The Importance of Uncertainty in Valuation Analysis

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I see people trying to come up with ways to make valuations more precise. Uncertainty is a feature not a bad. You can't make an uncertain world into a certain world on a spreadsheet. Accept the imprecision. Welcome it and treat it as part of investing. It'll make your life a lot healthier because I see analysts constantly struggling. That's why they're easy targets for these sales pitches or just get more precise. Just do this. You'll get more precise, he says.

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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