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Sell The Rip In Stocks, Buy The Dip In REITs


  • The S&P 500 is near all-time highs after the recent recovery.
  • That's despite significant risks looming the market.
  • I'm selling some stocks to buy more REITs. Here's why.
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Time to Sell

Ildo Frazao/iStock via Getty Images

When the market dipped in early 2022, we were buying the dips. We posted several articles on our favorite opportunities, many of which had dropped by over 20% in just a few weeks and without any apparent reason.

But since

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This article was written by

Jussi Askola, CFA profile picture

Jussi Askola is the President of Leonberg Capital, a value-oriented investment boutique that consults hedge funds, family offices, and private equity firms on REIT investing. He has authored award-winning academic papers on REIT investing, has passed all three CFA exams, and has built relationships with many top REIT executives.

He is the leader of the investing group High Yield Landlord, where he shares his real-money REIT portfolio and transactions in real-time. Features of the group include: three portfolios (core, retirement, international), buy/sell alerts, and a chat room with direct access to Jussi and his team of analysts to ask questions. Learn more.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of STAG;ENB either through stock ownership, options, or other derivatives. 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.

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 (42)

Jussi Askola, CFA profile picture

Thank you for reading! I hope you enjoyed the article. Let me know if you have any questions.

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CDNwealthsaver profile picture
This was a nice concise read. Thanks for sharing.
Good article . Have BRX and VICI. My CONE shares were bought out this week
Jussi Askola, CFA profile picture
@dansoknj Thanks for sharing your picks
03 Apr. 2022
Buy the dip in REITS? What dip???

The VNQ is close to a 5 year high for example, and up strongly over the past month.

This is the exact opposite of a "dip", sorry. REIT yields may not seem so attractive as interest rates move higher.
Jussi Askola, CFA profile picture
@ALG VNQ is down almost 10% off its highs. Beyond that, VNQ is not a good representation of the REIT sector as it is mostly invested in mega-cap REITs. A lot of smaller REITs are down well over 20%. That's a dip.

Also, you are repeating a misconception about REITs. They actually outperform during times of rising rates because they benefit from inflation / a stronger economy.
Thank you for this very interesting article.
I still don't understand the main "buy the dip in REITs" idea. REITs' valuation seem also very high. How will REITs react in regard to higher rates?
Jussi Askola, CFA profile picture
@Butter Dickinson Based on what are they high? REIT valuations are below historic average and barely recovering from the 2020 sell-off, despite significant appreciation in the private market since then. REITs have historically been strong outperformed during times of rising rates.
@Jussi Askola Thank you very much for this precision
Zucks profile picture
Assume there will be a major downturn but you can time it. You could hold some cash. It may loose 7.5% earning power, as the author states, but you know from 40 years of past history you will reap higher rewards by waiting. (A good example is 2001 when I got out and lost 10% opportunity costs but eventually made over 20% net). So what to do now? I agree about buying on the dip but why not significant dips so you won’t feel too bad in the future. For me, I bought UL when it dipped 20% and MAC when it was say $12 or so. If your hypothesis is that the market will have a significant dip, and the bond inversion, and maybe more significantly the recent union votes and food riot(s) are signaling such, why buy at 10% dips?
Jussi Askola, CFA profile picture
@Zucks That's a nice theory, but you make one important mistake: you forget the opportunity cost of holding cash. In addition to the lost purchasing power, you are missing positive return and since the market goes up most of the time.

I wouldn't move out of the market. I would just move to different sectors.
Justin Cool profile picture
@Jussi Askola an mreit like ivr is very cheap and they are still paying an about 16% dividend. I really expect mreits to fall less slowly than stocks like AAL if there's a selloff again. The title of your article tells it all.
Jussi Askola, CFA profile picture
@Justin Cool mREITs pay such much for a reason. I dislike their business models.
Hi Jussi, A black swan event is something unexpected that clobbers the stock market as a whole. Something like the war in Ukraine, certain big fires, the pandemic, etc.

Are there types of black swan events that would affect REITs only, or at least significantly more than the stock market as a whole?

Thanks very much,
Jussi Askola, CFA profile picture
@Gezorkin It depends entirely on the nature of the black swan, but generally speaking, REITs have historically enjoyed superior downside protection during most recessions.
I buy two Reits in the morning
I buy two Reits at night
I buy two Reits in the afternoon, it makes me feel alright
I buy two Reits in time of peace, and two in time of war
I buy two Reits before I buy two Reits
And then I buy two more
- Apologies to The Toyes
Juss I fully agree! When Mr. Market prices us badly he is just wrong-wrong-wrong. When he prices us positively then we are smart. Keep up the fantastic work.
Jussi Askola, CFA profile picture
@dealraker I appreciate your interest! Have a great weekend
Bucknfl profile picture
Late Feb STAG was under 40 & it was over 47 in late Dec so it’s not a bad buy for a quality reit.
Have you checked how much LAND has risen in the past 2-3 years? It’s not really the point to get in now. (My position is from before the COVID race) i wouldnot add at these levels.
Jussi Askola, CFA profile picture
@Cobra6 I agree that LAND is pricey today. It is an exception though. I am not investing in it.
@Cobra6 FPI looks to be trading under NAV, making it a fine alternative, especially since it is more concentrated in grain crops than LAND.
Notwithstanding the author sells a service picking individual issues, I would be interested in his opinion of RFI, a non leveraged cef invested in a basket of higher quality reits. Yield slightly over 6% presently at about a 1% premium. I picked up some a while back at small discount and would increase with a timely dip.
Jussi Askola, CFA profile picture
@eltoro I am not a big fan of preferred equities in a world of rising rates and high inflation, and especially not at such a premium to par.

A 6% yield turns into a negative 2-3% after taxes and inflation, potentially worse, if the premium turns into a discount.
@Jussi Askola Preferred investments are a quite small fraction of the portfolio. With a firm like C&S I suspect the preferreds will float with rising rates at some point. Not sure what you are referring to about the premium to par.
Jussi Askola, CFA profile picture
@eltoro A lot of the preferred shares that they own trade at a premium to par and they mostly have fixed payments. You can check their holdings on their site. On top of that, you also pay a premium to NAV.
gilbertos profile picture
Everything in the stock market is massively overbought! Wait until the crash, which will happen, arrives. Waiting, Sitting and Watching…
Jussi Askola, CFA profile picture
@gilbertos I don't agree. As noted in the article, some sectors of the market (REITs) are still very reasonably priced
Income4ever aka Cyclenut profile picture
I don't disagree, but you may be waiting, watching, hoping for quite some time. The market drop due to the war and geopolitical turmoil has been minimal and markets have now demonstrated a tendency to recover rather quickly from black Swan events.
Good luck
Can't argue with the author's thesis. However, it's very hard for me to find stocks at attractive prices. I like Stag, too, but not at the current level. FWIW I don't like leveraged products either with rates going rapidly up. Tough market.
Jussi Askola, CFA profile picture
@eltoro I think STAG is priced at a very reasonable level.

REITs use very little leverage. It is only ~30% of their balance sheet in most cases and they have historically long maturities. The impact of rate hikes won't be felt in years but rents are growing rapidly.

REITs have historically outperformed during times of rising rates.
@Jussi Askola My comment about leverage could have been more clear. I wasn't speaking of STAG or reits in general but income products like cef's etc.
As for STAG, most recent articles and analysts have felt it a hold, at best. Makes a market.
Jussi Askola, CFA profile picture
@eltoro I agree 100%. Staying away from leveraged CEFs. Thanks for the addition.
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