May 2004: after months of in-depth analyses, Group A made a strong case for a greater allocation to REITs.
In retrospect, Group A was right. There is no doubt in my mind that REITs was a great diversifier. Allocating anywhere between 10%-20% of your total portfolio to REITs was a great idea at the time (IYR at $45). Today, some will say that Group A’s recommendation of REITs resulted in negative returns and has underperformed the S&P 500. But, if you had locked-in profits, you would have had a great return and outperformed the S&P, even as the price has dropped to $38.
Let’s say you bought REITs and allocated $200,000 in May 2004. (sorry in advance for rounding, just keeping it simple).
Cost Basis in REITs ETF (IYR) May 2004: $45
May 2005: beginning value $200K, price at $55, return 20%, ending value: $240K. Gain: $40K, locking in profits of $40K.
May 2006: beginning value $200K, price at $71, return 30%, ending value: $260K. Gain: $60K, locking in profits of $60K . May 2007: beginning value $200K, price at $92, return 30%, ending value: $260K. Gain: $60K, locking in profits of $60K.
May 2008: beginning value $200K, price at $65, return -30%, ending value: $140K. Loss: $60K
May 2009: beginning value $140K, price at $32, return -50%, ending value: $70K. Loss: $70K
August 2009: beginning value $70K, price at $38, return 20%, ending value: $85K. Gain: 15K.
Gains: $175,000 Losses: $130,000 Net Gains: $45,000
So the REITs ETF from May 2004 thru today is down more than 15% while the S&P is only down 10%. But if you locked-in profits (as is the industry standard) you would have had a return of +23%, while the S&P had a return of only +2%!
So to reiterate my point, REITs was a great investment decision!!
Shortly after my post on how great an investment decision REITs was...they started downgrading certain REITs' stocks and eventually by August 17th had downgraded the whole sector.
Well, not only have the prices not fallen off a cliff but it is showing no signs of slowing momentum and the sector has easily outperformed the S&P for the past month... I am not sure if "eventually" they will be proven right but it sure seems to me as bad timing. (downgrading BXP? really now...)
Based on this downgrade and some other failed predictions at the beginning of the year i.e. Fadel Gheit's price range of $45-$55 a barrel in 2009, I am downgrading the stock to a hold!
The reasoning is clear: If they are following their own recommendations (which I am sure they are) then they must not be doing as well as one would expect. Thus, the change in sentiment...
After note: now that the bulls are back from vaca...perhaps they might persuade their fellow bearish colleagues to reverse their failed recommendations...