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Identifying undervalued assets

George S. Chua - FINEX Free Enterprise

ONE of the keys to building up wealth is by being able to identify assets that will go up in value over time. You will also be at a definite advantage if you know how to determine proper asset valuation. Allow me to give three examples of how to do asset valuation, namely, country club shares, listed equities and numismatic coins.

I bought my first country club share when I was in my 20s back in the 1980s before I got married. The concept of a proprietary membership in a country club where you can play golf and enjoy a number of exclusive facilities appealed to me. At the start, my purchasing country club shares was simply to enjoy the privilege of membership which back then was much cheaper than what it is now.

Determining the fair price of a country club share can be done by either replacement value or by land value. Replacement value is simply determining how much it would currently cost to replicate the facilities of the country club, such as the golf course, the buildings, improvements and so on and dividing it by the number of proprietary shares that the club has. Land value is derived by knowing the total land area of the club divided by the total number of proprietary shares. Knowing how many square meters of land is your pro-rata share as a proprietary member will give you an idea if the share price still has a potential to go up.

My investment in listed equities started when I was in college and I would look at things like P/E ratios, book values, dividend yields and all kinds of charts. You would like to see low P/E ratios, low book values, and of course high dividend yields. There are so many other considerations to take into account like the consistency of performance, growth rates and upside potential of the company. Without a doubt, I have had my bleak moments trading in the stock market but in total, I am sure it has been an enriching experience for me.

I first fell in love with coins when I was hanging out with my Grandmother in her bedroom and saw two large beautiful shiny silver coins, a Peace Dollar and a Mexican Silver Peso coin. This was back in the 60s and I was still in grade school then. I remember receiving these very same coins from my Aunt who told me that my Grandmother when she passed away, wanted me to have them.

It has been a joy for me to collect gold and silver coins, either slabbed or raw, that are hundreds of years old in various conditions ranging from perfect to being worn down through centuries of usage.

The astronomical prices of certain numismatic coins that are so rare and in pristine condition are only justifiable to a very narrow band of serious collectors. However, when these numismatic coins approach the value of the precious metal content in gold or silver, it becomes a no brainer that you should just buy it because the numismatic value is not even factored in.

The idea of asset valuation can be done on any asset but the ultimate price is determined only by the buyer. Being able to spot an undervalued asset ahead of everyone else may sometimes be thought of as being foolish by some people, but in my experience, the early investors normally have the last laugh.

The views and comments of Dr. George S. Chua are his own and not of the newspaper or the Financial Executives Institute of the Philippines (Finex). The author was 2016 Finex President, currently a Professorial Lecturer at UP Diliman and BGC and an active entrepreneur. Comments may be sent to gschua@up.edu.ph.

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