Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Keith J who wrote (30442)	3/27/2008 11:34:56 AM
From: E_K_S	Respond to of 78750

Hi Keith - I agree with you that there needs to be better balance sheet transparency and standard conservative valuation methods that banks, hedge funds and private equity companies must follow so investors can better evaluate the risk and potential returns. It's very hard to evaluate the true market value (or fair value) of many of these deals especially if several of the acquired assets are marked to market based on unrealistic valuation assumptions. Maybe it's time to update the current GAAP accounting standards with a set of new conservative "valuation" methodologies that work better for the current environment. It seems to me that on the flip side, corporations should book the "market value" gain on their owned real estate assets as presently it is accounted for at cost not market value. Commercial & Investment banks, Private lenders, REITs and companies that own a lot of real estate and debt issues, need to break down each asset valuation in more detail. I own an REIT that now reports to shareholders three different numbers for "possible" assets valuations; book value, economic value and market value. Their can be as much as a 200% difference in the numbers they provide especially when the new FAS 159 accounting standard is used (http://thecaq.aicpa.org/Resources/Accounting/FAS+159+Early+Adoption+Date+Approaching+%E2%80%93+Factors+to+Consider.htm ). It's the complexity of the structured deals (ie derrivative hedging, cross asset collaterization and SUV products) that creates this wide spread. Many times the seller and/or buyer will present their own valuation model to support their argument which just seems to further confuse the process. I guess the best advise is for the buyer to beware and only invest amounts that you can afford to lose. As a value investor, many times there are investment opportunities that arise out of market uncertainty that appear to me to be significantly undervalued. Over time the market valuation will eventually move back to some "fair value" which is much higher than the current market price. However, it's almost a coin flip now on how to calculate a conservative "fair value" number on many of these new debt issues. EKS