A. R. Rotsevni's Instablog

A. R. Rotsevni's Instablog I am a private investor. I use and promote simplified analysis as the most understandable methodology for investment pricing. Investment selection rests almost exclusively on identifying highly skilled and motivated CEOs. I employ a simple benchmark for all investments, i.e. The Market Capitalization Rate (MCR), which equals the the long term GDP. All expected investment returns much be larger than the MCR by a Margin of Safety (MOS) sufficient to offset perceived risks. Individual stock returns are calculated using the longer term ROE trend which is divided by the multiple of BV. My investment horizon is 3yr-5yr. A. R. Rotsevni http://seekingalpha.com Global REITs-An approach to investing & Individual Suggestions http://seekingalpha.com/instablog/310799-a-r-rotsevni/25833-global-reits-an-approach-to-investing-individual-suggestions?source=feed 25833
Rational investors are not "momentary traders", but invest for the cycle within historical performance history by focusing only on those CEOs of known expertise. Investment can be through individual companies or by the use of mutual funds. The historical performance of the NAREIT(http://reit.com) and AWCI/REIT(global index) Indices is presented below, Chart 1.

Chart 1

The investment cycle can vary in length. The previous cycle began in early 2000 as investors abandoned REITs for Internet stocks during the Internet Bubble. This cycle was prolonged by excessively low interest rates and US government sponsorship of sub-prime lending which in turn led to excessive performance from a historical perspective and subsequent crash. All real estate lending is in the form of mortgages and totaled over $14Tril at the end of 2007. This almost equalled the market capitalization of SP500 of $15Tril. The importance of real estate lending cannot be overstated regarding the health of global financial systems and subsequently global economies.

REITs and other investments which are based on development of natural resources, i.e. oil, gas, copper and etc, exhibit very attractive investment properties which differ significantly from manufacturing and service based investments. Natural resource based companies depending on how they are structured can grow during both periods of inflation and disinflation. Taking REITs as the example: cash flows measured as FFO(Funds From Operations) rise during inflationary periods with mortgage costs generally fixed for periods of 10yrs or more. However, when disinflation occurs and lease rates rise more slowly, mortgages are refinanced at lower rates often at the discrecion of the REIT. Thus during disinflation REITs can lower costs and improve FFO. It is nice to have your cake and eat it too. Investors should not overlook the fact that real estate prices rise during periods of inflation and there is high demand for ownership in investment portfolios. Real estate prices also rise during disinflation periods as financing costs fall and this also causes demand in investment portfolios. Natural resource companies which have been well run, i.e. XOM, display similar net investment performances. Success is highly dependent on the skills of management.

The Rational Investor first analyzes and identifies a selection of highly qualified managers for potential investment. This is accomplished by first identifying attractive long-term price performances. Then, by carefully going through historical financial statements, annual reports and importantly "Letters to Shareholders" so that one can ascertain the quality of management and the predictability of their business forecasts. From this process a ready pool of CEOs and associated companies are available for investment when asset class Return/Risk ratios are attractive. In our current environment REITs are attractive.

Companies with highly qualified CEOs that appear attractive in my opinion include Vornado(NYSE-VNO)-Steve Roth, St. Joe(NYSE-JOE)-Britt Greene, Brookfield Asset Management(NYSE-BAM)-Bruce Flatt, Forest City Enterprises(NYSE-FCE-A)-Bruce Ratner, Brookfield Properties(NYSE-BPO)-Rick Clark, Winthrop REIT(NYSE-FUR)-Michael Ashner, Equity One(NYSE-EQY)-Jeff Olson, Prologis(NYSE-PLD)-Walt Rakowich and others. Chart 2 is that of VNO from Yahoo Finance. It should be obvious that Steve Roth has been a superb manager. But, he is not the only skilled manager in this space.

Chart 2

If one prefers a money manager, mutual funds offer multiple alternatives. My preference is the ING Global Real Estate Fd. run by Steven Burton since 11-2001, Chart 3. There are a number of other choices available. What I liked about Steve Burton is that he sold General Growth Properties well before the REIT collapse of Oct-Nov 2008 because he recognized they were likely to have refinancing difficulties in a frozen credit market.

Chart 3-Morningstar-ING Global Real Estate IGLAX

There is no simple prediction as to what price any security will rise as tax laws which are dependent on the whims of government can change the economics. One needs to monitor the asset class to determine if past performance is being repeated and if not then a decision is required.

I characterize all asset markets as relatively inexpensive with REITs particularly so. My preference is for Global REIT exposure. Treasuries are particularly expensive and can be thought of as still in a "panic bubble". I will post a discussion on valuing relative returns and how to measure the core investment benchmark, the Market Capitalization Rate(MCR) in the future.

The author is long all of the positions mentioned and has been buying since Dec08.]]> vno pld joe fur eqy bam bpo fce REIT quality management asset class cycle Carlisle Cos (NYSE-CSL) turns to lean manufacturing http://seekingalpha.com/instablog/310799-a-r-rotsevni/24636-carlisle-cos-nyse-csl-turns-to-lean-manufacturing?source=feed 24636 The 2Q09 report indicates that Roberts is having success at implementing his lean mfg concept at CSL.
CSL mainly manufactures rubber products (roofing and off road vehicle tires) and has smaller specialty truck trailer, wire harness and food service equipment businesses. Roberts is looking for acquisitions much like what Roper (NYSE-ROP), Dover (NYSE-DOV) and Danaher (NYSE-DHR) have used to build larger companies from multiple businesses by applying an efficient management process to under-managed situations. Roberts calls his process the COS.
The author is long CSL, DOV, ROP, ITW, JCI and DHR which were bought within the last 12mos and expects to hold for the next 3yrs-5yrs.]]> Wed, 26 Aug 2009 08:43:07 -0400 The 2Q09 report indicates that Roberts is having success at implementing his lean mfg concept at CSL.
CSL mainly manufactures rubber products (roofing and off road vehicle tires) and has smaller specialty truck trailer, wire harness and food service equipment businesses. Roberts is looking for acquisitions much like what Roper (NYSE-ROP), Dover (NYSE-DOV) and Danaher (NYSE-DHR) have used to build larger companies from multiple businesses by applying an efficient management process to under-managed situations. Roberts calls his process the COS.
The author is long CSL, DOV, ROP, ITW, JCI and DHR which were bought within the last 12mos and expects to hold for the next 3yrs-5yrs.]]> csl dov ggg rop itw jci Lean Manufacturing Quality Management