Despite the overall stock market pushing new record highs, some investors are losing billions of dollars. Where did they go wrong? How can we invest smarter?
Bill Ackman just lost investors $4 billion, but he’s not alone. Along with him, there are numero
us high profile investors and funds may that may end up not only losing money, but their reputations as well. We are in a pivotal time when emotional investing is at a high and new regulations could change the investment landscape very quickly.
Bill Ackman’s Pershing Square fund just took a multi-billion dollar hit due to its lose on pharma company Valeant. Investors pulled out over $1B from the fund last year according to the Financial Post.
Much more could be withdrawn if the company cannot stem the flow. Others directly and indirectly associated with this bad investment includes numerous pension funds as well as the Sequoia Fund. With stock markets at such great highs and with similar reoccurring stories of malpractice and false data at major companies like Wells Fargo and Facebook, there should be even more concern about these investments.
What is the downside protection when a stock crashes and goes bust? Nothing.
Real estate investors can fare much better – especially in Canada. Although real estate asset values can fluctuate, they offer a tangible asset which can be held onto until better times. Income producing real estate can be even safer, as fluctuation in paper valuations are not as important when consistent cash flow coming in.
The exception to this may be when rents and demand evaporate and over-leveraged speculators with too much debt can’t cover their expenses. This is one risk some have been fearing in residential real estate in red hot destinations like Toronto. Note that a new bill being introduced aims at closing exemptions from rent controls, which could severely limit the ability of condominium landlords to increase rents.
For those investors seeking safer positions with more growth potential, strong yields, and great downside protection, it may be worth looking at some types of commercial real estate in Canada. Specifically, among local shopping plazas in Western Canada which may offer value-add opportunities and can be acquired with equity partners instead of personal debt.
Bill Ackman is no stranger to making big money bets. After all he recently purchased a NYC condo for almost $100M, with the hopes of one day flipping it for $500M. Most regular investors don’t want to lose that type of money, nor have their money managers making those types of big bets with their money. Given the current stock market, and some residential real estate trends, more investors may seek the security and consistency that income-producing commercial real estate can provide.