Analysing REITS and Property’s 100:10:3:1 Rule

[citycyclonegiraffe]

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[Edit: see third post of this thread]

[weijian]

hi citycyclonegiraffe,
Would you be able to elaborate more than just 2 words of a new thread?

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[citycyclonegiraffe]

Hello. I am interested because the saying goes that in the proper real estate market, you should consider 100 properties, look at 10, narrow down to 3 and finally, buy 1. It is a long and arduous process.

Does this rule apply to buying REITs..? Should you screen 100 REITs, look at 10 annual reports, relook at 3 comprehensively and finally buy 1? Not much of a diversified portfolio

Is buying REITs somehow different from looking at real life properties? Are there enough REITs in Singapore and the nearby countries to look at (SG 40 Aus 40 Msia 10 HK10 - buy one only). Does modern technology mean you can be assured of buying more than 1 in 100? Is this just nonsense????

[weijian]

hi citycyclonegiraffe,
Thanks for the quick response in elaborating.

The interesting part is not about this ratio persay as a method. The interesting lesson is actually what is the principle behind using this ratio as a method?

This kind of 100:10:3:1 ratio probably applies to the other most important things in life:

(1) Looking for a life partner. Girls shouldn't go out with every guy who chases them. And then she shouldn't have a BGR with every guy she goes out with. Of all the BGRs, she should only marry one. Of course, some girls don't have a lot guys chasing them, so one needs to adjust the ratio accordingly. But there are downsides whether you choose too high or low the ratio.

(2) Our children's upbringing and education. For most parents who are lucky enough, we are probably bombarded with many options of the skills (sports, arts etc) and education (from early pre-K schools to eventual tertiary institutions) to provide for our children. If parents have not considered all these options enough, they are probably not doing enough justice to their children.

(3) Looking for a career (or success in building a product). Of course, most times we might have no choice. If we do realize we have choices at times, it is probably apt for one to try to hear the rhythm of his drummer. On the other end, alot of the towkays and more recently, the tech founders, have tried much more things during their journey, before they eventually made the breakthrough with that 1 business or product.

I will now stop my digression and go back to the original intent to answer your question. Your original question was whether this particular ratio applies to REITs or not? IMHO, i feel this is not the correct question to ask. The correct question to ask would be "What is the principle behind this particular ratio?

Methods are abundant in this world (especially in this post truth one where everyone has an online opinion). It is easy to get lost trying to leverage methods. It is the principles that are durable and leverage-able across fields. What is the difference between methods and principles?

I probably didn't answer your question directly. But if i do (answer it directly), then it defeats the purpose of me trying to represent that there is a difference between methods and principles, and understanding the principle is more important than any methods you read online.

[specuvestor]

Just to digress a bit: indeed Weijian is spot on to understand the principle than the method

Confusing the 2 and that’s how even financial guys can come to the absurd conclusion that Private Equity is safer than treasuries because their price don’t fluctuate as much

It is ok to err on judgement but not on principle.

Buying REIT is like buying funds. Exposure is to the country, sector, specific property but also to the manager. It has certain diversification within the sector, but unlike you will buy the best properties for you, sometimes the main consideration is of the sponsor. So you have to study the sponsor as well

As for particular question on 1 property or 1 basket of property, it depends what you understand is diversification vs diworsification