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Jason Zweig on TREA

Jason Zweig has an article in today's Wall Street Journal on the Account. It compares REITS with TREA. 

It may be of interest to some of you.

Bob

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Re: Jason Zweig on TREA

Since there is a paywall, I won't be able to read it for a while.  I can see the beginning part, which says that TREA is down 1.1% YTD.  From its all-time high of 442.07, it is down 1.6%, which is not much either.  No regrets on my part for my exit from it in mid-March though, at least not yet.

If nothing else changes, which is not a typical day, then the daily change in IYR determines the daily change in TREA.  In recent weeks I have observed a situation on most days:  When IYR is up, TREA is not up as much as what you would expect from the change in IYR.  When IYR is down, TREA loses more than what you would expect from the change in IYR.  This tendency is in line with what some of us expected a while ago.  

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Re: Jason Zweig on TREA

Learner:

I hope I am not violating copyright.  Re  changes in NAV you may find the following of interest as it is the only part of the article in which a TIAA principal is quoted.

"Ian Matthew, a senior director at TIAA, declined to discuss whether the account might have to mark down its holdings. 'There may be many times when market values of properties or even perceived market values might change faster than they can be appraised,' he says. 'That's in the nature of private assets that are not priced every day in a public market.'

"The Real Estate Account's properties are appraised quarterly, although those valuations come in steadily rather than all at once at quarter end 'so you don't get big lumpy spikes' in valuation changes, says Mr. Matthew.

(I bolded the quotes from the TIAA principal)

Zweig notes that the Account has a more than 10% cash cushion "to meet the demand from selling investors without having to liquidate real estate."

Bob

 

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Re: Jason Zweig on TREA

Thank you, Bob. 

To my knowledge, quoting a few sentences does not violate copyright.

I have found your quotes useful.  One never knows but, if he means what he says, I do not detect a change of course in how they do things.  I understand why he does not want to be very open and frank about certain things.

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Re: Jason Zweig on TREA

Another excerpt from the article

¨The risk of sudden erosion in values—and the murkiness between the pricing of public and private real estate—has prompted some investors to bail out of the TIAA Real Estate Account.

Among them is Jay Ritter, a finance professor at the University of Florida, whose retirement plan is invested at TIAA.

“The smoothness of the reported returns [in the Real Estate Account] can lull the investors into thinking things are more stable than they really are,” he says.

Prof. Ritter says he sold out of the account on Apr. 17, when he estimated that it was about 20% overvalued.¨

I had concerns similar to Professor Ritter´s even earlier. I had gotten out of most of it several years ago and totally liquidated my remaining stake on March 10 (at which point it was up 23 basis points YTD.)  I made a permanent decision to avoid nontransparent investments with murky pricing mechanisms in the future.

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Re: Jason Zweig on TREA


@GLI2019 wrote:

Learner:

I hope I am not violating copyright.  Re  changes in NAV you may find the following of interest as it is the only part of the article in which a TIAA principal is quoted.

"Ian Matthew, a senior director at TIAA, declined to discuss whether the account might have to mark down its holdings. 'There may be many times when market values of properties or even perceived market values might change faster than they can be appraised,' he says. 'That's in the nature of private assets that are not priced every day in a public market.'

"The Real Estate Account's properties are appraised quarterly, although those valuations come in steadily rather than all at once at quarter end 'so you don't get big lumpy spikes' in valuation changes, says Mr. Matthew.

(I bolded the quotes from the TIAA principal)

Zweig notes that the Account has a more than 10% cash cushion "to meet the demand from selling investors without having to liquidate real estate."

Bob

 


TREA also has an unlimited line of credit from TIAA which can be drawn on if needed to facilitate distributions for which there Is an expense charge of about 0.30% of the TREA 0.78%  ER.

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Re: Jason Zweig on TREA


@Moira wrote:


I had concerns similar to Professor Ritter´s even earlier. I had gotten out of most of it several years ago and totally liquidated my remaining stake on March 10 (at which point it was up 23 basis points YTD.)  I made a permanent decision to avoid nontransparent investments with murky pricing mechanisms in the future.


Concerns anytime are justified.  Vigilance is essential.  I am glad I did not take anything out several years ago.  But. on March 17 this year, I got out.

In general, I agree with your last sentence.  In particular, for TREA, I have a different opinion.  I can easily see myself back in TREA under more favorable conditions.

intruder, precious liquidity at a reasonable price is completely acceptable to me when I allocate much more than 5% to an account that has direct investments in real estate.

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Re: Jason Zweig on TREA


@Learner wrote:

@Moira wrote:


I had concerns similar to Professor Ritter´s even earlier. I had gotten out of most of it several years ago and totally liquidated my remaining stake on March 10 (at which point it was up 23 basis points YTD.)  I made a permanent decision to avoid nontransparent investments with murky pricing mechanisms in the future.


Concerns anytime are justified.  Vigilance is essential.  I am glad I did not take anything out several years ago.  But. on March 17 this year, I got out.

In general, I agree with your last sentence.  In particular, for TREA, I have a different opinion.  I can easily see myself back in TREA under more favorable conditions.

intruder, precious liquidity at a reasonable price is completely acceptable to me when I allocate much more than 5% to an account that has direct investments in real estate.


Well if you think an annual 0.3% fee on the value of TREA is a reasonable price to pay for a guarantee of liquidity of 5% Of Your assets then go for it. I prefer the liquidity of the stock market for which there is 0% fee.  But then I do not invest in private equity whose asset values are murky and are only appraised every 3 months with restrictions on when to invest or withdraw funds.

 

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Re: Jason Zweig on TREA


@Intruder wrote:

@Learner wrote:

intruder, precious liquidity at a reasonable price is completely acceptable to me when I allocate much more than 5% to an account that has direct investments in real estate.


Well if you think an annual 0.3% fee on the value of TREA is a reasonable price to pay for a guarantee of liquidity of 5% Of Your assets then go for it. I prefer the liquidity of the stock market for which there is 0% fee.  But then I do not invest in private equity whose asset values are murky and are only appraised every 3 months with  no restrictions on when to invest or withdraw.

 


Correction:  I did not write 5% of my assets.  I wrote "much more than 5%".  See my original comment above.  I do not need a "go for it" from anyone.

By "the stock market", if you mean VNQ, a 5% allocation or less was what you had, which is perfectly reasonable.  But I had much more than 5% in TREA for years.  VNQ has liquidity indeed and 0% fee for it but VNQ is just not appropriate for a large allocation IMO.  By "the stock market", if you meant the stock market, I have an allocation to it.

If you mean TREA in your last sentence, I invest in it when I think it is attractive enough for me.   

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Re: Jason Zweig on TREA

Moira 

I have no idea who Ritter is and I welcome his opinion. 

But he is NOT QUOTED in the version of Zweig's article I referred to (print version of WSJ,  today’s Weekend Journal).

Again,  we all operate on our own comfort level. When TREA is not as transparent as some might wish but is going up, it's magical.

When TREA remains not as transparent but fears arise, it is suspect.

That says more about the investor than the account. Not exactly a surprise. 

For many, many years (pre the revamped Morningstar) I have said the Account is not a magic carpet ride.  I guess each generation needs to learn this lesson. 

Bob

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Re: Jason Zweig on TREA

Bob,

Very interesting to learn that there is such a substantial difference between the print and online editions of Jason Zweig´s article.

There is more information about Jay Ritter here:

https://site.warrington.ufl.edu/ritter/published-articles/

TREA has indeed been an apparently magical product in the past.  And TIAA had the overall strength to sustain that magic through considerable turmoil.

There are many good reasons to think that the TIAA magic may not be sustainable going forward.  Their real estate holdings are highly concentrated in locations and types of property that may take longer to recover (if ever) than I am likely to live.

The current circumstances have affected my subjective assessment of my projected life expectancy and have also forced me to come to terms with the possibility that someone else may be managing my portfolio for some period before I shuffle off this mortal coil.  

Both of these considerations have made me decide to streamline my portfolio into something simpler, more diversified, and more transparent for me to explain to my POA , executor, and heirs.

Edited to add:  I have been rethinking many of my past choices in recent years, both lifestyle/consumption and investment.  I have been moving in the direction of more simplicity and sustainability in both.  I used to subscribe to the print edition of the WSJ (and other newspapers.)  I don´t anymore.  I subscribe to digital versions instead.  

 

 

 

 

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Re: Jason Zweig on TREA

Moira wrote:

"The current circumstances have affected my subjective assessment of my projected life expectancy and have also forced me to come to terms with the possibility that someone else may be managing my portfolio for some period before I shuffle off this mortal coil.  

Both of these considerations have made me decide to streamline my portfolio into something simpler and more transparent for me to explain to my POA , executor, and heirs."

I am 100% with your thinking and have streamlined to my satisfaction.  I will shortly be firming things up with my estate planning lawyer (when he is allowed to hold meetings).

All the best,

Bob

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Re: Jason Zweig on TREA

As Bob, I was not aware of the Ritter quotes until I read this thread.  What is particularly interesting is that the Ritter comments occurred in the first version of the article -- the electronic one -- which is dated at 11:00 a.m. on Friday May 22.  The print copy of the article is for the weekend version of the WSJ, Saturday May 23.

So why was the print column edited to take out the Ritter comments, which give the article a whole different twist?  They appear in different parts of the electronic copy and are very carefully sliced out of the print version.  The first comment notes his estimate that TREA "was about 20% overvalued," while the second comment observes that Ritter is selling "at the expense of investors who stayed put.  Getting our at a higher price 'allows people like me to dilute the other investors,' he says ruefully."

Why were Ritter's comments removed from the print version?  Doesn't seem like something Zweig would have done.

Alan

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Re: Jason Zweig on TREA

Why were Ritter´s comments removed from the print edition? 

Most likely (and innocent) explanation is the unforgiving constraints of space and layout in the print edition.  

I imagine Jason Zweig had nothing to do with the cut.  A late night editor on a wee-hour deadline trying to make a zigsaw puzzle layout come together.

 

 

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Re: Jason Zweig on TREA

I agree with Moira.  I see nothing conspiratorial.  I do see a difference, as noted, between editorial and print policy.

Anyway, the Ritter comment might reinforce the inclination of those who wished to sell TREA, but Ritter--or any other Business professor--would not have  any influence on my investment decisions.

I have yet to see compelling evidence that business professors and or economists are any better at making investment decisions than the rest of us.  Feel free to disabuse me with compelling evidence.

Bob

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Re: Jason Zweig on TREA

Bob wrote:

I have yet to see compelling evidence that business professors and or economists are any better at making investment decisions than the rest of us.  Feel free to disabuse me with compelling evidence.

Economist here and I agree with you in general.  Even some Nobel laureates have famously screwed up (see Roger Lowenstein´s book, When Genius Failed.)  Irving Fisher, still widely respected in the profession for his pioneering academic work, famously lost his own personal fortune and will forever be known for his 1929 reassurances that stock market prices had reached a ¨new permanent plateau,¨ issued just days before the Crash.

That said, I am a fan of Jason Zweig´s books and articles and have particular respect for the subset of economists he chooses to consult and cite in his columns.  (Full disclosure:  I am one of those economists quoted in his columns and I personally know a number of the economists he has cited in past work, though I had never met nor heard of Professor Ritter before encountering him in Jason´s column last week.) 

I recognize that none of us is infallible.  If any of us were infallible, that person would be rich beyond anyone´s wildest dreams. 

Some academic economists have been lucky. 

Some academic economists have been corrupt.  (See the Academy Award winning documentary Inside Job (trailer here) for examples of economists who have not covered the profession with glory.  Also see David Warsh´s weekly columns on the vagaries of notable economists available free.  (One place to start is this piece on the Vainglories of Economists. Warsh is a veteran journalist who covered the economics profession in a widely followed Boston Globe column for many years.)

This economist (me) has been conservative.  Not interested in being rich beyond my wildest dreams.  But also not interested in being invested in an undiversified financial product with demonstrably stale pricing and a murky valuation process, especially during a volatile period in which the end of my life seems statistically closer than I had previously expected.

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Re: Jason Zweig on TREA

Moira, your last paragraph says exactly what I have been thinking. This is why I bailed definitively on TREA in early April -- even though I had been a very early investor in it in the previous century.

If the market -- and my portfolio -- is going to crash, I won't need any help nor would I find any compensation from my holding TREA during such a calamity.

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Re: Jason Zweig on TREA

I very much welcome your views, Moira, and share your respect for Jason Zweig.

I know no more or less now about the workings of TREA than when I initially invested over 20 years ago. What I did and do know--and this matters greatly to me--is the fund's liquidity and the fact that it honors its posted daily value.

(Years ago David Swensen, then a TIAA trustee, reiterated these points.)

I confess, as well, that I have a particularly large sum (still larger including my wife) in TIAA Traditional and can make no claim to understanding its internal operations except to look periodically at its annual report.

In addition, I am one of those stubborn critters who kept my TIAA LTCI even though it's administered by MET. The value of the policy is well $500000.

So I guess a I tolerate a higher degree of ambiguity than you. Perhaps this is why I taught literature! 😉

All the best.

Bob

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Re: Jason Zweig on TREA

"I have yet to see compelling evidence that business professors and or economists are any better at making investment decisions than the rest of us.  Feel free to disabuse me with compelling evidence."

I hope no one will take the following comment as something against professors of business and economics because that is not my intention. 

In the past, I remember writing at least one M* post that two economics professor friends of mine lost a lot of money in stocks despite their hard work and determination.  Investing is not necessarily a matter of knowledge of business & economics or high IQ.  Temperament and patience coupled with a few basic investing rules are much more important.  

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Re: Jason Zweig on TREA

Bob wrote:

I know no more or less now about the workings of TREA than when I initially invested over 20 years ago. What I did and do know--and this matters greatly to me--is the fund's liquidity and the fact that it honors its posted daily value.

(Years ago David Swensen, then a TIAA trustee, reiterated these points.)

I should hasten to note that I spent most of my professional life giving very little thought to my personal investments.  My late husband and I had a division of labor where he spent time on things that interested him (which included household investments, cooking, and shopping) and I spent time on things that interested me.  Things that interested me included investment of nonprofit endowments and public DB pension funds and ERISA policy.

His unexpected and untimely death some years back meant I urgently needed to educate myself on a bunch of urgent practical stuff (including how to cook, shop for household needs, and be a good steward of the resources my husband had left in my care.)  I knew from my own past readings that David Swensen was widely respected for his management of Yale´s endowment so his book for lay investors seemed like a useful guide at a time when I was feeling rather overwhelmed.  The portfolio I inherited originally had some of Vanguard´s REIT fund in it and David Swensen´s suggestion of TREA impressed me as a better alternative at a time in my life (new widowhood) when I was feeling a great deal of stress and uncertainty.

I am old enough to remember a time when Paul Samuelson was on the TIAA board and I knew him well enough to be reassured by that.  (Also did not have much choice at the time, since I worked for an institution at the time that did not offer alternatives to TIAA.)   

David Swensen is no longer on the board of TIAA and I do not know if he still feels the same about TREA as he did in the past.

I do not feel that I know very much about the investment philosophies of any of the current members of the TIAA board. The Nuveen acquisition gave me pause.  I am grateful to be living in a time with alternatives.

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