions using OPM, but forgetting how much they have lost?
2015-03-09 19:24
kcchongnz, I dun encourage people to use margin. But if they can handle and insist to use margin, I just wanted to point out that it is better to use shares instead of FD to get margin facility. And the other better alternative to get leverage is to trade call warrants instead of margin. For example, to buy FBMKLCI-CR at RM0.15 at yesterday closing, it is equivalent to get financing to buy a basket of blue chips at an interest rate of 6.1% per year, the "interest" is actually the premium and loss of dividend, the beauty is if market crash, the call warrant holders are not required to be responsible beyond the amount that already paid.
2015-03-10 10:22
Posted by Wong Heam Kiew > Mar 10, 2015 10:22 AM | Report Abuse
kcchongnz, I dun encourage people to use margin. But if they can handle and insist to use margin, I just wanted to point out that it is better to use shares instead of FD to get margin facility. And the other better alternative to get leverage is to trade call warrants instead of margin. For example, to buy FBMKLCI-CR at RM0.15 at yesterday closing, it is equivalent to get financing to buy a basket of blue chips at an interest rate of 6.1% per year, the "interest" is actually the premium and loss of dividend, the beauty is if market crash, the call warrant holders are not required to be responsible beyond the amount that already paid.
Me: I Used to play a little on call warrants since 5-6 years ago and initially made some money. However, I have given back all I have made and donated more. I didn't place much chip in each bet, but still lost a few thousands here and there.
Mind you I made use all what I learned and experience in this gamble.
The play field for call warrants is very uneven here. I have given up this terrible game some time ago. It is not wise to dabble in it in Bursa.
2015-03-10 11:56
Good sharing and enlightening discourse here. REITs are also my favourite.
2015-03-16 00:04
Hi there I am looking at the recent big move by Pleitude bit cannot work out if it will add value to the company long term. Can you advise please.
2015-03-23 13:17
ks55,
I have shown that in a rising market, individual property stocks have done much better then REITs. In a down market, I fully agree with you that Reits will fall less than individual property stocks.
This is understandable as Reits hold a portfolio of properties, and hence are less volatile than an individual stock.
2015-08-07 16:37
either Reit or any property counter are not safe at this moment as most property companies are facing sale problem, if the predicted crash come in , most company even reit will fall like durian, may be it may even fall below 2010 level as seen in KC appendix table 1 and 2, my advice is sell out all reit and property counter when your profit hit your target, temperory keep in short term FD and pray a big crash for you to reinvest. selling before a big fall is better than looking for a small up side gain. i bought reit in 2009 and bought more on 2010, today my targeted profit and dividen returned for six years with capital gain added up by seven figure, may be time to run after reading this article. thank KC for your advice, you got a good point.
2016-10-09 03:40
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
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That is Right KC. If you like believe in REIT. You should Buy good Property stocks. Think about it.
2015-03-07 21:59