Today we discuss:
Why do you value a company?
- First principle: Opportunity Cost
- Your returns are determined by the price you pay
- It's a good anchor point
- If there is some event that pushes the whole market down, if you know the value you can pick up great companies at cheap prices
- Forces you to put in the work thereby avoiding obvious mistakes
- You need to find a dollar that is selling for fifty cents
Intrinsic Valuation
- Present Value of future cash flow
- If you had to invest in a neighborhood lemonade stand? How much will you pay for it?
- Very simple lemonade example (https://docs.google.com/spreadsheets/d/1FBu2Td7vnva9DHSvWVOL3-XwTAQ1UtXT9Ihk5sO1G9E/edit?usp=sharing)
- Discount rate: Let’s say that you’d take $900 today instead of $1000 exactly a year from now. That means you’d accept a 11.1% “discount rate” on that transaction.
- Growth rate
- Terminal value
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