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Strategies & Market Trends : Gorilla and King Portfolio candidates - Moderated -- Ignore unavailable to you. Want to Upgrade?

To: Mike Buckley who wrote (951)	6/14/2004 7:10:42 PM
From: Jim Mullens	Read Replies (2) \| Respond to of 2955

Mike, thanks for your reply Re: Qualcomm DCF valuation and “Like all valuation metrics, it requires making assumptions about the future. Wrong assumptions beget wrong intrinsic value. “ And, “The method always works if you input the correct data with regard to future cash flows, terminal value, and discount rate. By that, I mean that if we put the correct data in we get the correct intrinsic value. Regardless, those are big IFs.” As I stated in my prior post, the DCF model I previously used (Quicken) is no longer available to me. As I recall, plugging in similar numbers (prior post) would yield an “intrinsic value” in the low $60s.Yet, my simplistic methodology shows a doubling of price in four years. It’s my understanding that the DCF model ( a determination of today’s “fair value”) with its discounting/- risk/ reward mechanism, would lead one not to buy today regardless of a potential double in four years. Going back to my hypothetical example and plugging in those “big Ifs” what would your DCF yield as the “intrinsic value”? If your DCF says the Q is only worth $60 today, “intrinsically”, DCF followers won’t buy. If all those assumptions become reality, the Q doubles, then DCF followers miss an opportunity to double their money. Does then the DCF discounting mechanism overstate the “risk” in the risk/ reward discounting mechanism? In other words, if all the assumptions become reality, does DCF still understate the present worth of the company because of the discounting factors for risk (not the discount factor associated with the value of money/ interest rates)? I’m willing to accept the “risk” in investing in Qualcomm as I believe the Q has less investment risk than the average/ most all technology/ high growth investments, and that in the Q’s case DCF analysis assigns to high a level of risk and is therefore not appropriate.