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Strategies & Market Trends : Professional Equity Analysis - the Pursuit of True Value
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To: mauser96 who wrote (59)2/12/1997 10:10:00 PM
From: Winston Chang   of 102
 
Reginald,

Great thread you have going on here. Let me posit several questions:

1) If projecting future earnings is difficult, isn't projecting future cash flows more or less equally difficult?

2) Thus, when projecting far-off cash flows, should we use a higher discount rate for those cash flows?

3) I know that in finance, we are supposed to use weighted average projections of future cash flows rather than tamper with the discount rate. Is it even meaningful to be projecting flows on a 3 to 10 year horizon?

4) Consider 3) in light of the fact that analysts have, I think, less than about a 50% chance of projecting earnings one quarter out within one sigma of actuals. Accurately projecting such earnings two years out is a virtual impossibility.

Regards,
Winston
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