Tritax Big Box (BBOX), a Real Estate Investment Trust (REIT) which specialises in big warehouses recently had an IPO for issue of shares which I took part in. Normally, I shun these kinds of IPOs /new issuances but in the case of Tritax, it was just screaming buy! One of the reasons is because BBOX is a property company with great prospects which I have followed for a while and as I wanted to get exposure to property in my investment portfolio, this company seemed like the ideal way to go. But an even bigger reason for buying is that Tritax issued shares at 124p (£1.24) at its IPO whilst its current shares were trading as 130p on the London Stock Exchange.
As you can see, by simply buying at the IPO price of 124p, you could make an immediate profit of 6p a share. What was fascinating was that when BBOX announced the issue of shares at the discounted price of 124p, the share price on the London Stock Exchange did not fall as you would have expected. This was a great opportunity to make some money. It was a chance to make a quick return of almost 4.83% for simply partaking in this equity offering
So I applied to buy £1,000 worth of shares at the IPO which closed in early February. The offer was oversubscribed due many investors realising what what a fantastic deal this was. Thus, my investible amount got scaled back to £748.96 and I got 604 shares which I was happy with.
Since the IPO, the BBOX share price has only moved one way – up! This past week, the shares had reached a price of 134.5 and I decided to take some profit by selling 213 shares. I was able to get a return of over 8%. Aa a buy and hold investor, it may seem strange that I have sold some shares. But selling some shares quickly was always the plan and that is why I oversubscribed at the IPO. Instead of buying £500 worth of stock which was the position size I was comfortable holding in this company, I placed an order for £1000 (scaled back to £748.96) meaning that I could sell the ‘excess’ for a quick profit and keep the position size of this company to £500 targeted gaol in my portfolio.
In the most simplest of terms, position sizing is the part of your investment or trading strategy that tells you how much money to place into a given trade. For example, in my 2015/16 ISA portfolio, I currently have £15,000. If I buy shares worth £1,500 in a certain company, my position size in this company would be 10% of my total capital. If I bought £5,000 worth of stock, my position size would be 30% of my capital.
Position sizing is a great way for investors to protect themselves against catastrophic loss – a loss so large that it could wipe out your portfolio. A catastrophic loss typically occurs when an investor takes a much larger position size than he should. He’ll find a stock or option trade he’s really excited about, start dreaming of all the profits he could make, and then make a huge bet. He’ll place 15%, 25%, 35% or more of his account in that one idea. He’ll “swing for the fences” and buy 5,000 shares of a stock instead of a more sensible 500 shares. He’ll buy 30 option contracts when he should buy 3. By doing this, he risks to losing all the hard work he has done to build a portfolio to the size it currently is.
The importance of position sizing in your portfolio. By getting the right mix, you can diversify far more efficiently and your portfolio would be far less volatile. Position sizing gives your portfolio the ability to preserve capital and avoid catastrophic loss.
Why Tritax Big Box REIT (BBOX) is a good stock
There are a number of reasons I have held on to the 391 shares I have instead of selling them for a quick return. As a buy and hold investor, I want to hold stocks for as long as possible. preferably forever, with the intention of extracting the cash-flow (dividends) from there. Tritax BBOX has a progressive dividend which is fully covered by rents. This means that unlike many other property REITS, it does not have to sell its assets to cover the dividend payments. The dividend currently stands at 6p, and this has recently been increased to 6.1p a share.
Another reason for holding on to BBOX shares is that I believe it will offer fantastic growth in the future. The company is positioned for the future of retail as its properties (warehouse) are strategically developed and perfect for e-commerce (internet retailers). Big Box warehouses are highly efficient distribution centres and logistics hubs, which hold finished goods for distribution to other parts of the supply chain or directly to consumers
To read more on position sizing and how it could reduce the risk in you portfolio, have a look at the article I recently wrote on how to know exactly how many shares to buy in a particular company.
What this purchase means for my portfolio
With the purchase of BBOX, I am diversifying my portfolio with the intention of capturing some of the fantastic yields the property market has to offer. Typically, REITS are fundamentally different to many other asset classes and thus have a low correlation to many of these. This makes REITs a fantastic portfolio diversifier.
IN terms of dividends, my 391 shares in BBOX should add £23 to my overall dividend income. My annual dividend income from my portfolio is projected to be £560 and compromises of income from BP, Goldcorp (G), Healthcare Royalty Trust and Shell (RDSB).
The £60 + profit that I have made from selling 213 shares mentioned earlier should not be underestimated. As I have a relatively small portfolio, every bit of money helps, I will use this £60 + of free money to invest in other dividend paying stocks to further diversify my portfolio and increase my dividend income.
Investing need not be hard. By simply understanding the rules of the game, you can make money in a relatively safe manner. I did it using Front Running in the case of Woodford Patient Capital Trust (WPCT) and have done it via buying shares at a discount using BBOX.