REITs on the edge: Time to buy, hold or fold?
Back to the Lows
Sept 2024: Are we too late to still buy REITs?
Nov 2024: Frankly, are REITs actually investable?
Some of the Singapore REITs have returned to almost the same levels as in July, before the rate cuts were announced. To put things into perspective: disregarding distributions, most REIT investors would have generally lost money on their capital over the last decade. The upcycle many investors have been waiting for seems elusive the last couple of years.
Sometimes, market cycles are shorter or longer than expected. Unfortunately (or fortunately, depending on whether you’re still accumulating), this time it’s taken a bit longer.
Understanding market cycles
However, the fact remains that cyclical downturns in the markets don’t last forever, even if they sometimes feel like they will. Understanding where we stand in the cycle could make all the difference in how we approach this. We recall that billionaire investor Howard Marks famously described the evolution of a bull market in three stages:
1st Stage: Very few investors understand that there could be an improvement from here. We see little optimism. This is when we can find bargains.
2nd Stage: Some investors understand and can see that some improvement is taking place. They follow the cycle. But they get it at just a fair price.
3rd Stage: This is when most investors think that things will get better forever. Prices now reflect great deal of optimism. Investors pay high prices, which sets them up for minimal gains or perhaps substantial losses in the future.
Think Independently
The key is to understand where we are in the cycle and to practice contrarian behavior based on the underlying assets. People rarely do what they are supposed to do especially at the extremes. We can apply this also to the US markets, Singapore banks and China markets and ask ourselves where do we think we stand.
But in the near to mid term, a contrarian may and can seem to be wrong because the excesses continue with people getting excited and the high continues to get higher. The same goes for the corrections as the pessimists continues to get even more pessimistic. It is hard to be cautious near the top as the high in prices correspond to the high in emotions. Similarly, it is hard to be greedy near the bottom as emotions are also at an all time low with all the bad news.
That is why investing can be simple to understand in theory, but not easy to execute in practice.
(This post first appeared on our public Telegram channel - FIRE with The Joyful Investors. Join our channel for more real time investing insights.)
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