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I once posted a post similar to this for someone who became obsessive down to the micromanaging level on valuations. Being the cynic that I thought he was, I was actually surprised that it put him in a better mood.

Satire on Valuation(Revised from original post)

Dear Mr. ObsessiveOnValuation

How DO you calculate Stock Value?

True Stock Value = Stockholders Equity(BV) per Share + Puffy Fluff

What is Puffy Fluff?
Puffy Fluff can be defined as Speculative Earnings per share into the Future over the next five or ten years.

Analysts (The Great Pooh-Bahs) generally value stock based on Puffy Fluff. They ignore the Stockholders Equity Part (BV).

For example, if Stock A has a BV of $10.00 with speculative earnings of $.01 over the next 5 years then the stock will be trading at $.01. If Stock B has a BV of .01 and speculative earnings of $10 the stock will be trading at $10.

This makes perfect sense to me. After all “Ten in the Bush” is better than “One in the Hand”. Right? I would have never thought of that in a million years. These Pooh-Bahs on Wall Street are really the brightest of the bright. And to think, they do all of this for only $500,000 to $1,000,000 a year. I think these guys deserve a raise for all this brilliance.

So you see Mr. ObsessiveOnValuation, all those things you learned in Finance about the Balance Sheet Stuff doesn't mean a thing. While knowing the Balance Sheet Stuff could keep you from investing in a failing company, Finance won't help you with Puffy Fluff. Puffy Fluff is WAY beyond Finance.

By the way, don't tell anyone, but I don't think the Great Pooh-Bah's know anything about a Balance Sheet. After missing ENRON and all, their 50% raises might be cut in half. So mums the word on the Balance Sheet.

Back to the Fluff. We're in luck. Understanding Stock Market Fluff is easy. All you need to do is become the Fluff. All day, every day, Eat it, Breathe it, See it, Believe it. Then you too will become a Great Puff Fluff Stock Trader. You can even change your name to TheGreatPuffFluff and get a most excellent Pooh-Bah position at the prestigous firm of Piper Jazzy.

Happy Fluff Trading

Quasie
Disclosure: Not generally known as being any good at Puff Fluff Stock Trading
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