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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Graham Osborn who wrote (57551)	7/18/2016 11:03:42 AM
From: Micah Lance	Read Replies (3) \| Respond to of 78958

A few thoughts for the board: One thing I have been debating is investing in a market like this. I think most can agree that this market has high valuations, and Graham talks about avoiding investing during a time of high market valuations. For me, I would rather wait until the market doesn't seem so irrational. I mean the market has rallied over the past week on what? The prospects of more central bank intervention? I guess we will see which way the market moves, but as of right now I personally think it is getting more and more overvalued. Second thing is a question for the board. I have been fine tuning some of the models I am working on, however I can't decide on the discount rate to use. Buffett and other value investors use long term government bonds as their discount rate, which I like and plan on using. My issue is this: the 30 year government rate is ~2.3%, which is historically low and will distort any valuation produced by a model, so I am not sure if I should still use the long term government rate as my discount rate. My two thoughts on this are: 1) use the low rate as it is representative of the market environment we are currently investing in and accept that valuations will be distorted (which can be helped by a Margin of Safety) 2) use a historical average to smooth out these low rates, however this bothers me as it seems like it is ignoring the investing environment we are in. Lastly, for those who use a model to value companies what time frame do you use? For example, if we follow Graham's rule of selling at either a 50% gain or after 2 years, then what is the point of modeling earnings for 10 years if we potentially won't hold the stock for that long? Wouldn't it be better to model for 2 - 3 years and attempt to have a clear picture over that time frame, instead of projecting 10 years out? Any comments, advice, or criticisms welcome as I am trying to hone my investment approach. Thanks! Micah