Benjamin Graham and REITs

contenu

Evaluating Real Estate Investment Trusts (REITs) using the 17-point Value Investing framework of Benjamin Graham, Warren Buffett's mentor.

Graham's Framework

Graham's 17-point stock selection framework is a system of checks and balances designed to analyze any equity based investment (regardless of industry).

So stocks from sectors with lower Earnings are required to have more Assets, and vice versa. Stocks of poorer quality - or of questionable history - are required to provide a greater "Margin of Safety" by way of Assets and Earnings.

Evaluating REITs

Real Estate Investment Trusts (REITs) are inherently equity based instruments, with all the same risks that come with buying stocks. So they should be evaluated by Graham's 17-point framework just the same as any other stock.

Since REITs generally lack Current Asset and Current Liability figures for evaluation, they would have to be evaluated using Graham's criteria for Public-Utilities and Financial Enterprises; and not Graham's criteria for Industrials.

Results

REITs don't generally score too well on the Graham framework and that's probably to be expected because business equity has historically been a better performing investment vehicle than real estate (or anything else, for that matter).

The biggest draw of REITs appears to be the combination of high dividends and price volatility. REITs are therefore seen as a great avenue for small scale speculation in real estate.

Graham has always been very clear that speculation is never a feasible long-term strategy.

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https://www.grahamvalue.com/blog/benjamin-graham-and-reits
Résumer
The article discusses the evaluation of Real Estate Investment Trusts (REITs) using Benjamin Graham's 17-point value investing framework, which serves as a systematic approach to analyze equity investments. Graham's framework emphasizes the need for a balance between earnings and assets, requiring lower-earning stocks to possess more assets for safety. Since REITs are equity-based and share similar risks with stocks, they should be assessed using this framework. However, due to the absence of current asset and liability figures, REITs are evaluated under criteria meant for public utilities and financial enterprises rather than industrials. The findings indicate that REITs typically do not perform well under Graham's framework, which aligns with the historical trend of business equity outperforming real estate investments. Despite this, REITs attract investors with their high dividends and price volatility, making them appealing for small-scale speculation in real estate. Nonetheless, Graham cautions against speculation as a long-term investment strategy, highlighting the importance of a solid investment approach.