James - I am a bit fuzzy on facts here. However, I believe that I am correct that in most market periods assets like trees, or land, or oil and minerals, or even stock in other companies tend to get valued at a discount.
The theoretical reason is that the earnings stream from these assets will occur over an extended, often very extended, period of time. Therefore, the present value of future earnings from these assets at a reasonable discount rate is much less than the nominal present value, as if all the value could be realized today. This is even more important of an issue in times of low inflation, or deflation, where you can't count on inflation in the value of the asset to materially reduce the effect of the discount rate.
For example, what do you think the per ounce value of gold in the ground is today versus 5, 10 or 15 years ago. That is an extreme case
of the timing importance in realizing the value that makes my point, I believe. |
