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What Things Are Worth

May 14, 2015

Much value is illusory, but some isn’t… or is it?  For instance what is an office building worth?  Well, it would depend on where it is located, whether it is fully rented or vacant and the amount of the rents, quality of the tenants, length of leases, whether building is well maintained or has perpetual repairs, its age, zoning and a myriad other factors.

I remember one time when Donald Trump was part of a group that purchased the Empire State Building for about $40 million and he was bragging about that.  Well, at that same moment, the people that had a 90+ year lease on that building were spending $65 million just to replace the windows.  The property owners, it seems, were not able to derive any economic benefits of ownership (except possibly the 4% annual return on their investment) while the people with the lease received all the income flowing from managing the property.

So, what is something’s value?  The correct answer is “it depends.”  Two days ago I asked myself that same question while I was reading the front page of The Wall Street Journal.  Articles were about home prices starting to heat up, Samsung questioning its game plan, Tom Brady being suspended, the U.S. Air-Traffic system needing rebuilding, Edamame and goat cheese concessions at movie theatres, the differences in over the counter pain relievers, the death toll rising due to a faulty switch in some GM cars, Shell becoming able to drill for oil in the Arctic Ocean, ranchers expanding cattle herds, Morgan Stanley selling its oil-trading business, American Idol being cancelled, the share of Americans that are religiously unaffiliated rose to 22.8% [not about 23% or just over 22%, but 22.8%] and a Picasso selling for $179.4 million,

Each of these affects value.  Now, I know that houses of worship aren’t usually bought and sold, but affiliation affects cash flow which can determine whether a particular church remains open.  The thing that got me started on this subject is the Picasso.  I remember the big news in 1961 when the Metropolitan Museum of Art purchased Rembrandt’s Aristotle Contemplating the Bust of Homer for $2.3 million.  This was big news even making the front page of the New York Times.  For months [possibly years] afterwards, there were long lines of people wanting a glimpse at that painting (which most of them probably never heard of before that purchase) signaled to them the painting’s “extraordinary value.”  On some level, the “value” of the Met was likely increased because that purchase had to have led to increased contributions and memberships.

Mostly everything everyone does affects value.  In some situations, it doesn’t matter… but, typically it does.  Good traders are alert to opportunities with unnoticed or unappreciated trends indicating stealth value.  For them, it is a way to wealth and the value they see doesn’t “just depend.”  Oh, and value can go both ways.  Besides going up, it also can decline; and sometimes loss of customer base, parishioners, viewers, market share or damage to a reputation is terminal.  In those cases, it doesn’t just depend!

One Comment leave one →
  1. 6hawthorne permalink
    May 14, 2015 10:55 am


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