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: Paul Senior who wrote (33045)	12/15/2008 9:41:34 AM
From: Jurgis Bekepuris	Respond to of 78753

Paul, Explicitly I don't use any particular number. Implicitly, I assume about 10%. I doubt that current conditions where cost of capital is in 12-15% range will persist for long. My guess is that the cost will gradually drop through next year. I make no assumptions about possible inflation longer term.

To: Paul Senior who wrote (33045)	12/17/2008 10:10:09 PM
From: Spekulatius	Respond to of 78753

re Cost of capital: there is no simple answer. I also have used 8% as cost of capital in the past but I do not think it makes sense to use an arbitrary number. I'd rather say that the cost of debt is whatever the bonds of the company (if there are any) are yielding: AA rated: 6% BBB rated: 9% B or less >15%. Even within ratings there are large differences. The above numbers tend to be values on the low end. These large interest rate differentials are due to the perceived risk differences. I has a large difference for the perceived value of a business. The most obvious example is the decline of the REITS. in fact if you believe that current conditions exist for a long time, almost all REITS are worth nothing. Another example is MIC, the heavily indebted infrastructure business the equity is in fact worthless (IMO). I am sort of tempted to try a short of SPG on the thesis. This one is still trading at a fairly lofty valuation with an implied cap rate of probably 8%. They own nice malls that people may use for little more than window shopping while they buy their goods at discounters (exaggerated but I think I got the trend). Short term catalyst may be retailer going out of business or closing shops after XMAS.