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  • Valuation SIP

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    Anav Aggarwal
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    A good valuation focuses more on the narrative of a company rather than numbers alone, as valuations can be biased by preconceptions, uncertainty, and complex models. Investors should think for themselves rather than follow the crowd or momentum of the market. Valuations are not an exact science and different valuation methods like intrinsic, relative, and option pricing are appropriate depending on the type of company and expected future cash flows.

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    A good valuation focuses more on the narrative of a company rather than numbers alone, as valuations can be biased by preconceptions, uncertainty, and complex models. Investors should think for themselves rather than follow the crowd or momentum of the market. Valuations are not an exact science and different valuation methods like intrinsic, relative, and option pricing are appropriate depending on the type of company and expected future cash flows.

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    24 views1 page

    Valuation SIP

    Uploaded by

    Anav Aggarwal
    A good valuation focuses more on the narrative of a company rather than numbers alone, as valuations can be biased by preconceptions, uncertainty, and complex models. Investors should think for themselves rather than follow the crowd or momentum of the market. Valuations are not an exact science and different valuation methods like intrinsic, relative, and option pricing are appropriate depending on the type of company and expected future cash flows.

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    A good valuation is more about the story than the numbers.

    Valuations go bad not because of numbers, but because of bias-uncertainty-complexity.


    Bandwagon effect, “They must know something that you don’t.” are the deadliest words in
    investing.
    Momentum investors – follow the crowd, no questions asked.
    Yogi bear investors – follow the crowd till the cliff.
    Life vest investors – gives your rational side a chance to win the argument.
    Preconceptions (bias) – depends on who pays you to do the valuation and how much.
    Valuation is not a science.
    Bigger model will be better, yes but if they get too complex it becomes a black box.
    Value company with as less inputs as you can, “Less is more”.
    Intrinsic valuation – based on the business itself, its cash flows, risk, growth rates.
    Relative valuation – uses multiples of similar assets/businesses (easy in only some cases).
    Option pricing valuation – used for contingent cashflows like biotech companies (patents).
    Value of an asset is the present value of the expected cashflows in the future.
    Markets are right on average but wrong for individual companies.
    Options have a contingent payoff, like oil company with undeveloped reserve.

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