Myth 4.1: If you don't like betas (or modern portfolio theory),you cannot do a DCF!
aswathdamodaran.substack.com
Let’s start by stating the obvious. You need a D(iscount rate) to do D(iscounted) C(ash) F(low) valuation. To get that discount rate, I use a beta to estimate a cost of equity (and cost of capital) in my valuation and it is that input that evokes the biggest backlash from people perusing the valuation. Many investors have a visceral mistrust of anything that emerges from portfolio theory and betas to them symbolize what they see as the academic view of valuation. Consequently, not only do they take issue with the discount rates that I use in my valuations, they often choose not to do discounted cash flow valuation, because of their discount rate disagreements. Talk about throwing the baby out with the bathwater!
Myth 4.1: If you don't like betas (or modern portfolio theory),you cannot do a DCF!
Myth 4.1: If you don't like betas (or modern…
Myth 4.1: If you don't like betas (or modern portfolio theory),you cannot do a DCF!
Let’s start by stating the obvious. You need a D(iscount rate) to do D(iscounted) C(ash) F(low) valuation. To get that discount rate, I use a beta to estimate a cost of equity (and cost of capital) in my valuation and it is that input that evokes the biggest backlash from people perusing the valuation. Many investors have a visceral mistrust of anything that emerges from portfolio theory and betas to them symbolize what they see as the academic view of valuation. Consequently, not only do they take issue with the discount rates that I use in my valuations, they often choose not to do discounted cash flow valuation, because of their discount rate disagreements. Talk about throwing the baby out with the bathwater!