Over 20 years as a financial analyst—and later, becoming Head of Research—has given me a lot of experience in forecasting and valuation. I started to build highly complex and detailed financial models early on as an analyst, but later realized that increased complexity rarely translates into increased accuracy. During these two decades, I developed a framework to value any company in the world and to help analysts avoid common mistakes in forecasting and valuation. Forecasting and valuation don’t work the way they are presented in the textbooks we study at university. The models are rarely accurate in their outcomes, either due to them relying on flawed assumptions or because certain parameters are impossible to correctly estimate. I wrote my Ph.D. dissertation on analyst earning forecast accuracy, so I should know! Unfortunately, analysts are not very accurate. I’ll tell you more about that in my upcoming free webinar for ValueWalk Readers: Top Six Valuation Mistakes.
Analysts are usually quite smart people, so why aren’t even smart people getting it right? One reason is that even quite experienced analysts make mistakes in their forecasting and valuation—many of which I’ve taught my teams and students techniques for how to avoid. Another reason is that models in textbooks usually work perfectly, but in reality, it’s impossible to estimate the parameters needed.
You’ve probably heard about the capital asset pricing model (CAPM). It states that the expected return of an asset is a function of the risk-free rate and the asset’s sensitivity (beta) to the expected market premium—or put simply: E(r) = Rf + B(E(Rm) – Rf). Let’s just say that CAPM is a valid model, what beta (B) should you use? The past three months? Six months? One year? Or maybe three years, five years or ten? What data frequency should you use when you estimate beta? Daily, weekly or monthly? These decisions can have a massive impact on the beta estimate you end up with. In valuation, the CAPM is often used to come up with the cost of equity. Hence, the beta will impact your discount rate and therefore the value.
Q2 Hedge Funds Portable Database Now LIVE!!! Letters, Conferences, Slides And More [UPDATED 7/13 14:48 EST]
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ValueWalk readers can sign up for free but hurry the audience is capped, so if you want a spot in the top six valuation mistakes just enter your name and email below or at this URL.
The date: 2017-11-21, Time: 16:00 Asia/Bangkok
I completed a study of 10,000 stocks over 20 years, to come up with my rules for how to estimate beta. Learn how to deal with the common mistakes with regards to beta as well as five other common mistakes that happen often in forecasting and valuation. I discuss all of these, and more, in my webinar: Top Six Valuation Mistakes. Forget your textbook, in this webinar, you’ll gain a truly practical perspective on valuation.
Andrew Stotz, PhD, CFA
CEO A. Stotz Investment Research
NOTE this is not a sponsored post we think this would be a value add to readers so wanted to highlight it – we only get comission if you sign up for a different course with Dr. Stotz (who is a regular contributor to ValueWalk and shrewd analyst IOHO) but this webinar is free and we make exactly zero dollars from it.
More info below
WEBINAR: Top six Valuation Mistakes with Andrew Stotz, PhD, CFA
“Learn the top six valuation mistakes and how to avoid them”
In this FREE Webinar:
· Learn how Dr. Stotz’s method of valuation differs from others
· Forget your textbook, let’s get a practical perspective on valuation
· Learn the top 6 valuation mistakes and how to avoid them
· Understand how you too can become a valuation master and get the edge in your career
Andrew Stotz, PhD, CFA is an award-winning stock market analyst who had 20 years on the clock at investment banks before starting A. Stotz Investment Research, a stock selection and fund advisory firm in Asia.
NOTE: We only have 100 spots for the ValueWalk webinar system available and space is expected to fill up fast so register now to avoid missing out. This webinar is packed with high-quality content!