By Vandermir Say, CFA
Value Investor

Most investors dream of having a large snowball one day. You want to make sure that the snowball keeps growing, however slowly, and one of the best ways for you to achieve this is by making sure it never shrinks along the way.

Placing a snowball close to grave danger in exchange for possibly large returns is not something an intelligent investor does. A high-yield investment scam is one such grave danger. If you don’t get out before the scam collapses, an investor can find his snowball has significantly shrunk. An investor will have to invest whatever little is left, and start all over again. In the worst cases, snowballs can shrink to almost nothing.

In another example, investing in a business that has owners or management with questionable integrity would be like pouring hot water on your snowball.
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Successfully calling the bottom in any crisis will give any “expert” bragging rights, but I wince whenever I see someone trying to make a prediction. After all, if there is anything we have learned lately, it’s that nothing is what it seems, and the best game plan is just like what your mother used to tell you in grade school: better be prepared.

(What is it with quotable experts and the inability to say, “I don’t have a clue?”)

Still, just like on that lengthy vacation drive when the kids start asking “Are we there yet?”, there are road signs that can indicate when we are already in the last leg of the trip.

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BY Chiu-ying Wong, CFA
Chartered Financial Analysts Society of the Philippines

A proposal is pending in the Senate to set up Real Estate Investment Trusts (REITS) in the Philippines. The proposed legislative framework was submitted by Senator Edgardo J. Angara to the Philippine Senate in July 2007, and the bill as submitted can be downloaded from this website : http://www.senate.gov.ph/lis/bill_res.aspx?congress=14&q=SBN-63. Since then, it has gone through many revisions. This article provides a basic introduction to this new type of financial product, and explores its policy implications.

How does a REIT work?
In general, a REIT is a legal entity that owns income-generating properties directly or through a subsidiary, and passes on the rental income to its shareholders on a regular basis. It is usually set up by the owners of an existing income-generating property, who will initially transfer the title of the property to a separate legal entity, either a corporation or a trust (referred to as a REIT), and then list the REIT on the stock exchange by offering part of the ownership of the REIT to the public in exchange for equity infusion. The animated graphics at this website provides a simplified example of the process of setting up a REIT.

Alternative forms of REITs have developed in other countries. A REIT that holds ownership of properties is often called an equity REIT. There are now mortgage REITs and hybrid REITs, the former of which holds mortgages of properties instead of ownership of properties, and the latter a mix of equity and mortgage REITs. Different countries have their own special types of REITs, mostly designed to minimize the tax burden of sponsors and investors.
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