Alchanati Campbell & Associates
This week’s “What’s up?” is dedicated to long-term knowledge. Who needs knowledge that expires… Enjoy.
Expiring Knowledge versus Long-Term Knowledge. How much of what you read today will you still care about a year from now? It’s amazing how much of the information we consume has a half-life measured in days or months. Much of the information we consume is expiring knowledge. Expiring knowledge catches more attention than it should because there’s a lot of it and we chase it down. Long-term knowledge is harder to notice because it’s buried in books rather than blasted in headlines. Expiring knowledge tells you what happened; long-term knowledge tells you why something happened and why it might be likely to happen again.
Investors focus on the wrong things. While most of us should be investing for the long-run, markets conspire against us drawing our gaze and enticing us to take action. Matters such as war or peace in the Korean Peninsula, NATO or NAFTA problems, or Italy leaving the EU are meaningful, but from an investment prospective, there is very little most investors can do to benefit. Before the temptation to act on news becomes too strong, try to answer these three questions:
Yield versus Total Return. Many don’t know the difference. Yield is the income return on an investment. This refers to the interest or dividends received from a security. Total return includes interest, capital gains, dividends and distributions realized over a given period of time. The difference between the two is total return includes appreciation from the security and yield does not.
The limits of human existence. A person’s risk of death slows and even plateaus above age 105. Data tells us that there is no fixed limit to the human life span yet. People at age 110 had the same continued chances of survival as those between the ages of 105 and 109- a 50/50 chance of dying within the year and an expected further life span of 1.5 years. The odds of survival inexorably decline as a person enters middle and old age. Evolutionary selection and the influence of good genes and healthy life choices improves your odds of a longer life span.
Are you sure your investments are appropriate for you? High valuations or low valuations, overweight or underweight, bullish or bearish, growth or value, income or total returns, etc. are very important to consider when investing, but are not nearly as important as how the investments jibe with you personally. Here are some important factors to consider to help you judge the appropriateness of your investments:
Public Real Estate versus Private Real Estate. There are three types of commercial real estate investors: those who buy buildings directly, those who invest in funds that buy buildings, and those who buy their real estate through Real Estate Investment Trusts (REITs). All real estate investors should look to the public market for signals on operating fundamentals and valuations (Reliable market information on public REITs is readily available). There are pricing discrepancies across private and public markets. In the apartment sector, the average REIT is trading at a 14% discount to the current market value of its assets (12% for neighborhood shopping centers, 16% for the office sector, and 17% for the mall business). Historical data shows that signals from the public market have been helpful in forecasting private-market returns across property sectors. Property prices have almost always appreciated in the 12 months after listed REITs traded at net asset value premiums and they have declined by an average of 2% following periods when REITs traded at discounts.
WHAT'S UP FRIDAY? is a weekly newsletter that will give you a summary of "What's up?" on Wall Street, in the US and around the World written by The Alchanati Campbell and Associates Team. What makes us unique is we focus on long-term knowledge; knowledge that will still be useful to you 10 years from now.