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Transcription of interview with Charles Sizemore on October 7, 2013.
Douglas Goldstein, CFPÆ, Financial Planner & Investment Advisor
Charles Sizemore is the CFA and founder and Principal of Sizemore Capital Management which
is a registered investment advisor.
Douglas Goldstein, financial planner & investment advisor, interviewed Sizemore on Arutz Sheva
Radio.
Douglas Goldstein: What does the CFA stands for after your name?
Charles Sizemore: It is Chartered Financial Analyst and what that stands for is 3 years
of very rigorous testing.
Douglas Goldstein: Youíd written an article a while back about real estate investment
trust around the world and youíre focusing on RITs (real estate investment trusts) in
the Far East.
Do you think thatís a good place for people to be looking to get real estate exposure?
Charles Sizemore: I certainly think you can be and price is the most important factor
there, is it undervalued, is it overvalued and you canít escape that but right now I
do think RITs in the far east are pretty attractive for a couple of reasons.
One all of the scare over fed tapering is caused anything around the world associated
with income to drop in price.
Two, Asia in particular has been hit over the last year just due to fear that the China
was slowing down.
So you take those two together and I think you do have some pretty nice opportunities
over there.
Douglas Goldstein: What if China does in fact continue to slow down?
Charles Sizemore: They are and that is continuing, those days where China was going to enjoy
10% plus growth a year, those days are probably over forever.
If they slumped down in 6-7% growth, thatís still pretty good, most of us would be happy
to have 6-7% growth every year.
Itís a high quality problem and thatís a slow down for you but I do think a lot of
that is already priced in and the key also is itís not just the value, itís the income
as well.
Youíre a little bit early or you buy these at a price thatís not quite ideal, close
but not quite there.
If weíre getting a good stream of income along the way, that really can pay over one
stakes.
Douglas Goldstein: When weíre talking about people buying RITs in the Far East, are there
currency issues that they have to be concerned about?
Charles Sizemore: Whenever you buy anything outside of your home country, there are always
currency issues.
Now the countries that I like the most, Hong Kong and Singapore, tend to have stable currencies.
They fluctuate and if you have a financial crisis like we did in 1997 and 1998, those
currencies can take a pounding even as we saw in 2008-2009, currencies anywhere in the
world can take a pounding or if people run to them as a safe, they can chewed up.
Currency instability is always a factor.
Itís just one more thing to keep in mind when
you buy.
Douglas Goldstein: Tell me about the liquidity of the RITs.
Can they be bought and sold all the time, the ones you talked about in Hong Kong and
Singapore and the like?
Charles Sizemore: You have to be careful.
A lot of these will trade in the US markets as ADRs.
ADR is a non-US security that trades in the US, sometimes sponsored by a bank and sometimes
not.
They can take different flavors but the issue is a lot of these far eastern RITs trading
the US is that thereís just no liquidity.
So if youíre thinking ìItís easier if I buy the ADRs, they go into the foreign marketî
you can potentially get yourself into a real mess there.
Some of these trade a couple of hundred shares a day and you donít want to touch that, thatís
asking for trouble.
Now if you buy in their home markets, a lot of these have daily turnover a couple of million
shares or at least several hundred thousand so I think the liquidity is generally pretty
good in their local markets and if you have a broker that can trade in those markets,
thatís no problem.
The ADRs, Iím a little bit weary of but in the event, before you buy, you should check
the volume of anything because some clearly will liquid enough.
Douglas Goldstein: On a liquidity fund, one of the things that I find in Israel is that
people often do like real estate but they like buying individual apartment.
Why do you think it is and tell me is there like this in other countries as well that
people really like buying an apartment and owning it and becoming a landlord than renting
it out which is an awesome liquid by the way.
Charles Sizemore: No, itís not liquid.
Itís a case of instead of diversifying sort of putting all your eggs in one basket and
then watching that basket very close so thereís something wrong with that of course, but as
per your question why do Israelis favor real property, why they favor apartments, Iíve
noticed in a lot of the world.
My wife is from Peru so I spent a lot of time in South America and Iíve noticed among wealthy
and upper middle class, people that have investible funds they have a strong preference for property
over shares.
They view the stock market as kind of being a form of gambling and they see property as
being a real [tent blast] and I think a lot of these goes to a long history of inflation.
South America has had an awful time with inflation of RITs history and so people look for something
that holds this value.
Israel had some pretty significant inflation issues back in ë70s and ë80s and I think
that has an impact on people psyche.
Douglas Goldstein: What happens when youíre in a low inflation?
In fact, Israeli economy is considered one of the best economies in the world now.
Inflation is very under control.
We didnít have the same housing crisis that everyone had.
Does it still make sense if thereís low inflation to buy apartment?
Charles Sizemore: It makes sense to have apartments as part of your overall allocation.
Now back to the Israeli economy as a whole, Israel is pretty amazing right now.
Itís a technology hub.
Thereís a lot of exciting things happening there so you donít want to limit yourself
to only investing in property.
You want to be a part of that market as well and you want to look for opportunities there,
but I think that owning an apartment or a portfolio of apartment can certainly be part
of your overall portfolio particularly if they pay good [brands] and youíre covering
your mortgage and itís a good stream of income for you as thereís no reason not to have
that be part of the mix.
Douglas Goldstein: Letís say youíre a real believer in real estate and you like
owning property.
You believe that like Mark Twain said, you should buy real estate because theyíre not
making it anymore.
Do you think itís better to buy it in the form of individual properties or is it better
to buy RITs?
Charles Sizemore: For the average investor, the average not super high net worth but upper
middle class to letís say an [issue] level accredited investor, somebody that has about
a million dollars investible funds, you can buy a couple of individual apartments or a
couple of houses, thatís achievable with your level of wealth.
Youíre probably not going to be able to buy an office tower or an entire apartment building
so the reason to go for RITs or some sort of similar vehicle is you get an entire portfolio
of large properties that you would not normally be able to buy on your own.
Douglas Goldstein: It
seems to me though itís like a best of both world approach, you get the asset you want
to on without having all of the trouble.
Charles Sizemore: You get professional management.
You pay for the professional management and thereís nothing wrong with that and what
really it comes down to though is what is your opportunity cost?
If you see an apartment thatís just being sold for a fire sale price, you have to do
the math.
If I buy this, is this a better deal than I can get somewhere else?
Each individual deal has its own merit but as a general rule I would say, buying a portfolio
RITs is a great way to get a diversified basket real estate.
Douglas Goldstein: What sorts of similarities do you see or maybe major differences between
the two countries, England and United States, and the opportunities there?
Charles Sizemore: Similarities are obvious.
Youíre looking at common law countries that share a language and share a culture and thatís
great but the individual markets are actually pretty different.
The UK is completely dominated by London.
Itís not to say that the rest of the country doesnít matter but London and particularly
financial services are just a very big part of that economy and financial services are
disproportionately large part of the stock market.
The US is just a much larger more liquid market.
Now, because the US is a larger market there, a lot of companies here focused primarily
on the domestic consumer and this is true in a lot of continent in Europe as well.
This is true of France and in Spain.
The companies because they operate in small countries, they tend to have a more global
perspective.
They tend to have a much larger global footprint.
So when you invest in the UK and continentally Europe, a lot of times, youíre getting better
exposure to emerging markets.
For example, youíre getting backdoor exposure to emerging markets, so thatís a plus on
that side.
The US though it tends to be more text savvy.
The UK has a great tech companies ARM Holdings for example as their cutting edge but for
the most part, the US is a much bigger and deeper technology center than anywhere in
Europe.
Douglas Goldstein: Thoughts in Germany and the future of the Euro.
Charles Sizemore: I do think that Europe has a future kind of puts me into minority.
My view on this is that Europe has had such a chaotic past over the last hundred years.
Their entire political establishment is committee to European integration.
Every major political party of the left and the right or both committed in making the
European Union work and of course the Euro is a big part of that.
Itís not going to be pretty.
It has not been pretty for the last couple of years and I donít expect it to be pretty
going forward.
Thereís going to be some ugly altercations.
Thereís going to be some ugly choices that have to be made but my view is it will model
through.
Thereís just too many people, have too much riding on it and the cost of breaking it up
is too big.
Germany right now is pretty well bank-rolling most of the rest than EU and their taxpayers
arenít real happy about that but their politicians are not stupid.
They know that Germany does benefit from having a United Europe, they benefit from having
an open market.
Germany is a big trading country.
They have huge exports to their European partners and all over the world.
They are not going to do something that jeopardizes that.
There may be some things superficially to make it look like they are getting tap on
Greece for example.
They may kind of use Greece as a whipping boy but they are not going to do something
that dissolves the union.
They are not going to risk that.
They have too much at stake.
Douglas Goldstein: How can people follow your work?
Charles Sizemore: Go to www.charlessizemore.com and I have a free e-letter.
If they want to check me out, go there and feel free to give me a call.
Douglas Goldstein, CFPÆ, is the director of Profile Investment Services and the host
of the Goldstein on Gelt radio show (Monday nights at 7:00 PM on www.israelnationalradio.com.
He is a licensed financial professional both in the U.S. and Israel.
Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA,
SIFMA.
Accounts carried by National Financial Services LLC.
Member NYSE/SIPC, a Fidelity Investments company.
His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered
at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.
Disclaimer: This document is a transcription and/or an educational article.
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The opinions rendered herein are those of the guests, and not necessarily those of Douglas
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