The entity which wrote the prior entry which you are referring to has no idea which was is up or down. Any resemblance to you is purely coincidental and unintended. Nonetheless it could still be you.
The system continues to enjoy the benefits of your financial contribution into the markets as negative expected alpha. Give 'til it hurts. It's even tax deductible.
Thinking doesn't make it so.
Better brains and effort requires a basis of comparison to be meaningful. The sentence structure implies the reference basis is you. If so, then a resounding "yes" they can do it.
I don't know. What exactly are "qualitatives"? Is that the term for when someone mistakes growth for RoE? Or is unable to discern growth from discount rate in a Gordon model? And yet wants to critique it in this fashion? Don't know it. Never had to learn it.
It's more than the vibe. It's the Constitution. It's the Mabo. When we have those, it actually takes about 10 minutes if you aren't building the template from scratch. If we don't have the Mabo, it takes about 30 mins. If we don't have the Constitution or the Mabo then, yes, the full hour is needed to obtain sufficient confidence. Gaining confidence generally consists of repeating "I can do it!" over and over whilst listening to an Anthony Robbins recording. Just before placing the trade, we walk over hot coals to prove our confidence.
SKC is fresh to the conversation. I refer you to him. Like McLovin, he's top shelf stuff on many matters.
OK, so you don't know. You just pick and choose the best models to go with a consensus, depending on the mood and market sentiment.
You know how absurd it is to have a bunch of different models to measure the one thing?
You're like an accountant where if a guy comes to you and ask what's 2 + 2, you'll say "depends on how much you want it to be. If you want to use the two stage model, with these assumptions, it'll be this; if you use a Gordon dividend with constant growth assumption, it'll be that; if you use CAPM to measure risk and market volatility blah blah to get the expected return at your risk level with earnings growth at that and blah blah, it'll be something only god and I know."
All these fancy models and Nobel prizes, sounds really smart, sounds like they're worth billions in fees a year... yet they all boils down to - we don't know.
If your industry performance are anything to go by, if periodic financial crises are partly the master of the universe's doing... they speak louder than some dumb logic right?
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It just show you haven't a clue how your models work. You only look at the surface and got too busy trying to look smart to really register the implications of each assumptions you're picking up from some database and plug straight into a spreadsheet.
How many ways can reported earnings grow (expand)?
1. Inflation - larger reported earnings, no real growth;
2. Due to retaining more earnings, hiring more people, buy more machineries, lowering profit margins, increase output and sales... report higher earning figures, but lowering margins;
3. Funny accounting;
4. Withhold essential repairs and replacement of PPE; etc. etc.
So the brilliant 1 or 2 or 3 stage DCF models add earnings growth assumptions, interest rates etc. etc., yet somehow forget to assume that earnings can be gained by means other than simply a business getting more efficient; assumes that sales and increase earnings automatically grows while input costs or capital base either remain the same or increase at the same rate.
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If a company I own "grows" its earnings in size, but returns a lower percentage on my investment, can that company still be said to be growing? According to you it has grown, according to my simple math, I put more cash into the business and making a lower return for my trouble.
Put it simpler, if I had $100 in the bank and earn $10 a year; I kept that $10 in the same account and add in another $20... next year I got $11 in return... is that $11 a $1 gain (growth) or a $2 loss?
But oh, when you guys plug in the earnings and its growth estimates... you've already taken into account inflation rates, interest rates, costs of capital, pricing fluctuations, business cycles, technological advances... all these estimates done for next 5 years, and done in 4 hours or less, depending on coffee and toilet breaks.
Ever ask what happen if your estimates are wrong? In the long run it will work itself right, right?
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The false zero-growth assumption regarding a perpetual annuity approach.
If I know the company very well and find it to be in a strong financial position, happy with its historical and current market position, its competitiveness, happy with its profit margins, happy with its ability to adapt... all these and more so that based on my best case/worst case scenarios... it earns E, it could return to me E per year on average.
Almost by definition, a good company must be able to raise its price with rising costs and inflations (at the least); my definition, a good business is one competitors will have a hard time knocking it around - its reputation, its networks, its margin etc. would mean that it could, say, lower its profit margin a little to increase sales and still earn E.
Will this company grow its earnings without additional capital? Probably, its management and workforce may be more efficient... But by how much I don't know, by 2 or 3 or 5% I have no idea, when that efficiency will come I don't want to guess.
So the other 'growth' by size... where I have to put up more cash from my pocket or from retained earnings... If such growth in magnitude were achieve at the same rate of return, makes little difference to me since profitability is the same - could be good or bad depends on my other opportunities; But if earnings grow in size and I make less profit, that's a loss.
So there are 3 possibilities: expand earnings through efficiency; expand through new capital and achieve same rate of return; expand earnings but with new capital and returning at lower rate for it.
The first possibility might not happen - the company's history and size tend to suggest that kind of great growth to be possible but might also not be possible to a certain degree that I'd want to pay for upfront;
The second possible is the same E as far as I am concern. It could lead to greater efficiencies etc., but let's way and see... I'd paid more when that happen;
The third is a loss, hopefully temporary and will be made up for soon.
So under these 3 scenario for growth, with the fourth being simply adjustment to inflation and costs to earn the same... The estimated E, while appearing to be a zero growth model is not. If it neglect anything beneficial, it neglects the first possibility of greater earnings through luck and ingenuity, something we can't predict and always a happy surprise to not have to pay for upfront.
With an estimate of earning power E for next few years... what would a bond, a company, a bank account etc. etc... be worth today if my cost of capital is r - It'd be Price = E/r.
But dude, what if interest rate change... Why must my required rate of return move in perfect alignment with the bank's rate? If i need 10% or 15% return, seeing the general economic environment, I don't need much adjustment, I can be happy at my rate and we're all fine.
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So laugh at its simplicity, quote Buffett and read into his words or imagine him the Oracle if you like... there is a sound logic to it. Much sounder than plugging in endless assumptions and get it precisely wrong.