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How To Win In REITs


  • New investors often have questions about our investment strategy. It’s a great topic for investors to consider. We tailor our approach to each sector we invest in.
  • For mortgage REITs, we invest for shorter periods and emphasize price-to-book ratios. Knowing how to set target ratios is important. Scott produces a great chart.
  • For equity REITs, we invest for longer periods. Consequently, the long-term growth projections for the REIT are critical. We’re emphasizing high-growth REITs.
  • In each case, we have a large emphasis on finding attractive entry prices. We're more interested in “buying low” than in “selling high."
  • If investors want to buy-and-hold, buying high-quality REITs at low prices is everything. Remember, high quality. If we want to trade a stock, buying low is still critical.
  • Looking for a portfolio of ideas like this one? Members of The REIT Forum get exclusive access to our model portfolio. Learn More »

When we begin an investment, we begin with a thesis. We have a clear reason to believe that the particular security we’ve chosen will deliver healthy returns to us in the future. We're not successful 100% of the time, but (so far) we have a very high percentage of our trades delivering positive returns. When we eat a loss, it might be small or it might be significant. The decision to eat a loss is based on a change in our expectations.

In this article, we're going to walk investors through the process that enabled us to beat the indexes for our sectors:

Source: The REIT Forum

The Mindset

We approach investments with a consideration of the potential rewards and the risks. That may seem obvious, but many “analysts” will significantly downplay the risks to give the appearance of a “great pick.” Often investors will find that another analyst can find more buy ratings than we can, even if they cover the same stocks. Why is that? In my experience, the other analyst is often less cautious about setting price targets to maximize future returns. We spend an enormous amount of time thinking about risk. When deciding to recommend a position, the majority of my research is attempting to disprove my own thesis.

Questions Before Investing

The worst question:

  • How could this stock be a great investment?

Some great questions:

  • How could this stock wreck my portfolio and my reputation?
  • What scenario could cause this to be a poor investment?
  • How can I see if that scenario is occurring?
  • What time frame am I attempting to predict? Less than six months? More than four years?

You may notice that this is a very pessimistic mindset. We don’t approach stocks with the mindset of a salesman looking for a deal. We approach

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This article was written by

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Questions? Reach me at: Michael@thereitforum.com

Analyst’s Disclosure: I am/we are long THE SHARES I SHOWED YOU FOR OUR OPEN POSITIONS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

We also own preferred shares related to the mortgage REITs. Specifically, we are long AGNCO, NYMTM, CIM-A, AGNCP, ARR-C, NRZ-B, and CMO-E. We hold some positions for long periods, but also do some active trading based on relative valuations. Consequently, our positions in any of these preferred shares may change without prior notice. Real-time alerts on all trades are sent to subscribers. We seek to provide clear guidance on what shares we are interested in buying or selling in our subscriber articles, but only a portion of that content reaches the public side.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (20)

Very nice article. Thank you.
Cuip99 profile picture
I have a position in three REITs at the moment, one mREIT, one BDC REIT and one triple net lease REIT. If I get another REIT it will probably be a cell tower operation. I am leery of to many REITs, this spread seems to suit me.
During the last 10 years my broad based portfolio had 99% gains. Your portfolio showing so many losses is not a great outcome. I sell when I see a material change in the companies management or market. It is a mistake to invest too much to in one sector and I speak as a former developer.
Colorado Wealth Management Fund profile picture
@Swimbrett I could diversify more, but an analyst should eat their own cooking. My portfolio should be a clear representation of the research I bring to our readers.

The most important measurement is the total portfolio returns and how those returns compare to the ETFs an investor might use for exposure to the same sectors. Clearly, we've been thoroughly smashing the indexes for our sectors.

Yes, we could have a higher percentage of "winners" by refusing to trade out an investment when it is down, but that would prevent us from reallocating to an even more attractive position. The end result would be lower total returns for the portfolio.

Some readers will say: "You should've just bought TSLA or Bitcoin!!"

It's not a relevant argument though, since that isn't our sector.
OldSchoolFool profile picture
@Swimbrett Does CWMFs portfolio not show the same cumulative gain after ~ 5 years?
I. M. Spartacus profile picture
@Swimbrett 99% in 10 years is not a great outcome. You'd have been better off with an S&P500 ETF.
boolanger profile picture
An epic advertisement, congratulations!
Colorado Wealth Management Fund profile picture
@boolanger I appreciate that you find the facts persuasive enough to be advertising.
Retire2020 profile picture
@Colorado Wealth Management Fund Thank you for sharing your thoughts and methodology. Most look at gaining returns but did not look at risk of loss, me included. All the best.
I. M. Spartacus profile picture
Outstanding article, CWMF. Thanks for the insight.
Colorado Wealth Management Fund profile picture
@Office Rat Happy to provide it. Thank you for reading.
Agree re challenge of determining NAV- true of certain CEFs and ETFs as well.....
Thanks for the analysis!
Colorado Wealth Management Fund profile picture
@JackCr You're welcome. The ETFs will almost always (flash crash aside) track the values of their stocks very well due to the arbitrage potential. CEFs can get pretty interesting and have some major similarities when it comes to using NAV in analysis. If you like investing in CEFs, make sure to check out @Alpha Gen Capital
@Colorado Wealth Management Fund The issue is more significant with funds that own non-public entities as a portion of their portfolio, I think.....
Excellent article. I can see why you write more about mortgage REITs and BCDs. They are more exciting to SA readers that love trading.

I miss your single stock and ETF articles. However those holdings are more long term and boring to traders that like market action quick kills.

March 2020 was a time for quality bargains. Now? Not much. Lots of crazy speculation and margin buying. Not good. Love your rationale for buying and holding and when or if to sell. I sold BIP and BAM at market highs after buying them cheap. I wanted out of partnerships and even sold the C-corps they spun off that were bid up to crazy prices. I wanted more diversity in infrastructure. It paid off. I am concerned about the BPY deal offered by Brookfield. Seems they are not doing well by share holders. It was time to sell.
Colorado Wealth Management Fund profile picture
@jasonjones Thank you. That kind of feedback is very useful. I've certainly trended towards doing sector-based articles rather than individual company articles. They tend to perform better under SA's current set of rules.

I'm looking to work some single company analysis into some of the articles though. Getting the layout refined is a gradual process with many starts and stops, so it takes a long time to get a rythem.
Great article, though a bit long for my phone screen. Will need to read again later.
Colorado Wealth Management Fund profile picture
@normnader Thanks. I agree. It is a long piece. Probably would've done better on page views if I designed it to be shorter, but the whole piece fits together well.
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