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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: James Clarke who wrote (9446)	12/29/1999 1:50:00 AM
From: sjemmeri	Read Replies (1) \| Respond to of 78673

In the REIT sector, any thoughts on Simon Property Group. Large shopping mall REIT with about 9% yield currently. The kicker for me is their 'internet' strategy: siliconinvestor.com Maybe an IPO of the subsidiary in future if successful?

To: James Clarke who wrote (9446)	12/29/1999 2:45:00 AM
From: Paul Senior	Read Replies (1) \| Respond to of 78673

re: "Its not the effect interest rates have on the business - its the effect they have on the valuation." I hadn't thought of it that quite that way. For a lot of the businesses I own by holding their stocks, - reits, banks, insurance, homebuilders, auto suppliers, distributors, - if the business itself isn't hurt with rising rates (and thus the stocks, I assume), the stocks themselves will be hurt through the general perception that rising rates are bad. So, while agreeing with you about 'dividend payers and utilities' I'll use an example of banks. Banks may well be anticipating and hedging an interest rate rise (so that their earnings won't be hurt), yet every time there is a rate rise, market commentators reinforce the presumed association (interest rates are bad for banks), flash bank stock prices on the tv screen, and generally let people know they better get out of bank stocks. And bank stocks decline. "Let's discount two streams of cash flows, one for a low-P/E stock, and one for an internet company." Okay, I see it by the numbers, but why discount cash flows for an internet company? I tried to search through SI to see just how many times I could come up with people posting that they've done a discounted cash flow analysis. I saw nothing. (Could be my laziness or incorrect searching.) And why go out five years? I mean who's going to buy one of these companies now figuring to hold on for five years? (Unless of course, if somebody figures they go up 5x every year, hold for 4 years and get out a millionaire.) I have an excellent dentist. He's not a stock market expert, but he assures me I should buy Cisco; it's a fabulous company with a great future, and the stock goes up every year. Maybe it's an internet company, maybe not. But there's no cash flow analysis necessary by his reasoning (and by mine too -g-) And the hold period is (I guess) until the stock no longer goes up or his patients or patience say switch to RedHat or whatever. He might be worried about interest rates - because his business will be affected if we go into a recession, but he's not worried about Cisco, its business or its stock price. Unlike me, who is worried about rates affecting inventory carrying charges for distributors, car sales for parts suppliers,banks, debt for reits, and everything else that these value stocks of mine are subject to with interest rate increases. So I see your point, but it just doesn't seem to apply to what I see around me.

To: James Clarke who wrote (9446)	12/29/1999 8:46:00 AM
From: Freedom Fighter	Read Replies (1) \| Respond to of 78673

James, I enjoyed your demonstration of why interest rates effect growth stock valuations more than low PE stocks. Good job. Wayne

To: James Clarke who wrote (9446)	12/31/1999 8:37:00 AM
From: Madharry	Read Replies (1) \| Respond to of 78673

There is a certain fallacy in the argument you are making. you are assuming that that if long term interest rates changes today they will remain at that level for the infinite life of the cash flows but that is not true either. Investor expectation may well assume a different long term interest rate for the cash flow life of their investment that exists today, and it may be change at a much slower rate than a change in interest rates today. For example although the 30 year bond is now say 7.5%, the investor may already be assuming a long term discount rate of 8.25% and only if the bond goes way out of whack is it likely that panic will ensue, or that investors will switch portfolio allocations. big way. The exceptions being homebuilders, financials and insurance companies, which are more sensitive to immediate rate changes. I am also hypothesizing that investors in high growth vs. low growth investments may even have different assumed long term discount rates and I would surmise that the high growth investor has a much higher assumed discount rate because of the greater risk of the cash flow assumptions. So that a reit investor may be using discount rate of 8% but the high growth investor is using a discount rate of 12-15%.