The Most Common Mistakes People Make When Estimating Growth Rates

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Most common mistakes people make when estimating future growth rates of say the cash flows or something? They act like they're in a silo that everybody else in the world is stupid. It's what I call the big market delusion, especially prevalent when you're seeing a market kind of become a big growing market. If there are 15 other companies doing the same thing, they can't all grow at that rate because the market is not big enough. We need to ask questions about individual companies compared to advantages and not just reward them for being in big growing markets.

IN THIS EPISODE, YOU’LL LEARN:

00:00 - Intro

03:53 - The importance of having an investment philosophy and how to figure out what your investment philosophy is.

The difference between having an investment philosophy and strategy.

03:53 - An example of what a growth investor’s investment philosophy may be, such as the famous growth investor Peter Lynch.

08:22 - Why Aswath believes it’s better to be a generalist than a specialist in one area of investing.

15:00 - What are value drivers and how to apply them in our valuation process?

15:00 - The 5 basic variables we need to value any business.

24:27 - How to convert these value drivers into a DCF or intrinsic value model.

26:23 - The most common mistakes investors make when valuing a company and how to avoid these.

26:23 - Aswath’s test on how to figure out if your growth rate is reasonable.

29:23 - How to figure out what discount rate we should use?

36:11 - Why Aswath doesn’t believe in a “hold forever mentality” of stocks in a value investing approach.

37:24 - How often we should revisit our valuations for companies?

56:53 - How do companies get on Aswath’s radar?

And much, much more!

*Disclaimer: Slight timestamp discrepancies may occur due to podcast platform differences.

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Related Episode: Listen to MI226: Investing in Small Cap Stocks w/ Rayna Lesser Hannaway, or watch the video.
Related Episode: Listen to RWH005: Meet the Master w/ Aswath Damodaran, or watch the video.

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