Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (25) | Ignore Thread Prev | Next
Author: razorfangius Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 214649  
Subject: Re: 40% Overvalued Date: 10/9/2012 10:17 AM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 3
I think he makes a good point actually. If everything is telling you that the general market is overvalued by nearly 60%, yet you think certain large stocks are undervalued, then you should make sure you can identify other stocks that are obviously overvalued. Otherwise, maybe your logic for your stocks being undervalued is flawed. It's not about discarding the existing methods of identifying overall market overvaluation.

If that was the point (which I did not get), then fine. But it's clear the issue is use of DCF analysis. It turns stock market valuation into a guessing game. "IBM is undervalued because I punched in 15% growth for 10 years, which I think is reasonable, but XOM is overvalued because I punched in -2% growth for 10 years, which I also think is reasonable." Okay.

DCF makes the valuation whatever your heart desires. Buffett says it's an easy game if you have the right temperament. I think there's a big catch in that "if", because it looks like the number of people with the "right temperament" can be counted on one hand.

There's a reason why most Buffett followers:

1. Buy Berkshire
2. Buy whatever Buffett buys (13-Fs)
3. Buy things that resemble Berkshire (LUK, MKL, FRFHF, L, etc.)

They're not being stupid or lazy, they're acknowledging they don't have the right temperament and solving the problem, using one of the solutions that's available.

The other solution is to toss DCFs, go back to Graham, and use more objective yardsticks.
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (25) | Ignore Thread Prev | Next

Announcements

Foolanthropy 2014!
By working with young, first-time moms, Nurse-Family Partnership is able to truly change lives – for generations to come.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Macro Economics

Looking at Currency Ratios
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement