In general, stock screening is associated with fundamental and ratio analysis. Literally, you filter stocks with predefined key fields that suit your trading styles; growth, valued, conservative or aggressive. Personally, I always use fundamental data such as dividend yield, Beta, operating margin, Return on Capital Employed (ROCE), ratios derived from Balance Sheet and Profit/Loss Account as the first stage of my stock research.
With that information, you can set up screening strategies using specific fundamental criteria to extract suitable stocks to trade. Many practitioners have developed predefined and back tested screening strategies. Some of them may be complex to general public and some of them are as simple as ABC.
I think you may hear about screening the big market cap stocks, hold and sell them after a year. Perhaps, I could put extra details on this method. You may want to apply to all stock exchanges though. However, I believe this method is useful for medium-term investors who do not want to spend too much time on research.
Big Cap list
Get a list of big market cap of Dow Jones which is usually known as Dow Jones 30. Or get a similar list from S&P, FTSE, CAC40, DAX, Nikkei, Hong Kong or even Johannesburg Stock Exchange. Big market cap stocks usually are prominent blue chip stocks with strong fundamental business and financial models.
Dividend Yield
A simple calculation of dividend yield would mark an ability of a company to pay out dividend each year. It may pay on quarterly or annually basis. However, the bottom line is it represents the return on investment for owning a stock. So hence, you should be interested to look for stocks that have high dividend yield.
Roughly, it could be in the range from 2% to 7%. If it’s more than 7%, re-compute the yield; dividing dividend per share by the current share price. The yield may be distorted by the current share price. Otherwise, you may get yourself will-be a jackpot. Insofar, you need to select ten big market cap stocks with the highest dividend yield.
Lowest Stock Price
The golden rule in trading is buy low and sell high. So, apply that rule and select five stocks with the lowest price. Please don’t make any preferences on the stock selection. You must eliminate any emotional attachment. You should not be saying’ ‘I feel these stocks would go further up’ although you know the prices are among the highest.
Finally, you would have five big market cap stocks with a good dividend payout record at a bargain price. If you are thinking of diversifying your portfolio, apply this screening method on other markets as well.
At the beginning of the year, buy equal amount of each of these five stocks. Hold them for a year. Then, sell them before Christmas or perhaps before the correction periods of stock exchanges (usually during last quarter of the year). Simple, isn’t it? How long does it take you to come out with five bargain big market cap stocks? Is your portfolio in the positive territory?
In conclusion, the timeframe for this method should be about a year. In essence, it tries to capture a year cycle of stock market. Having said that, the pre-requisite for this discipline does not implied that investors should hold for a full year. It is just a guideline not a rule.
Wednesday, 28 November 2012
Initial Public Offering : IPO
In the current economic uncertainties, initial public offering or IPO is not going to be
famous. Essentially, IPO is the first sale of stock of a private company, new or old, to the public. So often, smaller or private companies use IPO as the main platform to seek capital injection for growth or expansion programs and to become publicly traded companies. Statistically speaking, according to Bursa Malaysia, the highest number of new listings was 92 in 1996. The number was massively declined during a period from 1998 to 2001, when Malaysia was hit with the financial crisis. In 2002, the number was starting to grow especially new listings on MESDAQ market.
In the process of getting listed on Main or Second Board, an underwriting firm assists the issuer in shaping the criteria of the IPO including type of security, the best offering price and the best time to offer to the market. For average investors or beginners, you might need to be concerned on the offering price. However, I need to warn you on the risk of investing in IPO.
For private investors, it is fairly difficult to forecast how the stock would react on the first day of listing especially if you could only refer to the lengthy prospectus of the issuers and some good words from your brokers. You probably would not have any historical data to analyse. You may need to put your entire belief on the management team and the projected performance that they ought to achieve in the next 5 years or so. Thus, many risk adverse or conservative investors concur that the uncertainties looming around their future values would deter them from putting their cash on IPOs. Having said that, after taking into account the potential reward, I am confident you would include IPO in your investment list.
To buy or not to buy
The timeframe to trade IPO should be very short. Take a day or two. And I, personally, would not go beyond 5 trading days. On these initial days, most investors rush to buy a new stock in frenzy, but then, like everything else, interest wanes when as the true picture of the company emerges and the market will determine the fair value of the new stock. You would not want to be caught at this moment.
What is more, many IPOs issued last year had never been able to recover to their initial opening prices. Usually on the day two of listing, you should be able to assess the responsive of the market and to figure whether the market would just go sideways. I favour to monitor the volume. It would tell the whole story especially the momentum of the investor ’crowd’.
The capital market in 2008 were so bearish even Perwaja (5146) and TM International
(also known as Axiata) had lost more than halves of their expected value. Everybody
seemed to preserve their capital and played a wait-and-see game.
But in 2009, you might want to re-consider IPOs. For the last three new listings, the
market seems to be more optimistic and bullish. For example, Samchem Holdings
(5147) was opened at RM 0.69 and at the highest RM 0.95 on the second day of listing.
About 38% gain in two days. Not bad aye? Handal Resource (7253) was opened on 30 July 2009 at RM 0.90 though the original price was 72 cents. Handal Resource continued to gain heavy interest in the market when it recorded the highest price on the second day at RM 1.47. Amazingly almost 100% return.
Although the figures look overwhelmingly appealing, you may also want to assess the principal activities and the industry of the IPOs. Given at certain stage of economy, some sectors might be bearish and normally the market would not respond as you expected. Is it too late to join the crowd? I believe not.
Some IPOs are still at the early stage. In fact, the Securities Commission of Malaysia (SC) had approved seven IPOs, so far. Five IPOs were for the Main Board and the balance for the Second Board. The performance of the previous three aforementioned IPOs indicates that the capital market is responding well.
Conclusion
Investing in IPOs is a risky business but it may come with startling rewards. Even so, some factors should be taken into considerations such as offering price, timing, the principal activities in the industry and overall market sentiment (bullish or bearish). There is no perfect blueprint on what is working and what is not. The best thing to do is assess available information and then make your judgement call. If it didn’t work, cut your losses. Re-visit when things calms down.
famous. Essentially, IPO is the first sale of stock of a private company, new or old, to the public. So often, smaller or private companies use IPO as the main platform to seek capital injection for growth or expansion programs and to become publicly traded companies. Statistically speaking, according to Bursa Malaysia, the highest number of new listings was 92 in 1996. The number was massively declined during a period from 1998 to 2001, when Malaysia was hit with the financial crisis. In 2002, the number was starting to grow especially new listings on MESDAQ market.
In the process of getting listed on Main or Second Board, an underwriting firm assists the issuer in shaping the criteria of the IPO including type of security, the best offering price and the best time to offer to the market. For average investors or beginners, you might need to be concerned on the offering price. However, I need to warn you on the risk of investing in IPO.
For private investors, it is fairly difficult to forecast how the stock would react on the first day of listing especially if you could only refer to the lengthy prospectus of the issuers and some good words from your brokers. You probably would not have any historical data to analyse. You may need to put your entire belief on the management team and the projected performance that they ought to achieve in the next 5 years or so. Thus, many risk adverse or conservative investors concur that the uncertainties looming around their future values would deter them from putting their cash on IPOs. Having said that, after taking into account the potential reward, I am confident you would include IPO in your investment list.
To buy or not to buy
The timeframe to trade IPO should be very short. Take a day or two. And I, personally, would not go beyond 5 trading days. On these initial days, most investors rush to buy a new stock in frenzy, but then, like everything else, interest wanes when as the true picture of the company emerges and the market will determine the fair value of the new stock. You would not want to be caught at this moment.
What is more, many IPOs issued last year had never been able to recover to their initial opening prices. Usually on the day two of listing, you should be able to assess the responsive of the market and to figure whether the market would just go sideways. I favour to monitor the volume. It would tell the whole story especially the momentum of the investor ’crowd’.
The capital market in 2008 were so bearish even Perwaja (5146) and TM International
(also known as Axiata) had lost more than halves of their expected value. Everybody
seemed to preserve their capital and played a wait-and-see game.
But in 2009, you might want to re-consider IPOs. For the last three new listings, the
market seems to be more optimistic and bullish. For example, Samchem Holdings
(5147) was opened at RM 0.69 and at the highest RM 0.95 on the second day of listing.
About 38% gain in two days. Not bad aye? Handal Resource (7253) was opened on 30 July 2009 at RM 0.90 though the original price was 72 cents. Handal Resource continued to gain heavy interest in the market when it recorded the highest price on the second day at RM 1.47. Amazingly almost 100% return.
Although the figures look overwhelmingly appealing, you may also want to assess the principal activities and the industry of the IPOs. Given at certain stage of economy, some sectors might be bearish and normally the market would not respond as you expected. Is it too late to join the crowd? I believe not.
Some IPOs are still at the early stage. In fact, the Securities Commission of Malaysia (SC) had approved seven IPOs, so far. Five IPOs were for the Main Board and the balance for the Second Board. The performance of the previous three aforementioned IPOs indicates that the capital market is responding well.
Conclusion
Investing in IPOs is a risky business but it may come with startling rewards. Even so, some factors should be taken into considerations such as offering price, timing, the principal activities in the industry and overall market sentiment (bullish or bearish). There is no perfect blueprint on what is working and what is not. The best thing to do is assess available information and then make your judgement call. If it didn’t work, cut your losses. Re-visit when things calms down.
Commodity Prices versus Currency Movements
Last night, I was watching the business channel, airing the correspondents throwing their verdicts on the sudden spike of commodity prices and the weakening of US dollar. The logic is commodity prices tend to have an inverse relationship with currency movements.
How
It has something to do with being an exporter or importer of these commodities. As Canada and Norway are in the top 10 list of oil exporter countries, any vulnerability on oil prices would directly impinge on the value of their currencies. In the long run, the correlation has been strong especially when the oil priced in US dollar. Thus, any appreciation of oil price (remember in USD) would depreciate the value of USD/CAD or USD/NOK.
Concurrently, for Norway, you need to appreciate the importance of Norwegian exports figure. Its economy dependents on the oil exports. Over the years, crude oil is accounted for more than 50% of the total exports. This high correlation to the oil price allows FOREX traders to use oil price as one of the indicators in their trading strategy. For some traders, they use NOK as a hedge especially against USD.
Quite the opposite, Japan is the oil importer country. If the oil prices surged, the Japanese economy would suffer so does its currency. In short, the currency pair CAD/JPY would has a strong correlation with oil prices i.e. the value of CAD/JPY would follow the direction of oil prices. Similarly, the appreciation of oil price would depreciate USD/JPY.
The performance of AUD and NZD are highly related to gold. Meaning, the appreciation of gold prices should lead to the appreciation of AUD, followed closely by NZD. The similar impact on the latter is basically due to the close economic link between Australia and New Zealand. For FOREX traders, who like AUD and NZD, you should also consider trading gold.
Conclusion
Have you ever wondered why CNBC or Bloomberg always put on view the Dollar Index (DXY as quoted in Bloomberg)? If you knew what DXY consists of, you would appreciate that it actually summaries the performance of USD against Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc. So hence, you can practically use DXY as guidance without referring to every major currency.
In fact, if you want to save time and happen to have access to Bloomberg terminal, go to the Foreign Exchange Forecasts (FXFC) function.You could browse analysts’ predictions for the dollar and other currency pairs. But don’t swallow everything. Check the movement in gold and oil prices. Consider using technical indicators as well. Long oil, short USD/CAD. Long gold, long AUD or NZD.
Off you go. Place your bet now!
The correlation of commodity prices and currency movement has been one of the common rules in FOREX trading. Professional FOREX traders who I had been acquainted with will blindly subscribe to this statement. This rule apparently helps them to understand and predict market movements of certain major currencies. Top four currencies that have a strong correlation with commodities are the Australian dollar, the Canadian dollar, the New Zealand and the Norwegian Krone. Other currencies like Japanese Yen and Swiss Franc are also affected by the movement of commodity prices. However, their correlations are not as strong as the top four. The correlations are related to currencies with oil and gold.
It has something to do with being an exporter or importer of these commodities. As Canada and Norway are in the top 10 list of oil exporter countries, any vulnerability on oil prices would directly impinge on the value of their currencies. In the long run, the correlation has been strong especially when the oil priced in US dollar. Thus, any appreciation of oil price (remember in USD) would depreciate the value of USD/CAD or USD/NOK.
Concurrently, for Norway, you need to appreciate the importance of Norwegian exports figure. Its economy dependents on the oil exports. Over the years, crude oil is accounted for more than 50% of the total exports. This high correlation to the oil price allows FOREX traders to use oil price as one of the indicators in their trading strategy. For some traders, they use NOK as a hedge especially against USD.
Quite the opposite, Japan is the oil importer country. If the oil prices surged, the Japanese economy would suffer so does its currency. In short, the currency pair CAD/JPY would has a strong correlation with oil prices i.e. the value of CAD/JPY would follow the direction of oil prices. Similarly, the appreciation of oil price would depreciate USD/JPY.
The performance of AUD and NZD are highly related to gold. Meaning, the appreciation of gold prices should lead to the appreciation of AUD, followed closely by NZD. The similar impact on the latter is basically due to the close economic link between Australia and New Zealand. For FOREX traders, who like AUD and NZD, you should also consider trading gold.
Conclusion
Have you ever wondered why CNBC or Bloomberg always put on view the Dollar Index (DXY as quoted in Bloomberg)? If you knew what DXY consists of, you would appreciate that it actually summaries the performance of USD against Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc. So hence, you can practically use DXY as guidance without referring to every major currency.
In fact, if you want to save time and happen to have access to Bloomberg terminal, go to the Foreign Exchange Forecasts (FXFC) function.You could browse analysts’ predictions for the dollar and other currency pairs. But don’t swallow everything. Check the movement in gold and oil prices. Consider using technical indicators as well. Long oil, short USD/CAD. Long gold, long AUD or NZD.
Off you go. Place your bet now!
Monday, 5 March 2012
Exchange Traded Fund - ETF
Exchange-Traded Fund (ETF) is very common in the States and the UK. It simply a basket of securities that tracks an index, assets, commodity (sometimes also known as Exchange-Traded Commodities), sectors or fixed income instruments but trades like a stock on an exchange. Therefore, its price changes on daily basis. The fact that ETF is not a mutual fund, it does not have net asset value (NAV) calculated everyday. In simple term, think ETFs as mutual funds that trade like a stock.
Therefore, most of the advantages are related to its trading features compared to mutual funds. They are becoming popular especially among institutional investors with access to big capital. They usually make large bets on sectors, countries, regions and even currencies. To them,ETFs are one of the efficient hedge tools against their individual holdings on stocks, bonds and commodities. What is more, a few years back, they started to introduce ETFs for retirements and pension schemes which are conservatively managed.
Barclays Global Investor and State Street Corp. are the biggest managers with the total ETF assets is about $440 billion. According to Bloomberg, State Street manages the biggest exchange-traded fund, $66 billion S&P 500 SPDR (Spider) whilst Barclays manages $46 billion iShares MSCI EAFE and $26 billion iShares MSCI EM, the second and third largest respectively as of Feb 29, 2008.
The Benefits
Diversification: The biggest selling point, in my views, is the diversification element that ETFs could offer. There are hundreds of ETFs available in the market and they covered almost everything; indexes, large caps, small caps, regional, country, global market, specific sector, currencies or even commodities. Recently, you can also find ETFs focus on asset classes such as fixed income.
Nevertheless, investors must not over-diversify their portfolio. The ratio of allocation also plays a greater role in determining the performance of chosen ETFs. The basic allocation for one ETF perhaps by allocating 80% stocks and 20% bonds, depending on your investment style. Out of 80%, you may want to divide them into large cap, small cap, sectors or even regional. And for bonds, perhaps split them into 5 year bonds, 10 year bonds or government bonds.
Low expense ratio: Since ETFs are not mutual funds, ETFs do not bear costs like management fees, operational fees or auditor fees. Therefore, the total cost of ETFs is a far less. In screening ETFs, one should look for low Total Expense Ratio or TER. Basically, it means the total fund costs divided by the total fund assets.Most of the time, the attractive TER should be less than 0.5%. SPDR has 11 basis point expense ratios, which is inarguably the lowest so far.
On the other hand, ETFs are traded via brokerage firms like a normal stock. Therefore, the exposure on commission charges and other brokerage related charges are inevitable.
Investors should consider a low-cost brokerage to maximize returns.
Therefore, most of the advantages are related to its trading features compared to mutual funds. They are becoming popular especially among institutional investors with access to big capital. They usually make large bets on sectors, countries, regions and even currencies. To them,ETFs are one of the efficient hedge tools against their individual holdings on stocks, bonds and commodities. What is more, a few years back, they started to introduce ETFs for retirements and pension schemes which are conservatively managed.
Barclays Global Investor and State Street Corp. are the biggest managers with the total ETF assets is about $440 billion. According to Bloomberg, State Street manages the biggest exchange-traded fund, $66 billion S&P 500 SPDR (Spider) whilst Barclays manages $46 billion iShares MSCI EAFE and $26 billion iShares MSCI EM, the second and third largest respectively as of Feb 29, 2008.
The Benefits
Diversification: The biggest selling point, in my views, is the diversification element that ETFs could offer. There are hundreds of ETFs available in the market and they covered almost everything; indexes, large caps, small caps, regional, country, global market, specific sector, currencies or even commodities. Recently, you can also find ETFs focus on asset classes such as fixed income.
Nevertheless, investors must not over-diversify their portfolio. The ratio of allocation also plays a greater role in determining the performance of chosen ETFs. The basic allocation for one ETF perhaps by allocating 80% stocks and 20% bonds, depending on your investment style. Out of 80%, you may want to divide them into large cap, small cap, sectors or even regional. And for bonds, perhaps split them into 5 year bonds, 10 year bonds or government bonds.
Low expense ratio: Since ETFs are not mutual funds, ETFs do not bear costs like management fees, operational fees or auditor fees. Therefore, the total cost of ETFs is a far less. In screening ETFs, one should look for low Total Expense Ratio or TER. Basically, it means the total fund costs divided by the total fund assets.Most of the time, the attractive TER should be less than 0.5%. SPDR has 11 basis point expense ratios, which is inarguably the lowest so far.
On the other hand, ETFs are traded via brokerage firms like a normal stock. Therefore, the exposure on commission charges and other brokerage related charges are inevitable.
Investors should consider a low-cost brokerage to maximize returns.
Thursday, 16 February 2012
Don’t think you are, know you are…
Introduction
24 Sept 2008, 14:37 GMT
Hmmm…it is becoming apparent that writing a blog about trading is not as simple as it seems. I find it very difficult to choose the right introductory topic for general audience, let alone any professionals who might be reading this and eager to spot any flaws or inconsistencies in my blog.
I wanted to believe that discussing about risk is the most suitable subject. It will allow you to really assess your ability and risk profile towards trading. Whether you are fitted as a risk-taker or a risk adverse profile, you still need to understand yourself before jeopardising thousands or millions of dollars.
Risk taker or Risk adverse
It is all about your personality though. I disbelieve to the idea of risk taker is an egomaniac and risk adverse otherwise. To tell the truth, we act differently on every instance. It is the same thing in trading. A risk taker is prepared to pay aggressively to satisfy his or her novelties and in order to obtain maximum rewards.
Likewise, a risk adverse person is sharing identical traits including seeking maximum rewards. But a risk adverse person is more cautious than a risk taker. The latter may employ less research and analysis to decide on his or her trading and perhaps focusing only on some big investment returns. On the other hand, a risk adverse person most likely to research and analyse thoroughly before committing any trades.
I used to think that I am a risk-taker. But gradually I am becoming more cautious especially when I have other ‘commitments’ that I am not prepared to risk for. Obviously, being a private trader, your capital, leverage and margin are fairly small. Ergo, I don’t think it is a sin to be a risk adverse. So you decide. Like Morpheus said in The Matrix, “don’t think you are, know you are”.
I trust that once you passed this episode of knowing yourself, you would be more discipline and objective in executing your trading strategies.
24 Sept 2008, 14:37 GMT
Hmmm…it is becoming apparent that writing a blog about trading is not as simple as it seems. I find it very difficult to choose the right introductory topic for general audience, let alone any professionals who might be reading this and eager to spot any flaws or inconsistencies in my blog.
I wanted to believe that discussing about risk is the most suitable subject. It will allow you to really assess your ability and risk profile towards trading. Whether you are fitted as a risk-taker or a risk adverse profile, you still need to understand yourself before jeopardising thousands or millions of dollars.
Risk taker or Risk adverse
It is all about your personality though. I disbelieve to the idea of risk taker is an egomaniac and risk adverse otherwise. To tell the truth, we act differently on every instance. It is the same thing in trading. A risk taker is prepared to pay aggressively to satisfy his or her novelties and in order to obtain maximum rewards.
Likewise, a risk adverse person is sharing identical traits including seeking maximum rewards. But a risk adverse person is more cautious than a risk taker. The latter may employ less research and analysis to decide on his or her trading and perhaps focusing only on some big investment returns. On the other hand, a risk adverse person most likely to research and analyse thoroughly before committing any trades.
I used to think that I am a risk-taker. But gradually I am becoming more cautious especially when I have other ‘commitments’ that I am not prepared to risk for. Obviously, being a private trader, your capital, leverage and margin are fairly small. Ergo, I don’t think it is a sin to be a risk adverse. So you decide. Like Morpheus said in The Matrix, “don’t think you are, know you are”.
I trust that once you passed this episode of knowing yourself, you would be more discipline and objective in executing your trading strategies.
Sunday, 12 February 2012
Real Estate Investment Trust (REIT)
The world’s most tax – efficient vehicle for property investment
OverviewLast year’s (2005) pre-Budget has significantly changed the tax landscape for Real Estate Investment Trust (REIT). Soon abstemious investors may now legitimately avoid some commitments in taxable instruments by utilizing certain Reit structures.
Detailed Structure
The Treasury’s draft legislation is set to address the intensity of property industry in recent years. The new tax-efficient ruling introduces several incentives including:1. Promoting diversification in real estate investment by engaging in the acquisition, management and sale of residential, retail, hotels and resorts assets.
2. Advocate an accumulation of a pool of money through shares or initial public offerings
3. Reduce corporate-level tax exposure in the conventional construction companies.
4. Give retail investors greater access to property without the risks of direct ownership.
These results can generally be achieved through the formation of Reit: a high-yield investment tool by way of offering “mortgage”, usually finance companies, or issuing “equity” in which mostly, we would be talking and reading in the news. The third, “hybrid”, is a Reit consisted of “mortgage” and “equity” operating structures.
By most measures, Reit features are akin to common unit trusts: accumulation of a pool of money through shares or initial public offering. The only apparent different is Reit generates and regularly distributes income through leasing, renting and selling of property.
Reit will give retail investors greater access to property without the risks of direct ownership although no shareholder will be allowed to own more than ten per cent of a single Reit.
Draft Legislation
Based on the draft framework, Reit will have to apply withholding tax at the basic rate of 22 per cent on the distributions. Higher-rate taxpayers on the other hand, will have to pay any extra tax outstanding.
With the aim of corporation tax free incentive, Reit will also have to distribute 95 per cent of the net taxable profit to shareholders. The net income shall be obtained, not more than 75 per cent from property rents. Only 25 per cent is allowed to derive from development or services.Likewise, Reit will have limits on how much they can borrow based on an “interest cover test” to ensure they are operating at financially healthy level. This precautious measure would avoid a deleterious effect of over-develop in property market.
The Treasury is expected to favour Reit in tax-free Individual Savings Account (ISA), rather than Self-Invested Personal Pensions (SIPPS). Beyond that, Reit will have to be closed-ended, corporate designated and resident in the UK.
There is no denying the largesse shown by the government. The abstemious investors have waited eagerly as properties are getting pricey. Given that the legislation is on the way, applicable from 1 January 2007, analysts have prophesied the size of property sector to double or even triple.
Others are worried that the market will grow too quickly and like common stock, could fluctuate out of the control, overwhelming the underlying market principle. Despite of the worries, the government expects Reit to start off focused on high-yield stock especially commercial property and gradually to invest more money in residential Reit. How about investors? How should they react on these new legislations?
Given that single assets would not be allowed in a Reit, a subtle investor should allow the portfolio properly diversified. The expected growth factor between residential and healthcare Reit is substantially different. Even though, the latter sector is fairly recession resistant, its dependency on the medical reimbursement from government impeding the possible higher return.
Industrial Reit, on the other hand, tends to generate steady and predictable cash flow albeit in longer terms is highly cyclical.
Second, selective in picking fund managers. Four out of five successful investments are rested on management and their track record in executing the best strategies. The manager’s ability will determine whether the investment will flush with dividends or will be flushed down the toilet.
The most vital item is income distribution facility. It measures the overall performance of REIT since almost 95 per cent will render dividend payout. However, in estimating the value of a Reit, most professional analysts prefer to use an ‘adjusted fund from operations’ in which capital expenditure is not taken into consideration. This treatment offers a better benchmark for a Reit capacity to pay dividends.
With the approval of real estate trusts, savings and properties prepare to gear upward by early next year. Yet, the investors must always remember that Reit is a highly attractive investment where still needs to be evaluated and analysed as such.
Originally published in January 2006
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