tag:blogger.com,1999:blog-37872616.post9057593481606217080..comments2022-01-18T18:38:30.123+08:00Comments on BULLy the BEAR: The false security of 'intrinsic' valuela papillionhttp://www.blogger.com/profile/01372278083694506953noreply@blogger.comBlogger15125tag:blogger.com,1999:blog-37872616.post-427490959256341542010-06-29T00:58:33.694+08:002010-06-29T00:58:33.694+08:00Hi Shud'n,
Glad to be of help :)Hi Shud'n,<br /><br />Glad to be of help :)la papillionhttps://www.blogger.com/profile/01372278083694506953noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-24700939315795015832010-06-28T14:59:14.526+08:002010-06-28T14:59:14.526+08:00LP now I get it! Thank you so much! This has alway...LP now I get it! Thank you so much! This has always been bugging me for some time already!Shud'nhttps://www.blogger.com/profile/09675951074230756659noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-14373107890056265672010-06-28T10:40:21.108+08:002010-06-28T10:40:21.108+08:00Hi Shud'n,
"Ok from 2004-2007, it should...Hi Shud'n,<br /><br />"Ok from 2004-2007, it should be:<br /><br />1st period: 1st jan 2004 - 31 dec 2004<br />2nd period: 1st jan 2005 - 31 dec 2005<br />3rd period: 1st jan 2006 - 31 dec 2006<br />4th period: 1st jan 2007 - 31 dec 2007<br /><br />n = number of periods right? So, isn't it 4? "<br /><br />If you want to treat it this way, then you need the data pt on 31-dec 2003. 5 data pts will then give you 4 intervals.<br /><br /><br />"Using a real-life example, let's say a student starts his secondary school education in 2004. In 2004, he's in Sec 1. 2005-Sec 2. 2006-Sec 3. 2007-Sec 4. So, it's a total of 4 years of secondary school education even though there are only 3 intervals."<br /><br />Yes, I agree with you that there are 4 years but 3 intervals. That doesn't change the fact that when using the formula, you should treat n as the intervals, not the no. of years. Intervals, again, is defined as the spaces between the data pts.<br /><br />Have you seen how others calculate?<br />Here's a few:<br /><br />1. http://en.wikipedia.org/wiki/Compound_annual_growth_rate<br /><br />2. http://allfinancialmatters.com/2006/06/08/how-to-compute-compound-annual-growth-rate-cagr/<br /><br />For e.g 2, $10,000 is actually at year 1985 because that's the year where they use the starting value in the calculation.la papillionhttps://www.blogger.com/profile/01372278083694506953noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-45620026395942830512010-06-28T00:55:52.584+08:002010-06-28T00:55:52.584+08:00LP,
Ok from 2004-2007, it should be:
1st period:...LP,<br /><br />Ok from 2004-2007, it should be:<br /><br />1st period: 1st jan 2004 - 31 dec 2004 <br />2nd period: 1st jan 2005 - 31 dec 2005 <br />3rd period: 1st jan 2006 - 31 dec 2006 <br />4th period: 1st jan 2007 - 31 dec 2007 <br /><br />n = number of periods right? So, isn't it 4? <br /><br />Using a real-life example, let's say a student starts his secondary school education in 2004. In 2004, he's in Sec 1. 2005-Sec 2. 2006-Sec 3. 2007-Sec 4. So, it's a total of 4 years of secondary school education even though there are only 3 intervals. <br /><br />Pls correct me if I'm wrong.Shud'nhttps://www.blogger.com/profile/09675951074230756659noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-86885417928876443002010-06-28T00:32:35.513+08:002010-06-28T00:32:35.513+08:00Hi Shudn'n,
You misunderstood me. I am merely...Hi Shudn'n,<br /><br />You misunderstood me. I am merely answering your question as to whether the period (n is 3 or 4. I didn't say that FY2004 is from 2004 to 2005. As to the actual financial year, it varies from company to company, but it has nothing to do with the calculation of CAGR. Some company start their financial year in June, some start in Dec.<br /><br />The n in the formula refers to the number of intervals between the data pts. 2004 to 2005 is the first interval, 2005 to 2006 is the second interval, 2006 to 2007 is the third interval, hence n is 3. I did not mean to say that the FY04 starts from 2004 to 2005. The actual period where the financial year starts is immaterial to the calculation of CAGR as long as they did not change the start and end date of their financial year.<br /><br /><br />To make it crystal clear, consider the sequence:<br /><br />10,18,22,23,34,35<br /><br />How many intervals are there?<br /><br />There are 5 intervals. The calculation of CAGR would be:<br /><br />[(35/10)^(1/5)-1]x100<br />=28.47%<br /><br />The calculation is the same as this sequence:<br /><br />10,15,20,25,30,35 too.la papillionhttps://www.blogger.com/profile/01372278083694506953noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-30364077116297531942010-06-27T13:09:24.315+08:002010-06-27T13:09:24.315+08:00LP, this is where I get confused. Isn't FY2004...LP, this is where I get confused. Isn't FY2004 from 2003-2004, which is already 1 year? Pls enlighten me. Other companies will be using 3 years as well if given this case as I saw their annual reports.Shud'nhttps://www.blogger.com/profile/09675951074230756659noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-69974073890964615902010-06-27T10:25:47.790+08:002010-06-27T10:25:47.790+08:00Hi Shud'n,
This is how I calculated:
CAGR = ...Hi Shud'n,<br /><br />This is how I calculated:<br /><br />CAGR = ((64747/46894)^(1/3) - 1)*100<br />= (1.1135-1)*100<br />= 11.35%<br />= 11.4% (3 sf)<br /><br />I used the number of periods as 3 because 2004 to 2005 is the first period, 2005 to 2006 is the second, 2006 to 2007 is the third.la papillionhttps://www.blogger.com/profile/01372278083694506953noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-63605344595347836652010-06-27T01:45:53.852+08:002010-06-27T01:45:53.852+08:00Hi
Referring to Company A revenue's CAGR of 1...Hi<br /><br />Referring to Company A revenue's CAGR of 11.4%, did u use number of periods (n) as 3 or 4?Shud'nhttps://www.blogger.com/profile/09675951074230756659noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-31222338280073937422008-09-16T13:09:00.000+08:002008-09-16T13:09:00.000+08:00That's the way man!That's the way man!Financial Journalisthttps://www.blogger.com/profile/06490416137194206916noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-17897621008419059192008-09-16T11:28:00.000+08:002008-09-16T11:28:00.000+08:00Thks brendan, read your post. I think it's true th...Thks brendan, read your post. I think it's true that stock market is +ve correlated to interest rates. This is funny considering how textbooks say otherwise.<BR/><BR/>It's the usual academics vs practitioners kind of battle again. I'll believe the practitioners anytime.la papillionhttps://www.blogger.com/profile/01372278083694506953noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-30702806217684037282008-09-16T11:10:00.000+08:002008-09-16T11:10:00.000+08:00I still think my concept of: Portfolio return = 20...I still think my concept of: <BR/>Portfolio return = 20% alpha + 80% beta. <BR/><BR/>A good stock picker may outperform the market, say his portfolio is down 30% while the market is down 40%. <BR/><BR/>But what's the point? End of the day we retail investors just want to earn absolute return.<BR/><BR/>As long as the overall market is weak, this 80% beta pull the portfolio return down drastically.<BR/><BR/>I still think cash is king.<BR/><BR/>I had written this article today:<BR/>http://www.commoditiestradingpro.com/2008/09/where-is-s-500-index-heading-to-part-2.htmlFinancial Journalisthttps://www.blogger.com/profile/06490416137194206916noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-53487162212317215872008-09-11T13:54:00.000+08:002008-09-11T13:54:00.000+08:00Hi caseyc,I still use it though :) It's good to kn...Hi caseyc,<BR/><BR/>I still use it though :) It's good to know a rough figure of that value, as long as the inputs are not aggressively optimistic nor pessimistic. <BR/><BR/>I use PE too, you can look at my post here: http://bullythebear.blogspot.com/2008/09/perils-of-pe.htmlla papillionhttps://www.blogger.com/profile/01372278083694506953noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-14682561964656843742008-09-11T13:39:00.000+08:002008-09-11T13:39:00.000+08:00Hi LP/MW,I think u folks have highlighted the prb ...Hi LP/MW,<BR/>I think u folks have highlighted the prb with DCF very well. I'm not sure if computing a range with DCF is even reasonable though, given that the discrepancy can be huge depending on your assumptions.<BR/><BR/>Just wondering... If u folks distrust DCF, what other valuation methods do you usually use to compute the intrinsic value?<BR/><BR/>Thanks for enlightening a newbie.<BR/><BR/>- caseycAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-37872616.post-10622326457123637082008-09-11T09:37:00.000+08:002008-09-11T09:37:00.000+08:00Hi mw,Actually the terminal value assumes that the...Hi mw,<BR/><BR/>Actually the terminal value assumes that the company will continue growing at a certain growth rate to infinity. I don't like to include that because it's already hard to determine the growth rate of 5 to 10 years, why make it harder to project the growth rate to infinity? As such, I'm happy to treat the company as having a limited shelf life.<BR/><BR/>I do agree that the EPS growth rate cannot be extrapolated from past growth rates, otherwise companies like IBM would have shot up to the sky already! There's an element of prediction here which makes the intrinsic value based on DCF a range, rather than an exact numbers. Nevertheless, we can still get a rough range using different scenario of EPS growth. The different scenarios itself will be an invaluable tool in gauging the value of the company when they grow at different pace.<BR/><BR/>Relying on numbers really would be suicidal - which is the point of this post. I think one needs to check on the figures itself, to see if it makes sense. For example, if the EPS projected in 2017 is so and so, we can find out the revenues that need to be be incurred in order to have that amount of EPS. Sometimes, based on current market share, it's impossible to have that kind of revenue! That's what the numbers fail to tell you.<BR/><BR/>Thks for your comments!la papillionhttps://www.blogger.com/profile/01372278083694506953noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-60419012793052198952008-09-11T02:05:00.000+08:002008-09-11T02:05:00.000+08:00LP,Nice post ! That's one reason why I don't use D...LP,<BR/><BR/>Nice post ! That's one reason why I don't use DCF, because it assumes a terminal value ! Companies have an infinite life (look at Boustead, 180 years and still going strong !), and to assume a terminal value based on 5 or 10 years is unrealistic at best; inaccurate at worst.<BR/><BR/>Also, stuff like EPS growth rate into the future are purely hypothetical and cannot be based on past growth data (a company tends to grow faster initially but will slow down as it gets larger and "clumsier"). Also, ROE gets harder and harder to remain high as the company's equity base increases with successive years of profit. The discount rate one uses is another variable.<BR/><BR/>So with so many "problems" with DCF, it's no wonder the intrinsic values can differ so much !<BR/><BR/>This is why I advise factoring in intangibles and qualitative aspects too, to justify a purchase. Relying on numbers alone to invest would be suicide as numbers sometimes don't tell the full story.<BR/><BR/>Cheers,<BR/>MusicwhizMusicwhizhttps://www.blogger.com/profile/10950754156386935254noreply@blogger.com