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: what difficulties are associated with valuing real assets compared to financial assets. what difficulties are associated with valuing real assets compared to financial assets

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: Real estate is a financial asset... most of it really is in "paper" in spite of the physical item (land and building). Real estate mortgages are traded on the stock market, and bought and sold as securities.

"Financial assets"... as in stocks, bonds, commodity futures contracts, and other such stuff are sold more based on people's feelings. That whole thing is about to come tumbling down fast. The dollar, the British pound and the euro are big currencies that are already being carted into the dead currency graveyard. The dollar is already dead as the reserve currency of the world... the BRICS nations quit using it altogether.

Here's the thing... we are in the deflationary end of this particular depression. As things fall apart, people will chase paper assets more aggressively, so the stock market may actually hit 17,000 Dow before it blows up. At some point people "get it" and start chasing hard assets like gold and silver. You need to already be positioned before that happens. Physical metals only. You won't be able to get them at any price once the rest of the herd wakes up and panics.
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: First off, financial assets often have known market prices for identical assets. Valuing a stock is simple because an identical share just traded 2 minutes ago. Real assets are often unique and thus have no market price.

Second, all assets are ultimately valued as the discounted cash flows that accrue from that asset so that means that valuing any asset is simply (ha!) a matter of finding discount rates and cash flows. Both of those are murkier for real assets in general. Cash flows from financial assets often come at predictable times and levels. The cash flows from a govt bond are completely known. From a AA corporate bond they are nearly known. Even with some trashy preferred stock, at least the timing of the cash flows is known (whether you get them or not is part of the discount rate problem). For many real assets the only cash flow is the ultimate sale price and when you are going to sell an asset is usually not known. For assets like rental property, there is large uncertainty in when and how much the cash flows are going to be. In particular, real assets may well require cash outflows that are usually not required from financial assets.

Discount rates associated with financial assets are often estimable based on decomposing the risk and pricing that risk according to other market based risks. I know what discount rates to apply to the next 10 years worth of B credit risk for example. The risk associated with rental payments from an apartment building in Hartford, CT for instance is a number that is much more difficult to come up with. Some real assets have accompanying financial assets so it is easy to do this (I know what the vol is of gold for instance). But similar assets do not have accompanying financial assets. For instance, I have no clue at all what the vol is of rubidium so buying a rubidium mine takes on unknown rubidium volatility risk.
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