Let's talk about value investing and undervalued assets

amylase · Feb 20, 2008

Quote from day7793:

Value investing may ass. All that Junk you can buy cheap, gets cheaper soon, and sometimes you are handed Bankruptcy papers from these compnaies and you are done.

Take the case of DELTA FINANCIAL which Mohinsh Pabrai a value investor used to own. God only knows he got out or took a hit on 4.6 million shares which he owned. Thats about 23 million dollar dump. I am not sure.
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"Value investing may ass"

I respect your language style

I respect all the smart sophisticated people who can read off charts/follow trends/do fancy technical analysis and still make money.

I'm just looking for some similar minded value investers (oh god forbid!) to share their favorite investment vehcles so I could further diversify my holdings.

And by long term I usually mean forever.

I the case of J-REIT i'm looking to hold for about 5-6 years.

I believe J-REITs are extremely bankrupcy remote. They have real estate as their hard assets and their leverage is quite low (on average 0.5 debt to equity ratio). And they generate stable rental income.

infolode · Feb 20, 2008

Quote from Cutten:

I agree. Japanese real estate is definitely bargain basement at the moment, and one of my core long-term positions. Out of interest, what J-REITS have you selected, or have you just bought a basket of them?

Here are a few more areas I see value:

German Real Estate, especially Berlin. Land values are very low compared to other G7 countries and capitals. Land prices fell throughout the 90s. I went out there a while ago to look through records and investigate. I found a plot of land selling for 60,000 Euros, that in 1997 had sold for 225,000 Euros - a near 75% fall. And Berlin in 1997 was not exactly a gigantic real estate bubble. This pattern was repeated across many plots. IMO the real estate there is even cheaper than Japan. Prices per square foot there are cheaper than they are in Prague. Mortgage lending standards are very conservative there, deposits of 30%+ are the norm. Also, with the current global subprime worries and real estate bearishness, this sector is overlooked.

Agriculture: there are less values now that the bull market is clearly underway. However, the fundamentals are very strong and prices are not yet discounting the potential. ADM for example is on a very low P/E. It is somewhat reminiscent of homebuilders in the early 2000s, where they sold dirt cheap for years despite being in a raging bull market for their underlying product. Each year they would go up, but the earnings would keep pace and so the multiples remained cheap.

Japanese equities: on most valuation measures such as price to book, these are amongst the cheapest equities in developed the world. There was a 13 year bear market from 1990 to 2003 which scarred an entire generation of equity investors. The Nikkei is off significantly from its 2007 highs on the global credit woes, yet the domestic economy has no property bubble (quite the opposite), no systemic credit crunch, and is unlikely to see more than a brief slowdown (exporters and banks may get hit, but the domestic economy is fine).

US dollar: this is more controversial, but on a PPP basis the US dollar is pretty darn cheap. It is held down right now thanks to the easy Fed policy and subprime/recession concerns, but once that passes, I think there is scope for a large revaluation back to levels more in line with purchasing power partiy.
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I agree and have been buying Japanese equities since 2006.

amylase · Feb 20, 2008

Quote from Cutten:

I agree. Japanese real estate is definitely bargain basement at the moment, and one of my core long-term positions. Out of interest, what J-REITS have you selected, or have you just bought a basket of them?

Here are a few more areas I see value:

German Real Estate, especially Berlin. Land values are very low compared to other G7 countries and capitals. Land prices fell throughout the 90s. I went out there a while ago to look through records and investigate. I found a plot of land selling for 60,000 Euros, that in 1997 had sold for 225,000 Euros - a near 75% fall. And Berlin in 1997 was not exactly a gigantic real estate bubble. This pattern was repeated across many plots. IMO the real estate there is even cheaper than Japan. Prices per square foot there are cheaper than they are in Prague. Mortgage lending standards are very conservative there, deposits of 30%+ are the norm. Also, with the current global subprime worries and real estate bearishness, this sector is overlooked.

Agriculture: there are less values now that the bull market is clearly underway. However, the fundamentals are very strong and prices are not yet discounting the potential. ADM for example is on a very low P/E. It is somewhat reminiscent of homebuilders in the early 2000s, where they sold dirt cheap for years despite being in a raging bull market for their underlying product. Each year they would go up, but the earnings would keep pace and so the multiples remained cheap.

Japanese equities: on most valuation measures such as price to book, these are amongst the cheapest equities in developed the world. There was a 13 year bear market from 1990 to 2003 which scarred an entire generation of equity investors. The Nikkei is off significantly from its 2007 highs on the global credit woes, yet the domestic economy has no property bubble (quite the opposite), no systemic credit crunch, and is unlikely to see more than a brief slowdown (exporters and banks may get hit, but the domestic economy is fine).

US dollar: this is more controversial, but on a PPP basis the US dollar is pretty darn cheap. It is held down right now thanks to the easy Fed policy and subprime/recession concerns, but once that passes, I think there is scope for a large revaluation back to levels more in line with purchasing power partiy.
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I bought a basket of them with about 50/50 split between residential and office real estate. Including Re Plus, Joint, DA office, MID REIT, Nippon Residential, eAsset (now LaSalle japan) etc.

infolode · Feb 20, 2008

Quote from amylase:

I bought a basket of them with about 50/50 split between residential and office real estate. Including Re Plus, Joint, DA office, MID REIT, Nippon Residential, eAsset (now LaSalle japan) etc.
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Explore some of these products for broad exposure. I have some but prefer to bundle my own models.

http://wisdomtree.com/home.asp

disclosure: no affiliation long/etf

Longhorns · Feb 20, 2008

Quote from infolode:

Explore some of these products for broad exposure. I have some but prefer to bundle my own models.

http://wisdomtree.com/home.asp

disclosure: no affiliation long/etf
More...

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http://www.wisdomtree.com/etfs/index-details.asp?IndexID=77

WisdomTree International Real Estate Index
The WisdomTree International Real Estate Index is a fundamentally weighted index that measures the performance of companies in developed markets outside of the U.S. and Canada that pay regular cash dividends and that WisdomTree Investments classifies as being part of the "International Real Estate" sector.

Index Statistics As of 2/19/2008
Dividend Yield 4.78
Price/Earnings 8.04
Estimated Price/Earnings N/A
Price/Book 1.32
Price/Sales 3.35
Price/Cash Flow 6.80
Back to Top

Country Allocation As of 2/19/2008
Country Weight
Australia 31.52%
Hong Kong 28.91%
Japan 9.78%
Singapore 7.14%
United Kingdom 6.56%
France 5.43%
Sweden 2.80%
Spain 1.85%
Netherlands 1.29%
Italy 1.14%
Germany 0.91%
New Zealand 0.82%
Belgium 0.54%
Finland 0.51%
Switzerland 0.44%
Greece 0.30%
Denmark 0.06%

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60%+ of the holdings are Australia and Hong Kong!!!

4 of 17 countries account for almost 80% of the "international" index.

Wisdom tree should rename this ETF "The Asian and Aussie" real estate index.

Longhorns · Feb 20, 2008

Great thread amylase.

I'm long term bullish on Japan. Started buying a few weeks ago. Looking to accumulate core holdings there.

http://elitetrader.com/vb/showthread.php?s=&threadid=116988

I've been searching for some solid Japan RE buys. I'll definitely take a look at the ones mentioned here.

Thanks also to Cutten, infolode, and others for some great posts/ideas.

pcvix · Feb 9, 2009

Would anyone care to provide an update on J-REITs?