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Anonymous
Sometimes using DCF/DDM will result in extreme valuations or negative outcome. Is there a workaround?
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1st, gotta ensure the biz model is suitable to use cash flow method. eg stable co, steward types. if severely over or undervalued, it can means market is too hyped up or too pessimist on the co's outlook. den i will ask myself whether is the market pricing in is in line with my view or not.
last time i paid few thousands dollars learn frm one "wealth guru" use DCF on Sheng Siong. they calculated fair value is 40cents. somemore tell us wait for 50% undervalue then go in (ie 20cents) The share price was around 70-80cents then. Now looking back is a wasted chance. i nvr nvr trust those "wealth gurus" anymore.
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Every stratergy has it's pros and cons. DCF and most value investing methods will struggle with over extended markets and expensive prices. This may cause us to FOMO and miss out if we weren't already in.
However, Important to remember intrinsic value is only a ballpark estimation, no one can know the true value of a company unless you are an insider. It's up to you how you want to use that figure. Are you comfortable with buying something that's over-valued?
Personally I invest only when wonderful opportunities arrive, when a fundamentally strong company is undervalued, however, this as you may have experienced may come very rarely, sometimes once in a few years. Therefore, I am also a trader who trades the short term market and profit if the price continues to go up. Darn it I couldn't buy my shares cheap, but my positions are still making money.
Trading however, works from very different principles, I do not care if the company is strong/weak, over/under valued. It's focused on technical analysis and trading criteria