Occupation: Blogger, Journalist, Private Investor
Interests: Stocks
About Me:
Richard is companies and markets editor of Interactive Investor and writes the Share Sleuth and Nifty Thrifty columns for Money Observer magazine. A keen private investor through his Self Invested Personal Pension, he manages a virtual portfolio of deep value shares, The Thrifty 30, and documents every decision in his blog
My blog aims to further understanding of how to profit consistently from the stockmarket by: i) selecting a portfolio of companies that should do better than the stockmarket average and compensate us for inflation, and ii) determining the state of the stockmarket. In other words, it’s an experiment. Finance theory tells us it’s not possible, or at least it’s very difficult, to beat the stock market consistently in the long-run. Studies of professional fund managers demonstrate very few do. But the fact that a particular style of investing, value investing, reliably beats the market means theory is wrong, or, at least, there are exceptions...
Web Address: http://www.iii.co.uk/blog
Hi Marben. The book value of the lease asset is the same as the value of the liability. A lease is just a contract over a period of time. Its value is the cumulative rent. I've just posted this link in response to Paul, but this is my best attempt at an explanation: http://www.iii.co.uk/news-opinion/richard-beddard/share-sleuths-notepad-finding-hidden-debt
Hi Paul, In a sense a property funded by a mortgage is a tradeable asset. You can sell the property and repay the mortgage. OK, you might lose money. But you might if you trade a lease. The point about leases only being onerous in a downturn is true. But the same could be said about debt! This is why defensive stocks can carry higher…
Sorry, I was imprecise. The right to use the shop is an asset. The cost of using it is a liability. I'm not suggesting including the full value of the property on the balance sheet. Just the lease obligation for the minimum length of the lease. Otherwise as Boros10 below says return on capital and gearing figures are pretty meaningless.
The shops FCCN trades from are assets. The obligation to pay for them is a liability. Because of current lease accounting neither appear on the balance sheet. That is surely wrong. If the company had borrowed money to buy the shops we would count the whole debt as a liability, not just the cumulative losses that might result from trading unprofitability. In my view leases…
Great comments. Especially from SteMiS and emptyend. I think dividends are pretty insignificant if you can identify really strong companies they will be paying a decent dividend now, or in the future. Either way you gain, from capital appreciation or income. As everybody has acknowledged dividends look particularly attractive during economic difficulties when growth seems unlikely and backtests of high yield portfolios show great things…
