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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.
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