1/ Thread: Everything is a DCF Model
@mjmauboussin and Dan Callahan published another piece on valuation defending the use of DCF model.
Here are some interesting quotes from the piece.
@mjmauboussin and Dan Callahan published another piece on valuation defending the use of DCF model.
Here are some interesting quotes from the piece.
2/ "Whenever investors value a stake in a cash-generating asset, they should recognize that they are using a discounted cash flow (DCF) model."
3/ "A speculator, who buys a stock in anticipation that it will go up without reference to its value. Investors and speculators have always coexisted in markets, and the behavior of many market participants is a blend of the two. But it is useful to keep in mind that these are...
4/ .. separate activities."
"At the end of the day, the intrinsic value, determined by the present value of future cash flows, attracts the price like a magnetic force."
"At the end of the day, the intrinsic value, determined by the present value of future cash flows, attracts the price like a magnetic force."
5/ "Public stock exchanges are wondrous. When you buy a stock, you trade cash for a portion of the future cash flows of a business. When you sell a stock, you trade the cash flows for cash. It’s a form of time travel."
6/ "...in venture capital the price of a new round of financing is often set by the buyer who is willing to pay most for the stake, and those who think the price is too high have no ready way to sell."
7/ "Price discovery is weak in private markets because the optimists can buy but the pessimists can’t sell."
8/ Interesting data comparing VC, private equity, and public markets.
~60% VC investments lost money vs 27% in PE vs 25% in public markets (over 5 yrs).
~60% VC investments lost money vs 27% in PE vs 25% in public markets (over 5 yrs).
9/ "valuation using multiples does not avoid the drivers of long-term cash flows but rather obscures them. Williams argues that it is better to make your assumptions explicit and debate them than to make them implicit and ignore them."
10/ "if an analyst wants to recommend that the investment firm buy a stock, he or she will select the stocks of comparable companies that have high valuations, making the focal stock look relatively inexpensive."
11/ this is basically what I do.
12/ “. . . bond selection is primarily a negative art. It is a process of exclusion and rejection, rather than of search and acceptance. In this respect the contrast with common-stock selection is fundamental in character.”
End/ Link to the piece: morganstanley.com/im/en-us/indiv…
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