![]() My March article showed how and why they might return to that growth rate. I discussed my evaluation of that growth here. Over the years from 2008 through 2020, Simon grew FFO/sh at a 5.7% CAGR. So what do we get if the discount rate does not go back to 10% as we move forward? Reviewing the Growth Story So why the heck did I not put 2 and 2 together and consider potential discount rate increases in valuing SPG? Well, paraphrasing what was said above, humans are really bad at connecting the dots. By this past March I had been questioning future discount rates for REITs for at least six months, for example here. The thing is, I liked that argument too much. If FFO/share is earnings, then 15x to 17x corresponds to an indefinite growth rate of 3% to 4%, for a 10% discount rate. For a $12 FFO/share, the implied share price is north of $180. Now 20x is likely the euphoric phase described by Marks, but 15x or 17x is not unreasonable. In past articles I’ve noted that the range of P/FFO for SPG, during periods when the market is happy about retail, has run from 15x to 20x. My article this past March reprised that argument as follows. It was based on a long look at market valuations in the context of the view of retail by the market. What matters here is the argument developed in that article. My coverage then anticipated a strong resurgence of retail. I sold the majority of my shares near the peak in 2021, mainly rightsizing a position that was much closer to what I saw as fair value. The stock has also made me good money, and not only from dividends. And there are also several others, on mall REITs or portfolios, that mentioned and sometimes analyzed SPG. There have been five articles focused directly on them, one of which was only seen by members of High Yield Landlord. I’ve been writing about SPG for four years. ![]() This is what happened to me about the valuation of Simon Property Group ( NYSE: SPG). If you think you’ve done a solid analysis of some point, you may not realize when its underpinnings come unstuck. If there were a problem, they would very likely misjudge it or even not see it.Īuthors and analysts are vulnerable to being trapped in their own narratives. It is also why I cringe whenever some investor makes a comment that shows too much emotional attachment to a stock. This is a big reason why I never trust a scientist who has strong political views related to the science they are pursuing. What’s more, feelings sabotage good thinking, making us too readily willing to accept conclusions that conform to what we feel. This leads us all to self-exhortations like “I knew about that, why didn’t I think of it?” We have to rely on feeling from our subconscious brains to let us know when to think further.īut this process is far from perfect. So we are forced to rely heavily on ideas we treat as “known truths”. One source of bad thinking is our limited capacity we cannot keep many facts in our conscious awareness at once. Even so, feeling stupid is never pleasant. One can argue that this is the secret to the success of Silicon Valley. Some people can’t tolerate this and give up.īut really becoming comfortable making and admitting mistakes is powerfully enabling. One makes lots and lots of mistakes on things that seem obvious in retrospect. Training as a PhD scientist gives one ample experience with feeling stupid.
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