Like beauty, the value of an asset lies in the eye of the beholder

pub_date:Thus, it's always better to look on the bright side of things, as the well-being one gets is, well, pricelessWHILE working through the calculations for the value of a private apartment in last week's column, it occurred to me that the same apartment can have very different valuations depending on the capital structure and the required rate of return on the part of the purchaser, among other things.迷你倉出租For example, because of the very low mortgage rates now, someone who takes up a bigger loan will potentially have a lower cost of capital. This will result in a higher valuation for the real estate.On the other side, if another person uses a higher proportion of equity to finance the purchase of the apartment, but he or she has a low required rate of return because they have huge piles of cash sitting in the bank doing nothing, then potentially these investors do not mind paying a higher price for the apartment. That is, as long as the risk-adjusted expected return from investing in the apartment is deemed higher than what the cash can earn sitting in the bank.Understanding 'duality'In other words, there is not just one price in the market. The same property can have different prices to different people!Coincidentally, a friend posted a link on his Facebook this week. The link is to an article titled The Nature of Duality on a website called HighExistence.The article began like this:"As you read these words, multiple layers are at work to generate your current experience. These layers exist independently of each other and yet interact almost directly. The first layer, the one most of us are most sure of, is your mind, your consciousness. The mind, the consciousness registers the experiences. The second layer is your body: your brain, the flesh and bone that contain and produce your consciousness. These physical parts translate external stimuli as sense experience. The third layer is the rest of the universe: an entity within itself, of which you play a part but cannot understand and perceive directly (because the second layer, your body, acts as a barrier).The separation between the first and third layers is the cause for "duality". It is precisely because your mind cannot directly experience the universe that a duality is formed, which separates understanding, meaning, and truth into two parts: relative and absolute.Simply put, "duality" is the nature in which anything and everything holds opposing truths: all of which are true. The infinitely small is also infinitely big and vice versa. Our Earth is an enormous planet but also a mote of dust suspended in space. The villain and hero are both each other: it is all perspective. So long as the body acts as the middleman between the consciousness and the universe, everything we perceive as truth is only relative.However, this does not mean that relative truth is unimportant or meaningless: truth is truth, even if it is a relative one.Understanding the duality of all things is important because it allows us to see from other perspectives. The more important part of understanding duality is seeing that all perceptions are RELATIVE and therefore separate from the inherent, physical reality. There is the distinction that the mind is not the body and vice versa; we can perceive the world but we will never know it."The article then went on to give a few examples of duality. One is about the colour of the flower. A person with "normal" eyesight may see the flowe儲存倉 as turquoise. A colour-blind man sees it as light-green. A dog sees it as dark blue. A blind man doesn't see the flower.Another example is about a house. The owner may say the house is worth $100,000. A real estate appraiser says it's actually only worth $90,000. A monk says it's worth nothing. A monopoly owner says it's worth $300,000 and he's willing to pay cash upfront for it. A bird flies by and excretes over it and doesn't consider its worth whatsoever. A kid, who is the son of the previous owner, thinks that there is no price that can match the value that it means to him because he has lived there his whole life until his family moved out. Who is right?The key point, said the writer, is that they are all right and none of them is right."The house has no inherent value because all the values given to it are relative to the person ascribing the value." The relative nature of value means that there are no true values for anything because everything is based on perspective. This is the separation of mind and matter. Because these values are relative, the house itself has no set value; it can be changed at any time.Perceived vs relativeThe duality is what separates truth into two parts, two parts of the same whole: the perceived, relative truth, and the inherent, absolute truth, explained the writer. "If something is perceived, the absolute truth cannot be understood. Absolute truth lies beyond the perception, because perception is only one filter that can be used to view something (it is merely one angle and not all angles)."The true significance of understanding the duality is the further understanding that nothing we perceive is set in stone, the writer noted. This means that old perceptions, ascribed meanings, and other "truths" can be overturned and rewritten. We as beings of perception are free to change our perspectives and ascribe new, relative values to things. We can overturn old traditions and ways of living and running society and install newer ones that we "see" fit."To say that money is this important, that a thing is taboo, that one race is better than another, that one sex or gender is superior, or this distinction and that distinction . . . is seeing things from one angle. These are all relative truths, and they are far from absolute."Practise this understanding by not clinging too tightly to a single way of thinking," the article concluded.Apply the concept of duality to the investment world, and we see another perspective. For an investor who has a short-term horizon and who anticipates the continued withdrawal of funds from Asia, the stock market may look expensive to him or her now. However, for another investor who believes in the prospects of Asia in the next 10 to 20 years, the market may look cheap now.An investor makes 20 per cent on a stock in six months. That's a successful trade. But had he held it for five years, it might have returned him 500 per cent.So as the article states, all that we perceive is relative. Frame it in a different context, and our perception will change. The takeaway for me is that there is always a bright side, as well as a dark side to things.And as the song goes, "Always look on the bright side of life!" You made 20 per cent instead of 500 per cent, well at least you made some money. You lose 20 per cent? Well, you could have lost 50 per cent.The well-being one gets from looking on the bright side is, well, priceless.The writer is a CFA charterholder迷你倉沙田