Given the performance of my recent “dividend picks,” it’s something of a relief to look at my Word Press dashboard and see that I have yet to reach a large readership.

Of the stocks I’ve recommended in this column, the drop of SNH’s share price has surprised and bothered me the most. From what I can tell, a general market disenchantment with externally managed REITs (the company’s operations are managed by the RMR Group) and the large share of SNH’s senior housing portfolio that is managed by Five Star, a senior housing operator that has come under financial pressure, is behind the decline in SNH’s share price relative to its peers. According to an investor presentation on SNH’s website, Five Star operates 184 of SNH’s portfolio of 304 senior housing communities.

SNH’s debt load has grown in recent years, reaching 41.3% of gross asset value at the end of last year, about what the senior housing REIT industry average is.

Bottom line: the market is treating SNH like a company that may have to reduce its dividend because of headwinds facing the senior housing rental industry.

So am I gobbling up shares, trying to take advantage of a dip? At first I did, but as the share price has kept slipping I stopped.

One of the errors investors make — and I’ve done it many times – is letting psychological “anchoring” get in the way of making rational investing decisions. Anchoring essentially means that an investor’s thoughts about a stock’s value are unduly influenced by a historical or extraneous fact, such as the purchase price or a recent high point.

Here’s what Investopedia has to say about anchoring.

“In the context of investing, one consequence of anchoring is that market participants with an anchoring bias tend to hold investments that have lost value because they have anchored their fair value estimate to the original price rather than to fundamentals. As a result, market participants assume greater risk by holding the investment in the hope the security will return to its purchase price. Market participants are often aware that their anchor is imperfect and attempt to make adjustments to reflect subsequent information and analysis. However, these adjustments often produce outcomes that reflect the bias of the original anchors.”

It’s not just SNH. When I think about how I chased GE’s stock down, buying at 20 and 15 and 12, always thinking it can’t go down any further, my bias was anchored in the company’s previous recent highs or my purchase price points. Now I know I’ve got to do a better job of restraining my “anchoring bias” in analyzing stock values.

 

 

 

 

 

• Uncategorized