I kicked off the valuation class with a discourse (actually, more of a rant) about the bias in the valuation process and how it skews numbers. I firmly believe that bias is, by far, the biggest enemy of good valuations and that it is pervasive. By bias, I am referring not only to the preconceptions we bring into the valuation of a company but also to the payoff to doing the valuation. He who pays the prices sets the bias in motion, and the valuation reflects it. Thus, if I were an investment banker hired to value a target company in an acquisition, I am going to bias my value upwards, since I make money if the deal goes through but not if it does not. I am sure that Pfizer has an investment banking valuation of Wyeth, right now, that backs up their bid. In class today, I set up 12 different valuation scenarios and asked for guesses on the direction of the bias. Here is the link to the list:
Bias in Valuation
Bias in Valuation
Bias in Valuation
I kicked off the valuation class with a discourse (actually, more of a rant) about the bias in the valuation process and how it skews numbers. I firmly believe that bias is, by far, the biggest enemy of good valuations and that it is pervasive. By bias, I am referring not only to the preconceptions we bring into the valuation of a company but also to the payoff to doing the valuation. He who pays the prices sets the bias in motion, and the valuation reflects it. Thus, if I were an investment banker hired to value a target company in an acquisition, I am going to bias my value upwards, since I make money if the deal goes through but not if it does not. I am sure that Pfizer has an investment banking valuation of Wyeth, right now, that backs up their bid. In class today, I set up 12 different valuation scenarios and asked for guesses on the direction of the bias. Here is the link to the list: