Eureka Correspondence

The red flag for retail

Robert Gottliebsen has been raising the red flag regarding the online threat to retail property for quite some time now. In his article Lighten the retail property load, however, I believe that the analysis is incomplete.

There does not seem to be any appreciation of the difference between non-discretionary and discretionary retailers in the discussion and the differential threat they each face from increasing online retail creep.

This limitation is especially noticeable in the tables which only presents a nebulous “retail exposure” without drilling down to reveal the mix between  non-discretionary and discretionary tenants . SCA Property Group tenants, for example, are predominantly non-discretionary. Charter Hall Retail is similar I believe. Their online threat is likely to be more limited. They are certainly not exposed to that insidious foreign online threat in the same way that discretionary retailers are.

Since you have lumped all retailers together without differentiating between them, why wouldn’t you include BWP in your analysis? It is 100% retail. Just a thought.

LB

The 2% rule for stock allocation

Brendon, I enjoyed reading your lessons learned article. For curiousity sake, how much of your portfolio is allocated to small caps (uncapped stocks in your case) in terms of percentages?

The other thing, if you assume your 2% rule for allocation, that implies you have a portfolio of 50 stocks. Isn't that considered a little excessive?

SH

Brendon’s response: Thanks for your letter. You can see my portfolio by putting your mouse over “investment portfolios” on the top menu and selecting my name.

The 2% and the 50% at-risk value alluded to in my article is not applied universally between large and small caps. For the riskiest stocks in my portfolio, I assume I can lose half and this means for a $100,000 portfolio, the most I should buy is $4,000 worth of the stock. But when it comes to blue-chip stocks, using the 50% at-risk value might be too conservative.

If you used a 20% at-risk value for blue-chips, you can buy up to $10,000 worth of the stock on a $100,000 portfolio. It is ideal for you to think of stocks as bands of risk with an appropriate at-risk value. Before buying a stock, you need to go through the mental exercise of assigning it to a risk band to determine your position size.

Also, you need to consider if you want the value of your portfolio to be based on all asset classes (in cases where you might own bonds, property, etc on top of equities) or if the value should be based on just the equities component.

LNG’s impact on the economy

Great article by Adam Carr about how our market’s still in value territory. However, I’m not hearing much about the effect LNG will have on our economy when it finally comes online . As a supplier to this industry we are seeing the spending on construction, but not much news on the on the wider economy and the long term benefits from LNG.

Andrew Kinsman

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