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Your examples are actually edge cases that DCF was never designed to handle. There are lots of investments that are way more boring than Apple, Tesla, and Goog
by ijidak 2y ago
Your examples are actually edge cases that DCF was never designed to handle.
There are lots of investments that are way more boring than Apple, Tesla, and Google, and that should be analyzed with DCF.
DCF is more for slow and steadily growing companies that might be undervalued for just a moment because of factors outside of the company's control.
Tech companies can be harder to value via DCF, because as you say, there are monumental factors that outweigh historical cash flow trends.
This is part of why Warren Buffet historically avoided tech. It is wildly unpredictable from a pure historical cash flow numbers standpoint.
DCF is not a crystal ball.
The types of questions you're talking about aren't well analyzed by DCF.
But something like the fair value of Walmart can absolutely be determined via DCF.
- ArtTimeInvestor 2y agoLet's say you sit down and make a DCF for every company in the S&P 500. Now sort them by how much their current price differs from what you call "fair value". You expect that investing in all of the companies in the upper half of the list will result in a better long-term return than investing in the lower half of the list?
- epgui 2y agoNo, that’s not at all what the parent commenter was saying.