With this in mind, I put my tipping record to the test recently, calculating the performance of all the property shares I have suggested readers buy or sell in our tips section. On the whole, the results are encouraging. I have made 45 buy recommendations since taking on the sector in April 2011, and these shares are up 23 per cent on average (for those that I subsequently downgraded to hold, the performance is calculated over the buy period only). Moreover, my three sell recommendations - Intu (INTU), Capital & Regional (CAL) and Mucklow (MKLW) - are down 4 per cent.
These numbers are not directly comparable to a benchmark's performance since April 2011, as I have written the tips throughout the 30-month period. However, it has been a generally buoyant environment for property stocks, fuelled by the relentless hunt for yield. The 16 real-estate investment trusts (Reits) listed on the main market of the London Stock Exchange are up 12 per cent, and the 23 non-Reits - mainly developers - are up 44 per cent since April 2011. Meanwhile, the average Aim-listed property company is down 7 per cent.
During this period, four of my buy tips finished substantially down. Perhaps the most traumatic was Land Securities (LAND), Britain's largest property company, which is now building the gigantic flaring skyscraper on Fenchurch St. It was impossible not to be impressed by the company's annual results in May 2011, which beat all expectations thanks to development-driven valuation gains, and so six weeks later I wrote a tip (Buy, 825p, 30 Jun 2011). The idea was not contrarian - after strong gains, the shares were already trading in line with the company's last reported adjusted book value of 826p. Yet I argued that the development pipeline would continue to drive the book value higher, and the shares with it.
Within another six weeks, market sentiment had reversed. Investor concerns over the solvency of Greece, and of the entire eurozone banking system by extension, flared up that August, precipitating a sharp correction. Exposure to the London office market began to be seen as Land Securities' Achilles heel.
At first, I kicked myself for having recommended the company at parity with book value. The lesson, I reasoned, was that I should focus less on picking winners and more on finding value. I started looking at smaller, regional players that the market was rejecting, including my very worst share tip - on which more anon.
Meanwhile, market sentiment towards Land Securities and its risky development pipeline gradually improved. Now the shares trade at 899p - still in line with historic book value of 903p and 9 per cent above the original tip price. Add in 58.8p of dividends and the return becomes a creditable 16 per cent. As I predicted, London development gains have buoyed the balance sheet, dragging up the share price.
With two years' hindsight, my real mistake was not to write the tip, badly timed as it was, but to give up on it even though the initial premise still held. When the group delivered an underwhelming set of annual results in May 2012, I snapped, downgrading our advice to hold at 723p.
As for the worst tip, I recommended readers pick up shares in Local Shopping Reit (LSR) after the first of the market falls in August 2011 (Buy, 50p, 11 Aug 2011). The company's portfolio management was strong, and the shares yielded 8.2 per cent on our tip price, so for a while I thought I'd picked up a real bargain. But it turned out its boom-era debt was impossible to refinance, and last November the portfolio was effectively put up for sale. We promptly downgraded our advice to Hold at 36p, and the shares have since sunk to 26p.
The lesson here is not to be seduced by high yields and fat discounts to book value. That said, there is now a clear arbitrage play at LSR that could appeal to some investors. The company has a basic book value of 46p per share, which should be realised as its assets are sold off over the next three to five years into an improving market. It certainly seems a shame to sell out at today's share price.
These mistakes have not furnished me with quick wisdoms I can easily share. The lessons have been more personal than that, making me generally more sceptical both of growth stocks on full valuations and of deeply discounted small-caps. Most of my best tips - student-housing developer Unite Group (UTG), London office landlord Workspace (WKP), housing specialist Grainger (GRI) - have fallen between the two extremes, offering problematic and hence discounted plays on stronger subsectors of the property market. Unite and Grainger, both tipped in the spring of 2011, also suffered protracted periods of underperformance; their problems got worse before they got better. Patience may be the stock-picker's most powerful weapon of all.
