This is how you internalize the valuation process like Buffet. Must read for everyone regardless of experience. I have recently written about this. I will edit and add this to my post for my subscribers. Thank you.
Outstanding! I’ve used the reverse DCF for years. It’s always annoyed me when people whine about DCF’s being “garbage in, garbage out” or “too complicated and not useful”…. Any DCF value or model is almost INHERENTLY wrong, but that’s entirely irrelevant. It’s an abstraction of reality that allows you to simplify your thinking around the key drivers and the sensitivity of value to those different drivers. It helps you focus your time and effort where it will give you the most value. Reverse DCF takes that a step further and tells you what the market is telling you about the stock today. It might be right and it might be wrong, but you’d be a fool to ignore it. Figuring out where you have a differentiated view from the market and whether that view can be refuted is the name of the game. As Munger said, “Invert - always invert!”
This is how you internalize the valuation process like Buffet. Must read for everyone regardless of experience. I have recently written about this. I will edit and add this to my post for my subscribers. Thank you.
Outstanding! I’ve used the reverse DCF for years. It’s always annoyed me when people whine about DCF’s being “garbage in, garbage out” or “too complicated and not useful”…. Any DCF value or model is almost INHERENTLY wrong, but that’s entirely irrelevant. It’s an abstraction of reality that allows you to simplify your thinking around the key drivers and the sensitivity of value to those different drivers. It helps you focus your time and effort where it will give you the most value. Reverse DCF takes that a step further and tells you what the market is telling you about the stock today. It might be right and it might be wrong, but you’d be a fool to ignore it. Figuring out where you have a differentiated view from the market and whether that view can be refuted is the name of the game. As Munger said, “Invert - always invert!”
Thrilled you liked it! And agreed!
Awesome. Thank you
Glad you liked it!
I'm not sure i'm following where the 100 in this part comes from "Cash flow x (1+3%) x 100/10"
If you are using the perpetual growth formula, I don't believe you can assume a set number of years (even if 100).
I could be misunderstanding you though
Oh I see. Yeah I don't believe you can multiple it by "100 years" if you are using the perpetual formula.
If you are going to make an explicit forecast period (the 100 years) then you need to estimate cash flow for each year and discount it.
I'm not exactly sure how, but you are getting the same answer as if the "100 years" didn't exist though.
The perpeutual formula for the figures you have [ 1 / (13%-3%) ] -> 1 / 10% is 10x.