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Thanks Distinguished for the clarification and the elimination of the statement that caused the confusion. I understand U & believe we can look deeper into this in real terms. Valuation and investment/FX Portfolio Management is not rocket science. Ikoyi property Mkt trade in FX. https://twitter.com/woleoluyemico/status/1254145231135502337
The issue from your explanation lies in over simplification and blanket assumptions. Investment valuation is deeper than what you explained. If indeed putting your money under your bed in FX is far more profitable than buying real estate then the entire Ikoyi will be a farm now.
If you ask an investment banker with specialty in real estate he will detect the faults in your analogy that someone who invested in real estate came shorter than another who buried the same figure. The same inflation rate that guides the FX affect property values for your info.
In every property investment there is something called return on Capital and Return of capital. Where the earlier addresses secured inflows in rents based on investment & the other taking care of the actual Capital recouping. Investors go to market assuming capital was borrowed.
A good & rational investor pays interest on capital in his books and must have considered this abnitio along side the earliest recouping period of his capital. So from today investment analyst in the real sector can forecast what the amount of N1 p.a. can accumulate to in yrs.
These algorithm was not considered in your analysis which made you and the earlier narrator assumed erroneously that FX buried inside VitaFoam will amount to higher value than FX invested in property market due to inflation. This is far from reality sir. Ask politicians.
Without lecturing anyone, when you say the portfolio worth of the property of Mr A was the assumed constant rents in 20years plus Naira worth of invested sum, you have buried the lead. First thing to note here is rental value is adjusted every two years in Nigeria.
So there is no way he can earn the same rent constantly for 20years. Secondly, you don’t just add rental value and initial cost of investment to derive the worth of any property. There is years purchase, there is capitalization rate and then a consideration of tenure.
In valuation and portfolio management we don’t value just brick and mortar but the bundle of rights that legally confer ownership to you. When selling a car, it is not about who holds the key but whose name is on the particulars. Same for real estate. The title of the deed.
These oversimplifications can be very misleading. This is why vulcanizers argue about the birth canal on Twitter with the best of Surgeons. Like I said, the President of @NIESVlagos has agreed to organize a seminar on this for free via zoom in collaboration. It will be fun.
If keeping FX in itself is an investment worth the while no one will buy or let Ikoyi houses. We’ll simply bury the FX in our soakaway and wait for Govt Magic so we can cash out like the Bureau De Change operators close to the Presidency that cleaned out in 2016 with CBN.
Sincerely where are those people today? What became of their windfall in FX? There is something called Securitization which every HNI understand better than speculators. This is how a portfolio is built just like in the game of Monopoly. It is not just about the paper money.
I was paid in 2011 in Bitcoins for a job. It was next to nothing then. The firm even doubled the payment and I kept it there thinking I’ll use it for something else. Long story short what was nothing became $19,000 per BitCoin in Dec 2017. Globally new billionaires were made.
Now with this windfall a wild range of speculation began when 90% of people coming into the sector saw this as an Eldorado where money can be doubled via mere speculation. Many faux business models were built around this mainly to collect other people’s money in speculation.
As for me, I didn’t feel any different but focused on how we can view Bitcoin from a sustainable perspective by putting work behind it to drive its value instead of the expectation that the irrational surge will remain constant. We built many ideas around this in Nigeria & Kenya
We never dwelled on the bubble nor deceive ourselves by attempting to compare this with real estate investment or see bitcoin as an investment simply because of the whims of occasional economic tide. We divested & built initiatives including @SIAF_NG securitizing the capital.
As at 2019, most of the big earners left their money in the system hoping it will increase beyond $19k per Bitcoin but this crashed heavily below $10k and many lives were ruined. Till date it has not managed to rise above $10k. Though other markets emerged.
So speculators in the FX market can’t compare their business model subject to the vagaries of economic weather to securitized investments in real estate. A man who has cash alone can’t obtain loan in the bank because this is not regarded as capital for starters.
By simple definition in economics, capital consists of assets that can enhance one's power to perform economically useful work. i.e., a pumping machine is capital for a Vulcanizer who can use it as an instrument; similarly, roads are capital for inhabitants of a city.
For Mr A with a property, and the secured right to receive rents in millions for the number of years in his unexpired term as captured in the C of O, is considered to have an asset. So any money granted him as secured with his income as collateral is safe.
In lay terms it simply means he has something he can’t afford to lose with the secured rights to earn him more than he is asking for. But a man with FX, alone, every single day brings about a risk of his losing that money. Even as a Bureau De Change operator. He’s got no Asset.
If all I have is Bitcoin with no business to back it up and bring value, I have no ledger to present showing a series of income bankable enough to expand my business or asset if any. So you can’t jettison the importance of asset in Portfolio management. It goes beyond money.
The issue most people on the thread may be confusing themselves with is the difference between Cost and Value. Real estate operate in the Value perspective on a long term basis. While speculators see gains in short term cum low hanging fruit basis. Where easy exit is clear.
Nothing is eroded. If FX value increases, rent review in properties where FX is paid in rents will cover for the difference. The fact that Dollar buys more Naira changes nothing if your rents are paid in FX. Every two years you pay more both in rents and in Service Charges.
If you are still in doubt I will take you on virtual tour of a few client’s premises during the Seminar and you will see what I mean in practical sense. If I agree with you we will all be wrong. The children are reading and learning. We must not teach them nonsense.
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