Thursday, July 24, 2014

Just some random thoughts while running

(By the way, this is just a random rant of all the thoughts that has been running around in my head while I was running around just now.)

Today, they announced that they are going to change the IPPT system and remove standing broad jump. THANK GOD. Honestly, I used to think I was a very fit individual in my younger days when I could easily do 20+ pull ups, but SBJ always dragged down my score. I am eager to hear more details of this new change when the details are released tomorrow.

Anyway, I have to clear my IPPT by the end of next month, so I decided that instead of sitting at home and watching my trading screen, I might as well go for a run instead. So I did.

While I was on my run, a lot of things ran through my mind.

First, I'm quite surprised how much risk tolerance I have lately. Perhaps it is because I know that my CFD account only is a tiny portion of my assets, but I like to think that I have become more hardened as a trader and I am able to tune out the noise a lot better.

I am pretty glad so far about how much I have been learning and sharing about personal finance and investing in Singapore. Ever since I decided to be part of the Sg Invest Bloggers blogroll, I find myself a lot more aware of the concerns and thoughts of similar and like-minded people. The only thing that I am afraid of is being within an echo-bubble, where all our thoughts and views are similar. However, so far, I can see that all these blog writers are very varied in their style and opinions, so there will never be every person on one side of the boat. I like that an alternative counter opinion can be found if looked for.

While running, I was also thinking about local REITs. Recently my friend shared with me some blog articles about how REITs can be very value destroying, especially if the managers do not deliver and return value to shareholders. I know that this is true, but it is not really an easy and quantifiable thing to measure... or is it?

I've been thinking of creating my own personal analysis checklist for REITs. I mean, I did something similar for the local bank stocks recently, where I researched what are likely to be the most valuable and important metrics to measure different things, and I think it was a good learning experience for me to see that not all stocks are created equally, so it is not easy to just apply a standard cookie-cutter screener to look for stocks. Different industries will have different kind of profiles, such as a consistently heavier debt ratio, or tight gross margins, or whatever.

Sure, there can be a simple stock screening metric to look for extremes. Value, Quality, Yield and Financial Strength are 4 things that I have previously talked about. I think that can be very roughly applied to all stocks to look for suspicious behaviour. However, if you use it as the iron fist decision making tool, most likely you would end up with a bunch of stocks of similar style and within the same industry.

Now, when I am thinking about REITs, I want to specifically tune out all the noise from the rest of the market and just focus on REITs. What are the useful metrics that are easily measurable for a retail investor like me? How many metrics should I have and what information do I want the metrics and their results to tell me?

I am currently reading the book, Investing In REITs by Ralph Block, and I like to refer to Green Street's pdf release for information and clues about what are the useful metrics when looking at REITs. I am only halfway done with the book and I haven't re-read Green Street's release in a while, so I can't come up with a list yet.

However, in the near future I would like to come up with the metrics that I am, and how I am going to use them. Most likely this would include things such as Management, Valuation, Quality, Financial Strength and Yield as well. I am not too sure on these yet, but hopefully soon I will be.

I hope to be able to slowly extract all the data from at least the past 3 years from all the different REITs so that I can see the evolution of the different metrics and see if future numbers look peculiar or out of place.

REITs talk aside, I also read an interesting post by the Humble Student Of The Markets. He highlighted the fact that HYG-TLT is having a divergence is simply due to an improper comparison of apples to pears. When he uses HYG-IEI we get a much better basis of comparison. I think it is pretty logical and straightforward that this should be the comparison instead of HYG-TLT, but I never really thought about it until he mentioned the fundamental differences in the portfolio's duration. This really makes you think what other blatantly obvious mistakes are we also making that might have an impact on our investment decisions?

I am going to try and finish my REITs book by the end of this weekend, and hopefully I can start on my next book while I write up what I think are the best metrics for REIT investors to zoom in on and look at!

Anyway, that's all for me today. I still have work tomorrow, it's going to be a long day.

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