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prabhakarkudva
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Joined: 16/Jan/2008
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   Topic: New ways to value companies?
Posted: 07/Oct/2009 at 4:47pm |
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I would like to have somewhat of a debate around the following question:
'Throughout the years and even from its beginning, haven't we skewed
valuation models to satisfy our needs instead of trying to find new
ways to value companies?'
Inputs appreciated.
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Take your chances and keep them in a box until a quieter time.
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FutureBull
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Posted: 07/Oct/2009 at 5:39pm |
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as per me, valuation is an art so it has to be learned and practiced but very hard to put a method above other..
i am learning to use "Real Option Pricing" used to evaluate Oil reserves, new innovation etc.
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‘The market always does what it’s supposed to — BUT NEVER WHEN’.
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prabhakarkudva
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Posted: 07/Oct/2009 at 6:02pm |
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my doubt is,why are we still stuck with the same old DCF models when we know they are just garbage in garbage out models.They give us what we want to see.Why havent we worked on building more realistic models that may be incorporate management integrity and a healthy dose of common sense?
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Take your chances and keep them in a box until a quieter time.
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FutureBull
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Posted: 07/Oct/2009 at 6:26pm |
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true they are static models and not at all suitable for a situation when there is no cash flow for forceable future and current trend is to carry out simulation with scenario analysis and planning in corporates for internal valuation exercises.. and get your efficient portfolio zone to take right decisions
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‘The market always does what it’s supposed to — BUT NEVER WHEN’.
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basant
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Posted: 07/Oct/2009 at 9:21pm |
One model that has worked out well for me is to have a string of valuation parameters for example PE, RoE, P/BV,Div yield, Management, Industry, Sector Leadership etc etcand then plug in the numbers. The model should be self adjusting for example high RoE would mean high Price to book so the company gets more score in the RoE and less in the price to book; high RoE also means high PE generally so that adjusts there, high yield goes with low Price to book but high RoE and high yield cannot go together, a good management will have a high PE and so will a good industry so that balances each other out again ultimately we have to weight them and then get to a common number using the goal seek fucntion at excel which equates the numbers alloted and scored at a certain price.
Originally posted by prabhakarkudva
my doubt is,why are we still stuck with the same old DCF models when we know they are just garbage in garbage out models.They give us what we want to see.Why havent we worked on building more realistic models that may be incorporate management integrity and a healthy dose of common sense?
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Edited by basant - 07/Oct/2009 at 9:22pm
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prabhakarkudva
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Posted: 07/Oct/2009 at 11:00pm |
Originally posted by basant
ultimately we have to weight them and then get to a common number using the goal seek fucntion at excel which equates the numbers alloted and scored at a certain price.
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Basantji,can you elaborate this part a little bit.
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Take your chances and keep them in a box until a quieter time.
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nitin_jagtap
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Posted: 11/Oct/2009 at 3:06pm |
One interesting way to value is just use the last 3-4 years Annual reports and build your best case for the price you want to pay for this stock.
In my opinion in most cases when we arrive at values we are already biased by the ticker price of the stock and then work backwards and do adjustments to somehow arrive at that price or at a price that suits us depending on the market condition .
So without having any clue on what the quoted price of the securtiy is , if one can use a model that suits that one is comfortable with and arrive at a price it would be far more fulfilling and satisfying in the long run. In this excercise my attention would be more on the minimising my downside risk without paying tooo much impotance to the upside potential.
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Warm REgards
Nitin Jagtap
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