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Strategies & Market Trends : Value Investing

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To: jeffbas who wrote (9291)	12/14/1999 7:22:00 AM
From: Q.	Read Replies (1) of 78566

I've said it before, but I think SNH is a lousy choice among REITs. When the blue chips among REITs are trading at bargain-basement valuations, there's simply no reason to go shopping for junk, and that's what SNH is. A first rate REIT, like EQR WRI or KIM, nowadays yields about 8% and has a growth rate of about 8%. Those add to give you an ROI of about 16%. The dividend will assuredly not be cut. A junk REIT, like SNH, has a dividend that might be higher than 16%, but it will have a negative growth rate. That means that your ROI will be less than the current yield. So you might end up with the same 16% ROI or even less. But with more risk and volatility. Why pay for risk and volatility when you don't have to? Just because value investors sometimes have a mindset for bottom-fishing among distressed securities doesn't mean that it's always the best thing to do. In this case, the market has presented us with a better alternative.

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