This answer relates to US accounting; Euro may/probably does have different rules.
(a) Land is carried at historical cost
(b) Land Improvements (parking lot, landscaping) and Buildings are carried at cost minus an assumed depreciation.
(c) "Don't they need to show appreciation..." No. The assumption is that the asset will be used in the normal course of business to generate revenues and income. The assumption is NOT that they are buying and selling long term business assets (land, building, machinery) in order to "flip" them for a profit.

There are opportunities in rare circumstances where the market value of these fixed assets should be considered. For example, if a company were to be acquired by another solely for the liquidation of its assets, the market value would be considered. Also possible that if a company (i.e. railroad) owned the mineral rights to a large expanse of property, these mineral rights might be carried at little/no balance sheet value but have significant value.

Without very intense study, it might be difficult for a distant investor to properly value these fixed assets. For example, what is the value of the property owned by JCPenney? More than B/S value? Less? Tough call.

Good luck to all

"Sears had huge real estate assets. Bruce Berkowitz, one of the most successful value investors, has bought around 17 million shares, or 13.4% stake in the company. He stated that Sears has more real estate than Simon Property (NYSE: SPG), the largest real estate company in the world. However, Simon Property operates as a REIT, owning or having interest in 325 retail real estate properties with 242 million square feet and a 29% interest in 260 shopping centers in 13 countries in Europe via Klépierre, a publicly traded REIT.

At the current trading price of nearly $159 per share, Simon Property has a total market cap of $49.8 billion, while Sears is worth only $5.3 billion on the market. Berkowitz thought that if all of Sears’ real estate was fully valued on its balance sheet, Sears would reach more than $160 per share. While Sears is trading at 1.92 times book value, Simon Property is valued at as high as 8.3 times its book value." - Motley Fool Anh Hoang

note: on the balance sheet the property of SPG is $25 billion. The balance sheet of SHLD has property at $5.9 billion, so maybe?

I've always wondered, how does one realize that a company is holding a higher value of real estate than is shown on their balance sheets?

Is it just reading that they state they have 100 billion acres of real estate and the property, plant, equipment only states a $1mil value? So obviously it's probably more? Or is there another way to deduce that information?

Any specific examples that someone could share? Thanks.

Mcdonald's is a real estate company. Walmart is.

Wells Fargo buys every cheap building they can. There are branches a stones throw away from each other where RE got hit hard.

Different in all cases. For example, a little while back I said I had accumulated a position in DOLE. Part of the my reason for acquiring the position is that they have real estate positions that are worth far more than is reflected on their books. Fortunately/Unfortunately my thesis did not get to play out -- I made appx 23-25% -- but don't really want to stay in hoping for a higher bid (I digress) . IN the case of DOLE, management straight out told you that the real estate is worth more than is on the books. They even had a presentation showing why (they're probably not lying -- why woudl the CEO buy the whole company if he didn't think it was significantly undervalued).

One thing you want to do is read the company's 10-K. Often they'll tell you how they value their real estate holdings on their books. For example, FRS (Frisch) tells you that they value their real estate/property/equipment based on the price they paid for it -- and they also tell you their depreciation schedule for various types of assets. But there is no silver bullet in trying to place an accurate value of the real estate unless you do a lot more research (you can pay to get this done). Sears is tough -- because a lot the value (in theory) is in the leases -- and if you don't know the details of these leases how do you know their real value. If you notice a lot of research will simply take total sq footage for example and multiply by some guess of what that real estate is worth based on the mall breakdown. Sears is tough b/c unless you're an insider how do you know the details of the leases and how valuable they are.

If you're buying sears -- you're definitely banking on Lampert knowing what he is doing -- especially in how he is structuring the company -- since he's definitely not doing a good job in rebuilding sears as a retailer.

Dammit up 40%+ today on a buyout deal

Bought ACAS @13.20. Going to hold this one for a long time.

http://investor.federalmogul.com/pho...l#.Ubp4wfnJTPk

ok what am i doing wrong here, this seems like a good cigar butt right? I was too late on Hewlett packard which was a really good one with a catalyst, this one also seems a candidate.

Im pretty sure im being amateur here on valueing its assets, but basicly assets - liabilities gives it over 5 billion in net assets right? market cap is 1 billion. They make auto parts
http://www.marketwatch.com/investing/Stock/FDML

They are slightly losing money the last 5 years so im not worried that they will burn through assets soon. They might even start turning a profit soon once some guy named icahn gets involved (lol i sound really dumb here). Allthough i havent done any reserach on that lol. Im still new to this.

how did you anallyze that company? They seem to be involved in alot of things. Seems hard to get a good grasp on it.

I supose you focus on management (Malon Wilkus the founder who runs it now) how hes rewarded, past records, and how they handled themselves in the housing crisis in 08?

ACAS does private equity investments and it was formerly a BDC. They are in the business of selling companies and doing management consulting.

IMO, ACAS has all the tell tale signs of a fallen angel stock. Because of the collapse in 2008-2009, they had to forfeit BDC status due to heavy losses and regroup. Now that things have stabilized and become profitable again, management wants to bring the company back into BDC status. To do that, they have formed a plan to buy back their stock until it goes above NAV, taking advantage of their carry forward losses induced in 08-09, and then convert to BDC to issue dividends. They have bought back 20% of their float over the past 6 quarters, but their NAV has been growing asymmetrically to their buybacks, so they are still stuck at 30% discount to NAV. Right now, NAV is about $19. It is possible that they will liquidate some of their equity holdings to buy back more stock at a faster rate.

It's hard to see downsides to this stock. Even if their mezzanine debt blows up (unlikely) and mREITs all go to hell (they are roughly 30% of the business), they have already announced that they are prepared for a 40% loss on their mREITs, and oddly, if their NAV really does decline by over 30%, then they could go back to being a BDC again. When they're at BDC status, they will issue 90% of their profit as a dividend, so that would be $2.50 a share a year at current earnings. Which would be amazing.

Upside is that they do bring the stock to NAV, and then the stock pops to a premium to NAV when they switch to BDC and start issuing 90%+ of their earnings as dividends again. So the upside could be pretty big, $20+ and issuing $2.50+ a share dividends per year assuming NAV stays flat. However, NAV has been growing pretty rapidly too, so it could be even better.

Dunno what the time frame for that would be, but if management continues to do what they're doing now, then this will eventually happen. It is now my third biggest position, behind AGO and PRSC.

How do you figure? I see that they have a about 6.9 billion in total assets, and just long term debt is 2.7 billion. In addition there are current liabilites and their pension liabilites.

They even mention their debt problem in the 10-K.

yeah your right lol, was sleepy missed that. But that is still 7 billion minus 5 billion is 2 billion in net assets right? Market cap is 1 billion.

I supose they are leaking away more and more cash which is a red flag. So that 2 billion could rapidly shrink in the future.

Bought KMX the other day, based on a few things. Really looking to hold this stock for a long time.

So it has been almost 5 years since I have decided to try my hand in investing instead of indexing, and I am crushing the S&P CAGR by 1500 bps. I am going to presume that is not sustainable, but perhaps I am no longer a n00b, and this is actually doable.

can anyone give their thoughts on Hewlett packard? I read an old article in the economist from november last year when stock was at like 11$ (20bn$ market cap). They bought some company (really small compared to their own book value) that turned out to be a fraud, and had already anounced they would spin it off.

Now i checked their book value and it seemed to be over 50 billion $. They were slightly losing in 2012, but with that spin off they would expect to make a profit in 2013 (which they did so far). But good will consisted of 30bn$ on that balance sheet. Im kind of doing these things in hindsight now, as i dont have a good way to filter them out yet . And its a good learning experience.

How would you go about valueing that 30$ bn in goodwill? Theyr back at 24$ a share now btw. so dont bother i guess.

I would give goodwill zero value. Always look for commanies that take the non-cash charge as they can become deep discount stocks. I bought leap options on HPQ and they are up over 300%. They can still generate 7MMM in cash so I think they still have a long run p/e of less than 8. They might have large non-cash charges in the 3rd and 4th quarters and it is unknown how the market will react to them.

Beating the S&P is definitely doable. It is impossible to know whether how you have been picking stocks will continue to be a good way in the future.

Sometimes value wins and sometimes growth wins. Sometimes high debt/equity wins and sometimes low debt/equity wins. Sometimes small caps are best and sometimes large caps. Etc.

It is also pretty difficult to tell whether you have just been running good. The nice thing either way is: who cares? You now have a nice head start and probably own some good companies.

I'm showing their book value as $6.784 per share.

How can you claim that beating the S&P is definitely doable, when you can't be sure any specific strategy will do so? Or are you just pointing out the mundane fact that for any given time period some people will beat the index while others will lag behind?

If you're basing your investments on such basic strategies as these, you should definitely be indexing instead of trying to pick stocks.

Yeah, who cares if you'll waste a bunch of time and rack up transaction costs while failing to beat the S&P going forward. At least you own some good companies.

Hint: Owning "good companies" means nothing without taking into account the price you paid.

i think he means running good as in how fast his investments had a marketprice match up with their intrinsic value. And valuing companies is not an exact science. if you project a 15% rise in earnings every year you can run good when it turns out to be more with all your picks.
And also if you started investing in 2008 it was obviously much easier to find good companies for cheap then it is now or maybe in 3 years. So that is some run good as well.

At the very least the mundane is true.

It seems possible to predict to some extent which segments of the market are next in line to run up. It also seems possible to predict to some extent which industries and companies have good upcoming prospects. Nothing that predicts perfectly, but seems +ev.

Of course. On the other hand, you do have to have a basic understanding of how things work. A change in a stock's price is partially determined by what the rest of the market and its various parts are doing.

It doesn't cost much to buy stocks. If you don't have enough money to keep transaction costs down percent-wise while having decent diversification, you should not be investing in individual stocks.

People who spend time reading and writing here don't get to complain about other people wasting time.

That doesn't go far enough. The current price matters just as much.

Hint: the price you paid is not the relevant one.

To make it simpler. The price to prospective future price it is now is the only thing that matters in your decision making TODAY on whether to buy more, sell some (or all) or just keep hanging on to it.

Whether you screwed up yesterday or 10 years ago shouldn't matter at all.

"Would I buy it today?" is the only question to ask yourself.

im pretty sure hes just trolling now