Arborbridge wrote:Which goes to show, it's often timing the market, not time in the market, which counts
Hi Arb,
I hope you're well.
I thought I'd pick up on your comment, if I may please.
In 1989 at the tender age of 27 I recall sitting in an impromptu meeting with many others within the business also present. Our MD was kicking off. He had been to an auction to buy some land. Before he left we [the commercial team] placed a value on the land of £500K. The land sold for £1M. Our MD wasn't the sort to chose tender words or subtle delivery and we sat through a barrage of comments that would have been more at home in the House of Commons.
We went back to our desks, had a cup of coffee and decided it was time to run up the commercial teams battle flag. Death before dishonour. We checked every part of our land value appraisal. It was accurate. Then my boss had a really crazy idea. Or at least we all felt it was. He increased the sale price of the units. And of course the land value rose very quickly.
Easy then!
Or was it?
House prices fell not long afterwards. Someone was holding land that wasn't worth £1m and it wasn't the company I worked for. Indeed at the time I worked for the third largest volume house builder. In comparison to the other nationals the group wrote down it's land bank by a small amount, whilst other companies were writing off considerable amounts.
I recall recanting this story on TMF in the early 2000's. I said then that the time to buy housebuilders is when they look so cheap it appears they could be going to the wall. And that takes incredible guts and is not for everyone.
That aside I think the book value of a housebuilder does provide some element by which to time a purchase. Although that in itself does not prevent the value of the land asset from being revalued and in particular it being reduced.
AiY(D)