Investment Valuation: Tools and Techniques for Determining the Value of Any Asset, Third Edition

CHAPTER 27

Valuing Other Assets

One of the fundamental precepts of this book is that all assets, financial as well as real, can be valued systematically using traditional valuation models. The bulk of this book examines the valuation of stocks, but the preceding chapter extended the reach of valuation models to cover real estate. This chapter considers other assets that are usually considered unique and different, and attempts to value them using the principles developed in the earlier chapters.

While the assets covered in this chapter have very different characteristics and attract different investors, they can be broadly classified into three categories:

1. Assets that are expected to generate cash flows over time and can be valued with discounted cash flow models.
2. Assets that do not generate cash flows but attain value because they are scarce and are perceived to be valuable (collectibles, coins) and/or generate utility to their owners (antiques, paintings). These assets can be valued using relative valuation.
3. Assets that do not generate cash flows but could be valuable in the event of a contingency—they have option characteristics. These assets can be valued using option pricing models.

Within each category, there are a surprising number of commonalties both across different assets and with the financial assets described in the earlier chapter.

CASH-FLOW-PRODUCING ASSETS

A number of assets derive their value from their capacity to generate cash flows to their owners. The value ...