Forum Archive Index - November 1999

[skumar@royalsunalliance.co.nz]

mark ,
a closer look reveals that a range of 10.5-11.5 % is reasonable for time being
and possibly 1-2 years out.
Suren




"Mark Hubbard" <mhubbard@es.co.nz> on 03/11/99 11:27:15

Please respond to sharechat@sharechat.co.nz

To:   sharechat@sharechat.co.nz
cc:    (bcc: SKUMAR/R&SA/NZ)

Subject:  Re: [sharechat] Your individual share valuation ideas



Thanks for your pointsSuren:

Yes, my valuation approach does have these deficiencies, however:

The risk premium factored into the discount factor attempts to incorporate
economic fundamentals - although, the 15% rate used in the RBD valuation
that I have posted may be considered a bit low given the pre election date
at the moment! Note that I also use a range of discount factors to note
valuation differences (currently between 15% and up to 20%).

Regarding your comments on company earnings, I agree. Indeed, if you read
positive accounting theory articles, (mainly using US companies
unfortunately) you will know companies actively use the different accounting
policies they have available to them to 'manipulate' their earnings,
sometimes within very large accounting numbers (and not always to smooth
earnings either).

Still, as again you mention, I'm a long term value investor who believes
that I must use logic, as opposed to fashion or emotion, to make share
purchases. I firmly believe that a share is only worth the present value of
a companies future earnings - and at least this approach avoids the absurd
valuations being paid for many US shares, for example, at the moment.

But very good points. What would you consider an appropriate discount factor
would be for the RBD valuation I have posted?


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