The Intelligent REIT Investor Guide

CHAPTER 10REITs: Growth and Value Creation

“If past history were all there was to the game, the richest people would be librarians.”

—Warren Buffett

Warren Buffett has famously said, “In the short run, the market is a voting machine, but in the long run it is a weighing machine.” I think what he meant by this is that share prices are moved, in the short term, by transient investor psychology and insubstantial news. But over the long term, a stock's price is determined by its intrinsic value.

Therefore, if a stock is to rise in price over time, the company's fundamental value must increase on a per‐share basis. There are a number of ways to measure increases in company value, but measuring and valuing streams of income and cash flows is perhaps the most commonly used metric in the world of equities.

There are, of course, other metrics. Although not very popular today, book value has been used by some investors to determine the worth of a stock. But book value is based on historical cost minus depreciation. So it doesn't reflect the current market values of company assets, many of which are worth much more – or less – today. And how can it help determine the fair values of intangible assets such as brand names, superior management teams, and customer goodwill?

A number of countries outside the United States have adopted fair value accounting, which measures real‐time estimates of the market value of certain types of assets. Accordingly, most U.S. investors generally value stocks ...