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The Equitymaster Research Digest

Forecasting 25 Years Ahead? Don't Make Us Laugh...
Dec 9, 2016

  • What fake long-term investing looks like
  • When analysts become reverse engineers
  • Why we do exactly the opposite
  • Investing in the time of demonetisation...

Three months ago, I was taking a post-lunch stroll with my colleague Rohan Pinto.

I'm sure you are aware Rohan is the new managing editor of ValuePro, our Buffett-style, long-term recommendation service. Last Monday, he released his latest ValuePro report.

As we were strolling, he showed me an intriguing portion of a brokerage note.

At first, I was shocked. A moment later, we both laughed out loud.

Today is the right time to discuss the episode.

It's about the difference between serious long-term value investing...and fake long-term investing.

What is fake long-term investing?

Here's the story...

The brokerage note was about a leading FMCG player. The analyst had used DCF-based valuation to arrive at his target price for the stock.

For newbie value investors, DCF stands for Discounted Cash Flow. It's a method used to arrive at future cash flows a company is expected to generate over its lifetime and adjust it for the time value of money.

We have explained time and again why we are no big fans of the DCF valuation technique. (If you want to learn more about valuation techniques, and how to practically apply them, sign up for our value investing course - Equitymaster's Secrets).

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