The U.S. Treasury 10-year yield has touched 3%, and everyone knows what that means.
As rates have begun to rise over the past few weeks, I've seen a steady stream of REIT-bearish commentaries across the web. Some of them are written in a "War of the Worlds," "the Martians have landed," apocalyptic tone.
"It is just a lose-lose proposition for REITs, and when rates rise, we must sell. It's time for REIT investors to sell! Sell now! No research, independent thought, or discretion needed – just sell immediately!"
You see, the "conventional wisdom" (an oxymoron, kind of like "military intelligence") holds that rising interest rates means falling real estate prices, so real estate investment trusts (REITs) are now… pretty much worthless.
Furthermore, this wisdom tells us that rising interest rates will make the dividend yields of REITs less attractive when compared with fixed-income investment opportunities, so they indeed must sell off to provide higher returns to new buyers. This line of thinking also holds that it will cost more for REITs to borrow money, which in turn will reduce the bottom-line profits.
Well, there's one big problem with all this conventional wisdom and what it's telling us about owning these investments right now…
It's all wrong. Dead wrong.
So if you happen to be tuned into the conventional wisdom, watching T-note yields creep up and dumping your REITs, or, if you don't own REITs, ruling them out as investments on the strength of this panic… you're making a mighty pricey mistake.
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About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of "Max Wealth" and Heatseekers.
Great article Tim. Thanks.