One of the more useful aspects of keeping my Transaction Journal is that when an investment goes south, I can go back and see what my reasons were for initiating or adding to a position. With Tanger Factory Outlet Centers ("Tanger") down 29% this year, it seemed like an opportune time to determine where my decision making could be improved before investing in another company in which I have lost about 40% of my initial investment.
Although I don't have a Transaction Journal entry for my initial establishment of a half position in Tanger on March 10, 2017, it was at $31.00 per share. That meant the starting yield was 4.2%, before management boosted the dividend by 5.4% in April 2017. I remember being interested in Tanger based on my past experience covering US-retailers at work, and having visited a number of Tanger outlet malls. The locations I visited were always busy, fully occupied by interesting stores, leaving positive impressions. The company had also partnered with RioCan REIT to open a location in Ottawa in 2016. My calculations based on some old FFO numbers suggests I initiated a position at a P/FFO of about 13X.
Based on the above, I can see a couple of risks that are common across other of my investments. Firstly, the 4.2% yield with an imminent dividend hike a month later would have been tempting. Add to this that I had a very limited, albeit positive view of the company based on my personal experiences. The kicker was likely the relatively cheap valuation, as I've always been reluctant to pay more than 15X earnings/FFO for companies/REITs.
Next is my entry from June 2017:
June 21, 2017
Buy - Added to half position of Tanger Factory Outlet Centers (NYSE: SKT) at $24.98
Reasons: With the valuation sitting around P/FFO of 10X, I think this discount mall REIT is one the biggest bargains I see in the US markets. The 5.5% yield, proven management team, and history of distribution growth throughout different points in the economic cycle all led me to add to this position.
Risks: Even though Tanger was down 3% when I bought for no reason, I do think it will go lower with any bad news/results in coming months. Chose to add now given my plans to discontinue paying the $30/quarter to my discount broker to give me a better CAD/USD exchange rate. Lastly, although I think the "death of the mall" rhetoric is overdone, I don't expect strong growth out of Tanger in 2017 given secular headwinds.
At the risk of sounding very self-critical, there are a couple of huge red flags. The fact I'm investing so that I can take advantage of a decent exchange rate to get the most out of a $30 fee; it's sad I'm stressing over sunk costs when I should be worried about capital preservation. Secondly, I seem to avoid asking myself why the company's stock is down almost 20% from my first purchase, and instead celebrating the cheaper valuation. It's odd that I expect the stock will fall lower, and growth won't happen in 2017, yet throw more money into the investment. On the plus side, at least I rightly identified those two risks.
Now for my last entry from October 2017.
October 27, 2017
Buy - Completed my position in Tanger Factory Outlet Centers (NYSE: SKT) at $23.00
Reasons: JC Penney cut their outlook for 2017 and I was able to purchase shares in Tanger at a ~5% discount to yesterday's price (which was a good deal at about P/FFO of 10X) in order to complete my position. Dual kickers: JC Penney isn't even a tenant of Tanger and by buying today, I will benefit from owning before the shares trade ex-dividend on Monday.
Risks: My bet is that Tanger will continue to trend downward in the short-term, and I'll likely miss out on buying at the bottom. That said, I can't time the market, and I view Tanger as a long-term holding. The way mall stocks are trading lately, the death of bricks-and-mortar retail seems to be imminent, even though online retail only accounts for about 10% of total US retail sales.
Buying before a company's stock goes ex-dividend continues to be a problem for me. This is clearly an issue of chasing pennies at the expense of losing dollars. Again, I foresee the stock falling lower, but am not prepared to wait for that to happen. My bet is that I had excess funds kicking around my RRSP that I wanted to invest before the end of 2017 in order to help meet my forward dividend income goal. Lastly, I throw in the 10% fact to justify my need to increase a falling position and annoy present me in the process.
Taking a step back, based on my entries, there are a couple lessons I can learn from my experience with Tanger.
- Investing in a company with a cheap valuation, without a thesis for what could happen in the future to raise the valuation, isn't a good idea. Cheap companies are sometimes cheap for a reason. My recent experience of paying a little more for great companies (i.e. Algonquin Power) shows I am capable of change.
- Buying shares prior to an ex-dividend date has no net benefit. I have to give up on chasing those pennies in order to save dollars.
- I have to work on my desire to keep myself heavily invested, with low cash amounts in all three of my investment accounts. It's sometimes alright to let cash sit idle for periods of time.
- Before adding to positions that are going down, I should revisit my initial investment thesis instead of simply justifying my actions as "averaging down". There should be valid reasons for continuing to invest in a company, not simply to complete positions.
- I have to stop generalizing my personal experiences and comfort level with a brand. I'm one of millions of Tanger customers, and my experiences are totally irrelevant to their success as a company.
Here's hoping you might be able to learn from my mistakes and avoid them yourself.