May 8th, 2009 by Potato

InnVest (INN.UN) is a smallish real estate investment trust that focuses on hotels (in particular, the Choice Hotels brand). For a long time I’ve always had a preference for the Choice hotels when on vacation since they seemed to hit the sweet spot for me between affordability and quality. The opportunity to own some came in the stock market meltdown last fall, and I picked up “half a position” in November around $3.85. Now as it turns out I could have got it much cheaper just a few days later, and I recognized that I might be grabbing a falling knife at the time, which is why I only invested about half as much as I typically put in any one stock. For a long time I was sorely tempted to buy more while it lingered around $3, but never did because I wasn’t sure that it would come through the recession unscathed — after all, everyone expects hotels to fare poorly when discretionary spending/vacations gets cut back by squeezed families. Of course, a lot of bad news was priced in at $3 (and even as low as $2.40!), and a distribution cut bringing a small margin of safety was behind it, hence the internal debate. In the end I never went for it, and now with reports of a potential flu epidemic, I would expect things to be even bleaker.

However, InnVest has actually out-performed the market since the March lows — bouncing back roughly 80%. True, it was getting ridiculously low, and it probably still has some good upside left to it (the current yield is over 15%, and it’s still down over 50% from its highs last year). Nonetheless, I can’t help but wonder if this is a good time to take some profits. While I didn’t buy all that close to the bottom, I am still up over 20% so far (~14% from the capital appreciation, and 8% from distributions to date — less 2% for commissions). The first-quarter results are due at the end of the week, and there’s never any telling what will happen when those come out.

I don’t know why this one appears to be immune to the fear of a pandemic, perhaps losing Mexico will mean more Canadians vacation within Canada this summer, but I’m starting to get a bit of a gut feeling to bail. I generally try to invest with my head though, and INN looks like it’s still a hold at this level.

In more general investing news (well, for myself anyway) this spring rally has been pretty decent. I did sell a few stocks as it ran up, prematurely in all cases, because the bear market had made me fearful of rallies, but it’s still going strong. Despite the minor goofs (and I can’t really call keeping liquid cash available until I know my tax bill a mistake, even if I could have done better staying invested), as of today I finally have some outperformance relative to the TSX and S&P500 indexes. Of course, I expect to outperform, not because I think I’m good (but I hope to for that reason, otherwise trying to be an active investor is a waste of my time and commission fees), but rather because this has been a down market, and I’ve been investing over time as I managed to save money (and as I shifted from ~80% stocks to ~100% stocks in my savings). Just from (accidentally) timing the market, I should be outperforming. Since January of 2008, I’m down ~24%, compared to the indexes at roughly -28% & -36%. Of course, my returns include dividends and distributions, whereas I don’t think Google Finance’s reporting of the index values does, so it’s still not all that impressive. Nonetheless, at least it’s some kind of improvement: it was getting depressing when for over a year, despite averaging down, I was tracking roughly an 80/20 split of the Toronto and New York markets. So finally seeing a bit of outperformance is good… though I’m sure I’ll get depressed all over again if I bothered to see how I’d be doing if instead of just comparing over the last 16 months I instead looked at what would have happened if I just averaged into the TD e-series funds… (which, yes, I own some of, which helps pull my returns towards those of the index, for good or for ill).

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