Gorilla and King Portfolio Candidates Message Board

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Strategies & Market Trends : Gorilla and King Portfolio Candidates

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To: Mike Buckley who wrote (21360)	3/26/2000 4:12:00 AM
From: Juliet	Read Replies (3) of 54805

Present Value of Futuristic Cash Flows... Just wanted to mention the "uncertainty principle" here. Mike wrote: Assume we discount the future value of Company A's cash flow and arrive at a present value of $100 million. Using the same discount rate, we do the same for Company B and determine the present value of its future cash flows is only $50 million. Investors certainly wouldn't want to pay as much for Company B as Company A. There should be an exception to this, and that is when the future cash flow as calculated is a lot more definite and reliable for company B (say, a Gorilla) than it is for company A (say, e-something.com). From my own experience, you would use a higher discount rate for the company whose future cash flows are less sure. And, of course, there is always SOME uncertainty. It's always a fiction. After all, we're talking about the future. It seems--to my pretty uneducated eye--that certainty vs. uncertainty is not properly factored at the moment into many relative stock prices. This, in my view, is a good way of expressing what makes Gorillas and Kings so attractive. With a G&K analysis we are able to factor in a greater amount of certainty (and therefor a lower theoretical discount rate) to arrive at a present "value." It's interesting to think that you could arrive at a real mathematical value for Gorilla-ness in this way... Just a musing... Juliet

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