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Real-Money Stock Picks / Messed-Up Expectations Portfolio


Subject:  Re: More thoughts on discount rates Date:  12/13/2010  2:48 PM
Author:  nonzerosum Number:  98 of 1287

The viewpoint I prefer is the other one. "What is my return?" This is more like a hurdle rate...Of course, that causes me to pass over a bunch of companies.

Yes, exactly, you pass over some good investments but what is worse is that this method will select the riskiest stocks. That can be very dangerous. Your screen will pick all the value traps and then you have to manually sift out the ones that are not "traps".

I believe you have to account for the riskiness of the investment. You make good critique points about CAPM and beta. I think your "judgment beta" is better than completely ignoring relative risk.

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