Asset Valuation Models

Asset Valuation Models - AssetValuation What is a cynic? A...

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1 Asset Valuation “What is a cynic? A man who knows the price of everything and the value of nothing” ~ Oscar Wilde, Lady Windermere’s Fan, Act III
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2 Why Valuation? All assets have value Understand what value is Understand sources of value Basic valuation principles run through many valuation models What influences the outcome of asset valuation? “Valuation is often not a helpful tool in determining when to sell hypergrowth stocks” ~ Henry Blodget
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3 Valuation Myths Valuations are quantitative estimates and are thus objective Valuations are timeless Good valuation implies precise estimate of value Quantitative models are better Markets must be inefficient to make money with valuation The product of the valuation is the important bit
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4 Valuation Strategies Discounted cash flow Value of an asset tied to PV of future cash flows Relative valuation Value of an asset compared with similar assets Heavy reliance of financial ratios Across entities or across time
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5 DCF Ingredients DCF requires estimates of: Time horizon Cash flows Discount rate DCF implicitly assumes markets are susceptible to mistakes at a given point in time Should correct themselves over time
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6 DCF – cont’d Proper DCF should be emotionless and not be influenced by moods and perceptions “Buy businesses, not stocks” ~ Warren Buffett Requires many inputs and assumptions Easy to manipulate and manifest biases No guarantee that an asset will be over or under-valued
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Asset Valuation Models - AssetValuation What is a cynic? A...

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