{"text":[[{"start":6.1,"text":"A decade ago — pre-divorce and earning a motza — I used to pay four times what I do now on rent. Our neighbour on one side was the late Paul Allen, co-founder of Microsoft. Across the road were the Beckhams and Qatar’s royal family."}],[{"start":20.7,"text":"Unlike them, our building was subdivided and we lived in the basement. So how did I justify such an exorbitant rent? Chatting over the fence with Lady Glenconner about parties on “her island” of Mustique in the 1960s helped a bit."}],[{"start":34.45,"text":"Mostly, though, I used one of investing’s simplest valuation methodologies. You just ask: “Which number is probably wrong?” In the case of our flat, when I divided the annual rent by the sale price of a similar property on our street, the yield was less than 1 per cent."}],[{"start":51.2,"text":"Given that the risk-free rate of interest at the time was roughly twice that, either house prices in the area were bonkers or the amount our landlord was charging us was much too low. My instinct was the former."}],[{"start":62.400000000000006,"text":"I didn’t think the number that was wrong was our rent. I was paying a fortune, but I didn’t mind because, if you flip the equation on its head, there was no way on earth I could afford to buy the equivalent flat."}],[{"start":73.7,"text":"It turns out I was right, too. If you adjust the Savills prime London index for inflation, luxury house prices have more than halved since the years my ex-wife’s relatives used to chase David and Victoria up the footpath."}],[{"start":87.85000000000001,"text":"Pondering which number is probably wrong is a particularly useful approach for assets that generate an income, such as shares or equity markets. For example, you should rightly ask yourself: is an 8 per cent dividend yield a sensible number (that is, the stock is too cheap) or is the share price correct (and might the dividend soon be cut)?"}],[{"start":108.30000000000001,"text":"Likewise, as I wrote a fortnight ago, my bullishness on equities stems from the fact that I believe their elevated levels are right. In other words, I’m betting that price/earnings ratios are wrong because their denominators will grow faster than expected."}],[{"start":122.75000000000001,"text":"This approach also works nicely when comparing a firm’s equity with its debt. A good example recently is CoreWeave. Its shareholders — until this week, perhaps — see quality and sunlit uplands. Its bonds, on the other hand, trade like junk."}],[{"start":139.45000000000002,"text":"Which is right and which is wrong? You pays your money and takes your choice, as they say, like you can with sovereign bond yields, too. French 10-year bonds currently yield about 40 basis points more over Bunds than Greek bonds."}],[{"start":152.8,"text":"Does that seem right to you? One historic basket case versus another in the making. I haven’t a clue and wouldn’t trust either government with my pension savings, frankly, especially over a decade."}],[{"start":164.4,"text":"Needless to say, this game is easiest played with futures — which basically give you two prices to choose from for the same asset. But the asset class where I’ve made the most money asking the “which is wrong” question is currencies. They work well because each has a value only in relation to another, and that versus yet another — in a never-ending mess of cross-exchange rates."}],[{"start":188.05,"text":"To keep things simple, therefore, I often just ask myself: “Are forex markets right, or can I buy a lot more with a pound in Britain, say, than I can of the same goods and services in Canada with dollars at today’s exchange rate?” If the answer is yes, buy sterling."}],[{"start":205.70000000000002,"text":"Trading currencies based on purchasing power doesn’t always work. No valuation methodology does. But the important thing is to make sure you never compare two numbers that should not be compared, such as the common practice of looking at a stock market’s dividend yield versus bond yields. This is very different from the example above for a single company, where both equity and credit owners rely on the same cash flows being generated."}],[{"start":230.35000000000002,"text":"I’ve written many times that you can’t compare dividend yields, which derive from net profits that move with inflation, to bond coupons, which don’t. Nor is there any long-run relationship between the two whatsoever."}],[{"start":243.35000000000002,"text":"An even worse habit is popular among holders of assets that generate no income whatsoever. Indeed, one of the reasons I tend to spurn the likes of gold and bitcoin is precisely because I cannot apply the which-number-is-right-or-wrong test."}],[{"start":257.90000000000003,"text":"There is nothing inherent to compare prices with, and that is why you often see some ridiculous comparisons with other asset classes: the price of silver measured in average house prices or ether coins denominated in bushels of wheat."}],[{"start":272.20000000000005,"text":"Utter nonsense. When something doesn’t generate an income, the only determinant of its worth is what someone else is willing to pay for it. And good luck trying to model that — especially years into the future."}],[{"start":283.50000000000006,"text":"Happily, no one is bothering to try at the Frieze London art fair this week, where I’m told sales are hot. Indeed, it is impossible to value most so-called alternative assets, from impressionist paintings and Fender guitars to vintage Porsches or Rolex watches."}],[{"start":299.90000000000003,"text":"The irony is that so many of these were among some of the best investments you could have made over the past few decades. Was it luck that there have always been better fools coming along to push prices higher? Or is something else going on?"}],[{"start":312.55,"text":"I’ve had hundreds of requests to write something on alternative assets. Mostly I’ve avoided the topic because I feared my fall from that world might be triggering. I used to look out of my window and see three Rothkos hanging in Valentino’s dining room. But I’m over it now. So next time, I promise."}],[{"start":333,"text":"The author is a former portfolio manager. Email: [email protected] "}],[{"start":null,"text":"Vanguard FTSE 100 ETF (GBP)"}],[{"start":null,"text":"iShares MSCI EM Asia ETF (USD)"}],[{"start":null,"text":"Vanguard FTSE Japan ETF (USD)"}],[{"start":null,"text":"Vanguard S&P 500 ETF (USD)"}],[{"start":null,"text":"BlackRock Latin American Ords"}],[{"start":null,"text":"4.5% Treasury Gilt 2034"}],[{"start":346.05,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1792196494_8076.mp3"}