OOH …Here’s One Thing
by Jim Johnsen,
Managing Director, Johnsen, Fretty & Company
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” Albert Einstein
My partner pointed out to me last week that the Lenape Band got the better end of the deal when they sold Manhattan Isle to the flying dutchman. Come on, how could that be true?
He followed it up with a screen shot of google search:
“The Lenape people sold Manhattan island to Peter Minuit in 1626 for 60 guilders, or about $24. Buffett pointed out that had the $24 been invested continuously at an annual return of 7% it would be more than enough to buy back all of Manhattan today even with all the real estate improvements.”
If that wasn’t enough of a brain twister, then how about the following:
“In the 1962 letter he (Warren Buffett) noted that the estimated $30,000 cost of sending Columbus to the Americas in 1492 would have been worth about $2 trillion at the time (he used a 4 percent investment rate), which would be $18 trillion in 2018. The current total net worth of Spain is $7 trillion, and that doesn’t include any ownership interest in their New World venture.” As the young private equity bros would say, the MOIC for Spain sucked an egg.
we as an industry have done a sub par job raising pricing
Okay, Johnsen, where you going with this? Short and sweet. If a value of a billboard (or any outdoor asset for that matter) is determined by its cash flow, and if its cash flow is largely determined by its revenues, and its revenues are flat, then you are going backwards. Say that again Johnsen. One word, inflation. If you don’t want your asset to decline in value, you must get it to at least grow with inflation. If you want it to increase in value (in real dollar terms), you need to grow its top line and cash flow by more than inflation.
I know I have said this before, so feel free to take me out to the woodshed, but I think we as an industry have done a sub par job raising pricing. And from my perch I do not see pricing keeping up with inflation, and in a bunch of markets, I see worse. So…can someone please tell me why it’s so friggin’ hard to ask for a little more this year than last?
I don’t believe that anybody Feels the way I do about you now
“Today is gonna be the day
That they’re gonna throw it back to you
By now you should’ve somehow
Realized what you gotta do
I don’t believe that anybody
Feels the way I do about you now” Oasis
Securities transacted through StillPoint Capital Member firm FINRA/SiPC
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