Forum Topics A quick hello and question about valuations
SayWhatAgain
Added 10 months ago

Hey everyone,

I wanted to say a quick hello. I just joined SM and have been watching videos, reading forum posts, straws, and looking at your portfolios :)

I’ve been passively investing for a few years, but I’ve been making more time for it lately. I still don't have as much time as I’d like, but enough to start leveling up my understanding, and I’m really enjoying it.

I’ve been trying to understand the calculation of DCFs as part of my learnings on how to value companies. It's probably elementary for most, but I’m just getting started and keen to improve my understanding. I wondered if you could help with some hints ;-)

At the moment, I’ve been using Yahoo Finance to pull data for the calculations, but I’m not sure if it’s a reliable source. Most of my calculations produce very low intrinsic values. I think it is because Yahoo does not have estimates of growth rates, so I've been estimating from past revenue, which is probs not right (?) Are there other online sources I could use? Or is it really about manually looking at company reports?

Also, do you use other methods to value a company and derive its intrinsic value besides DCF? I want to get a better grasp of different valuation techniques.

Would love to hear your thoughts and any advice you have! Thank you. I hope the Forum is the right place to post this!

Cheers,

SayWhatAgain...

(from Perth!)

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Slomo
Added 10 months ago

@SayWhatAgain welcome aboard!

You've got a great little crew of fellow Strawman Members in Perth, make sure you tag along to their next meetup if you can.

If it's DCF you're interested in, I would point you to the "Dean of Valuation", as Aswath Damodaran (AD) is often called the because he's (arguably) taught it for longer and better than anyone.

AD says all valuation methods are a derivative of DCF. They just make their assumptions Implicit, whereas DCF makes all assumptions Explicit.

AD posts a lot of his lessons and other materials free online and is great at explaining things - including DCF and its many derivatives.

His YouTube Videos are effectively a free entry level course on Valuation - https://www.youtube.com/watch?v=znmQ7oMiQrM

Has a lot of other good Valuation materials on YT too, including a couple of great Talks at Google here https://www.youtube.com/watch?v=Z5chrxMuBoo and https://www.youtube.com/watch?v=uH-ffKIgb38

He's also written a lot of books on valuation and related subjects.

The Little Book of Valuation is a good primer - https://www.goodreads.com/book/show/11087744-the-little-book-of-valuation

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SayWhatAgain
Added 10 months ago

Thank you,@Slomo - great! Had not heard of AD so appreciate the links. Good to hear there is a Perthian crew :)

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Tom73
Added 10 months ago

Welcome @SayWhatAgain , @Slomo has pointed you to the ultimate source in AD. All I have to add is that you shouldn't feel that you have to do a "perfect" valuation for the valuation to be of value. The exercise it's self is far more valuable than the output.

Study what AD has to teach, accept that we all have a limit on the technical ability to do a DCF to his standards, but don't let that stop you trying. In doing a DCF you will learn a lot about the company and what drives profitability. In the end you just want a model to test the impact of changing assumptions and how these impact value. Then you will need to make a subjective assessment of the probability of the various assumptions coming true and consider your risk tolerance for the range of outcomes to guide your investment decision.

There are no wrong answers with DCF's - just wrong conclusions that they are right, so stay open minded and step back from the detail before making a call. And of course, reach out on SM to test your thoughts and get the best investor feedback I have ever experienced.

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Strawman
Added 10 months ago

Welcome @SayWhatAgain -- @Slomo and @Tom73 have nailed it!!

I while back I wrote a piece on how to use the PE as a simple valuation approach, which you might also find useful:

https://strawman.com/blog/valuation-for-beginners/

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SayWhatAgain
Added 10 months ago

Thank you, @Tom73 that is so good to hear :)

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SayWhatAgain
Added 10 months ago

Thank you, Strawman. Thats great. I’ve got a bit to read now ;-)

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SayWhatAgain
Added 10 months ago

Hey @Hackofalltrades, I am starting to see that. :) It's been really useful learning how to derive it and see how the underlying assumptions affect the estimates, etc.

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SayWhatAgain
Added 10 months ago

Hi @Slomo , thanks for putting me onto Prof. Damodaran's videos! I learned a lot over the past few days, and I haven't even got to the Little Book yet!

I spent today doing my first DCF valuation for AIM :) (added it to SM)

Feeling rather chuffed with myself, it's now time for a beer. Cheers!

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