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Strategies & Market Trends : Value Investing
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To: Paul Senior who wrote (57698)8/6/2016 8:03:43 AM
From: Graham Osborn  Read Replies (1) of 78673
 
Hi Paul, I agree with everything you said. My general take is the number that comes out of any valuation analysis is far less important than the assumptions which went in - which is my reason for building every model from scratch based on the situation. When I am contemplating a long position I try to be bearish on every assumption so as to establish a wide margin of safety. For short positions (FWIW) I do the opposite, making the most optimistic of assumptions. As you noted, I was pretty bearish on the growth assumptions, particularly on a constant-currency basis for ROW revenues. And in most investment banking circles I would be taken out and shot for terminating the cash flows at 2050 - just my personal negative bias that conditions can change quickly in tech. Changing those assumptions could easily double the calculated price at a given discount rate, and the market may well think that way.

Having completed the model, I don't really know it adds much to the valuation argument beyond a simple EV/ FCF comparison. Still, I think it's interesting to observe how the market might treat an equity-bond as real rates head lower or higher.

I'll still be taking a full position, although like you I am waiting for a bit of retracement.
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