Coronavirus and the REIT Dude’s Investments: Part 2

There’s a lot going in in the REIT Dude’s life right now. I have an incredible 2-month-old baby at home. I spend my days (and the occasional night and weekend) working in the corporate world. And, it lately seems, I spend the remainder of my time looking at market news and wondering if the world (or, at a minimum, the Dow Jones Industrial Average) is going to implode. When I last posted about the Coronavirus, it was February 28, 2020. That now feels like 2 years ago, not 2 weeks ago. But the virus is still so new (so “novel,” if you will) that Chrome’s spellcheck doesn’t yet recognize its existence and identifies it with a squiggly red underline.

At the time of my last post, the Dow stood at 25,766, a situation I then described as “decidedly sub-ideal.” Since then things, uh, haven’t improved. As of this writing, the Dow dropped 9.99% today alone and now stands at 21,200. We may be at the end of the fall, or we may be nowhere close to the end. The federal government will be stepping in any minute now to conduct evasive manuevers, but what it isn’t doing–providing enough tests for the virus, establishing procedures for testing the populace and quarantining those who come up positive, and putting the country on wartime footing to devote whatever resources might be necessary to the search for a vaccine–may be more important, both biologically and to the market. Fiscal stimulus is significant, but we are faced with a biological problem and I won’t be surprised if the market continues to panic until there is a biological solution, whether that means the development of a workable vaccine or the flattening out of the new infections curve. The remainder of the NBA season was cancelled, March Madness was cancelled, and the baseball season has been postponed. I don’t want to exaggerate the importance of sports to financial markets, but I actually think all of those things matter a lot. To people who rarely watch the news and don’t follow financial markets closely, that might have been the first time they realized that the Coronavirus is a seriously big deal. The bottom line: If things were bad on February 28, they’re positively fucked now. And it’s going to get worse before it gets better.

I can’t tell you what to do, but I can tell you what I’ve done. Mrs. REIT Dude and I stocked up on the essentials (toiletries, diapers, laundry detergent, TP, non-perishable food, etc.) We also made sure not to waste precious freezer space. Our freezer is filled with frozen meat, fruits, and veggies in case we aren’t able to get fresh food for a while. There are plenty of eggs in the fridge which can be hard-boiled to extend shelf life if need be. Hand sanitizer was long gone, so I bought a couple bottles of rubbing alcohol. I also bought a substantial amount of beer, just in case quarantine gets boring. None of this required paying exorbitant prices to third-party sellers on Amazon. All told, I think we spent about $400. I’ve seen a lot of people on social media claiming that it is a sign of panic and social decay to stock up on goods like this. Perhaps so, but honestly I don’t see the harm. Even if the danger turns out to be exaggerated, this is all stuff we’re going to use anyhow. It’s not the end of the world to buy July’s toothpaste in March.

As for my investing, despite it all, nothing has changed. I contribute the same amount (as close to the max as I can get) to my 401k every month, and it’s automatically invested 80/20 into Vanguard’s total stock and total bond market funds. On top of that, I haven’t sold anything, and I continue to purchase the same individual stocks I like. If anything, as a dividend investor, there are suddenly a whole lot more stocks that seem appetizing to me. But while I haven’t sold anything, I am putting a little bit more focus into quality. At this point, bankruptcies in the travel and leisure sector are a very real possibility. This could spill over into other sectors (for instance, hurting the bottom lines of the banks that provide large revolving credit lines–sometimes unsecured large revolving credit lines–to those companies.) I will probably do a post about lodging or retail REITs I might gamble on later, but just keep in mind for now that those companies constitute gambling at this point, and that’s not what I’m in the mood for right now.

When I’m buying REITs right now, I’m looking for top-shelf blue-chip issues that aren’t in the immediate “blast zone” of the Coronavirus. This would include high-end residential REITs like Essex (ESS) and long-term triple-net REITs like Realty Income Corporation (O). Many investors believe that REITs are dangerous in a time like this, and to some degree that’s true (if only because all equity investments are dangerous in a time like this), but keep in mind that REITs are traditionally considered defensive stocks that thrive in down times. It’s only because the last big recession in 2008 involved real estate that we have the perception that REITs underperform in a recession. Now is a good time to look for high-quality companies that are getting battered with the rest of the market but that are likely to be standing tall when the Coronavirus passes.

The other alternative is not to even bother with picking individual stocks. In a bull market, the indices are soaring, and there’s a lot more incentive to look under rocks for bargains and high yields. But when the entire market is down 20, 30, even 40%… you may as well just buy the market. I would be hard-pressed to argue with anyone who devoted 100% of their investing dollars into Vanguard’s total market index fund (VTI) or its REIT cousin (VNQ) right now. As of right now, VTI yields 2.1% and VNQ yields 4.66%. Locking in yields like those on broadly diversified index funds is far from the worst idea on the planet.

Whatever you do, keep your loved ones close, and stay safe. I’m thankful to the readers of this blog (however few in number you may be), because, among other things, the internet will only become a more important source of social interaction if we all wind up in quarantine over the coming months. Stay the course with your investments, and just try to keep in mind that as share prices drop downside risk decreases correspondingly. If those dividends don’t get cut, you can lock in some sweet yields.

Published by reitdude

I am an attorney and dividend investor from California with a particular interest in REITs. My fantasy football opinions may well be better than my investing opinions.

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