With First REIT hitting historical high, there are three actions I can take:
- Do nothing.
- Sell everything.
- Sell some of it.
Before exploring each option, I calculated my returns using
XIRR.
As seen from the spreadsheet above, I made an annualized return of 27.18%.
There are many scenarios and I’m trying to come out with a simple method to decide on the course of action.
I’m going to begin with
action one (do nothing) which seem the easiest.
Assuming price and dividends unchanged for the next two years, my XIRR will fall to 22.21%. So much for not wanting to do anything.
Action two - sell everything.
As I do not have any stocks in mind, I’m going to leave the money in a bank earning 0.05% interest p.a. I’m going to assume that that there will be no major correction for the next two years and dividends remain constant.
The Bank will earn $14 (pathetic) over two years while I would have received $1,444 over the same time period. That’s almost a hundred times more!
Using $1,444 as a gauge, the price of First REIT would have to fail to about $1.185 – the equivalent of two years of dividends. Even at that price, my XIRR is still a respectable 23.32%.
Action three - sell some of it
My calculation will be based on recouping my initial investment. This will mean selling about 4.5 lots. For easier calculation I’m going to round it up to 5 lots. I will thus have 5 lots of First REIT and about $7K cash. Using the same assumptions above, I will receive $729 ($722 dividends and $7 interest) for the next two years. To maintain at 5 lots, First REIT cannot fall below $1.27 (XIRR 26%)
Tabulating all these numbers together, I’m inclined towards a decision of selling 5 lots if the prices fall to $1.27 else I will remain status quo.
This is not a finish article. My brain is drained thinking of the many combinations and permutations, and this is supposed to be a lazy man portfolio.
I would love to hear about your own methods in deciding when to sell all or part of your stocks. I hope I can learn from each of you and come up with a simpler and straight forward approach.
is this your largest position? great returns and show that you are an astute investor.
one question why stay above 1.27? i don’t get that part. how many lots did you hold in the first place?
Hi Drizzt,
First REIT is my largest holding in my portfolio base on the share price but not the largest in terms of capital injection. So while this stock is doing well, my entire portfolio is not fantastic.
I have ten lots of First REIT. I’m calculating how many lots to sell to recoup my initial investment. At $1.27, I will have to sell 5 lots. Any lower and I have to sell 6 lots. To sell 4 lots to recoup my initial investment, the price will have to be $1.59 – highly unlikely in the wake of bloody Thursday.
Cheers!
To do nothing/ sell all/ sell some are all based on a pure mathematical formula based on hypothetical assumptions.
The key reasons that First Reit is able to trade at more than 1.6x book value (probably the highest amongst S-Reit) and probably drove the returns on your holdings, are the fundamental aspects of the REIT, i.e. being in healthcare, in booming underserved Indonesian market, rental structure, active sponsor, lower asset capitalisation values etc. Might be worth having your decision be more dependent on the fundamentals of the REIT.
Hi my fellow First REIT Investor,
While I can look at the numbers, future performance is also based on hypothetical assumptions. Gearing ratio, book value etc also depends on every individual risk appetite. While I’m pretty sure the fundamentals is good, I believe the price is inflated because REITs are the ‘in’ thing now.
Again these are my assumptions with nothing to back me up. Thanks for the timely reminder. I’m going to dig out my Peter Lynch book and dive down into the numbers.
Care to share on your plans for First REIT?
Cheers!