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Technology Stocks : Warren Buffett
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To: Don W Stone who wrote (23)12/19/1996 9:42:00 AM
From: shean bond   of 82
 
Regarding "value" investment and the assessment of earnings growth on share price, have you tried applying the 'Two Stage "Dividend" Discount Model' described in Hagstom's book "The Warren Buffett Way"?

This model is supposed to estimate the present value of a company (in terms of market capitalisation worth) given a forecast of earnings (being your best guess at the time). This calculated value can be compared with the actual market capitalisation, and a decision can be made as to whether the shares are currently overvalued or undervalued by the market.

I'd be interested to hear if you or anyone else has tried applying this model to value a company's share price. I've been wrestling with it for the past week or so and cannot reconcile the capitalisation operation of dividing the final years 'owner earnings' by the discount rate less the second stage growth rate.
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