Why don't we use the AVM/AMC model to value stocks too?

[Joe Flacco]

They say that some businesses keep 3 sets of books....... That is not an example of some hidden defect that is unknown to everyone including the business owner.

It is possible that there are people committing crimes. I might say that it would be similar to the seller lying on the seller disclosures.

 

[J Grant]

Owning /buying a stock is about making money ( even though one can lose money). Stocks have no other prupose than that.

While some RE investment rental property is about making money, a large portion of the market is still about serving another purpose - shelter, a place to live, raise a family, or having a vacation home. Owners hope their RE holds value or appreciates, but that is not the sole purpose in buying it.

 

[J Grant]

Cars are more similar to RE than stocks -

Automobiles, like RE, are often financed - either in a purchase or a lease. If people had to pay for a car all cash, the vehicles would sell for much less and people would drive their old car for 20 years. Same with RE - if the financing were not possible, home prices would be far less.

Stocks are sold for cash, correct? ( even if someone leverages assets to get the cash ) Stocks are a gamble or an investment taken by companies as well as individuals, with traders professionally managing the buy/sell decisions - it is unlike RE in too many fundamental ways.

 

[CGinMN]

What if the tenant turns squatter for my property in California?
What if my plan to subdivide/re-zone/change use isn’t approved?
What if my inspector/appraiser/broker/title company mislead me and I have to sue to recoup losses?
What if my neighbor starts cooking meth?

Infinite amount of unknowables.

Suffice it to say, the prospect of the unknown is much higher with some of these business interests than with the average SFR.

Yet cap rates for real estate and yield rates for REITs is typically higher than yields for publicly traded stocks.

 

[ZZGAMAZZ]

The difference between the RE markets and other asset types (like stocks or commodities) is the level of transparency in the market itself.

It's impossible to know most of what you need to know about a stock in order to make a "safe/sound" decision - you basically have to trust what they're reporting of their operations. That isn't the case with SFRs. Buyers and sellers CAN develop a well-informed opinion of the asset almost independent of what the seller asserts.

I vividly remember the spring of 2001 when I was determine to rule the world of publicly-traded stocks. Subscriptions to severaal newspaper, tech magazines, and various industry publications, with about 300K invested [most of which was leveraged with non-realized gains]. Then one day I read a very scholarly article that said "there is NOTHING about any publicly-traded company that any individual can know about--regardless of the extent of their due diigence--nothing at all that isn't already reflected in the price/share of that company. Now just say for example that an individual DOES indeed have information about that company that hasn't been revealed to the public--well, unfortunately, that is termed "iinsider information" that cannot be used as the basis of trading for fear of significant criminal conviction. Hmmmmm. Imagine if you will, Martha Stewart, who was provided with info about a company by a knowledgeable person. Seems to me that it would be very difficult to avoid acting on that information--although doing so cost her good for long time behind bars--although somehow she teamed up with Snoop Double-D to emerge successfully. Nevertheless, I still remember that Spring of the Year when I lost 90% of 20 years of max 401K savings by finding a loophool in he Fidelity retirement protocol when that damn Allen Abselson write an article in Barron's that described the run on Dutch Tulips, emphasizing the "Irrational Exerberance" that Greenspan had previously defined. Than one day the call came asking me if I was aware of the implicatitons of a "margin call" . . . and life changed, kinda like the appraisal industry changed circa 2024. Woe.

 

[TerryRohrer]

Cars are more similar to RE than stocks -

Automobiles, like RE, are often financed - either in a purchase or a lease. If people had to pay for a car all cash, the vehicles would sell for much less and people would drive their old car for 20 years. Same with RE - if the financing were not possible, home prices would be far less.

Stocks are sold for cash, correct? ( even if someone leverages assets to get the cash ) Stocks are a gamble or an investment taken by companies as well as individuals, with traders professionally managing the buy/sell decisions - it is unlike RE in too many fundamental ways.

How are you adjusting sales that are financed to a cash equivalent?

 

[djd09]

I like that, and prices sure are juiced after Covid Money Printer Go Brrr

qe forever...

 

[George Hatch]

The risks of using these calculators instead of an appraiser will quantify themselves over time.

 

[J Grant]

Owning stocks is a passive investment.
RE on the other hand is demanding - repairs are needed, upgrades to keep value up , damage can occur from natural events, if the property is rented it needs to be managed etc.

 

[George Hatch]

If the stock market was as transparent as the RE markets then almost nobody would ever book a loss, except in the wake of a external black swan event.