Monday, January 31, 2011

Of Reit, Leveraged Instrument and Leveraged Investment

When you buy a Reit, you are not a fractional owner of a string of properties. You will be another anonymous shareholder in a company that happens to be dealing with properties and returning you dividends. This is much like any other companies out there who is dealing with any other form of business(e.g, selling newspaper) and returning dividends to you.

Reits are leveraged instrument. True. So are any other companies that employed leverage(debt). It is just a matter of amount of leverage employed. But it is not the same as you leveraging your CAPITAL in your investment. You will not get the full effect of the leverage. For example, if a company by virtue of its leveraged gained 20%, the value of the company might be up by 20%. The share price might reflect the revaluation and your INVESTED CAPITAL in it will go up by 20%.  Reits behaves like any other companies with leveraged out there in the stock market.

However, if you leveraged on your investment in Reits, you will pay $20 and borrow $80 to buy $100 worth of shares in the Reit. If the same Reit have a re-evaluation gain of 20% and the share price goes up 20%, you will have essentially gotten back 100% of your INVESTED CAPITAL.

In conclusion, Reits are leveraged instrument(like other listed companies with debt) ,but it is not equivalent to a leveraged investment on your capital and you do not gain fractional ownership to properties. You are just buying a company listed in the stock market that happens to employ leveraged(like most of them) and paying you dividends(like most others) with gains that are not leveraged.

By the way, I do not recommend leveraging on your capital to buy shares. Read Createwealth8888's Understanding Debt, Risk and Leverage on the danger and risk of leverage. Though, I would think if leverage on investment is needed, the only one I would do will be properties.

Sunday, January 23, 2011

Paralysis by Analysis

More Investing and Less Analysing. Don't be paralyzed by Analysis. You can be an expert in fore-hand, back-hand, smash, volley.. but if you don't win the game, nothing else matters.

Tuesday, January 18, 2011

More retail investors...Market Crash?

Was reading thru a discussion forum and people were citing the increased coverage of media reports on bullish retail investors late to the party as an INDICATION the market is going to Crash.

I beg to differ, the appearance of more late-comers retail investors(unlike the early retail investors like ourselves) does not fore-tell a crash.
It is actually just an indication of optimism and possibly exuberance.

Exuberance will only mean PRICES of stocks will fly higher and higher..
It can go on for years...


So there is a difference.. is more retail investors a CAUSE of the Crash... or is it an EFFECT of the Optimism in animal spirits.

Saturday, January 8, 2011

Portfolio Update December 2010

2010 Year to date (YTD) Return
Portfolio 6.79%

Dividend/Interest for 2010   $191,875

Absolute Return Since 11/2007
Portfolio 12.03%

As expected, M&A activities have been going on and it might indicate the optimism of economic recovery by companies.

2008 was the year of doom, 2009 was the year of gloom/uncertainty, 2010 was the year of reviving confidence, 2011 could be the year of optimism and euphoria. If you have not enough equity allocation, allocate more(buy on dips). If you have the desired allocation, keep on the sidelines or do short-term trades (buy on dips and sell on rallies) instead.
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