Reading your post got me thinking that there is a controversy between your primary take away about seeking new knowledge... to be an original thinker in investments and your example of inverting the DCF calculations by using averaged estimates. Using average estimates will probably give you consensus estimates for the stock, but at the same time stop you from applying original thinking to the future of the investment. So maybe there is no alternatives from applying your own expectations for the future based on hard knowledge of the firms and businesses?
Really good observation but the devil is in the details. The inversion of the DCF model gives you the market equilibrium of expectations. If implemented correctly the bias is as low as possible. Now, your job, as an independent thinker, is to figure out whether the company can exceed those expectations.
So in the Coca-Cola example Munger actually gets expectations wrong as judged from his prediction and extrapolation of past experience.
Thanks for staying open minded. There's some really good take aways in your post and I do believe that the aspirering of avoiding losses is the primary road to succes i investing.
Currently I am reading "Richer, Wiser, Happier" by William Green and find that every chapter is packed with the best thinking of the worlds best investors in a life time including Charles Munger. Though I only have modest savings, I believe the intellectual framework can bear the rewards in many parts of life.
I am looking foreward to your hopefully coming interesting posts if you get the time apart from your new equity fund.
Great as always Peter. Thanks for the insights
Thanks Jonas
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Reading your post got me thinking that there is a controversy between your primary take away about seeking new knowledge... to be an original thinker in investments and your example of inverting the DCF calculations by using averaged estimates. Using average estimates will probably give you consensus estimates for the stock, but at the same time stop you from applying original thinking to the future of the investment. So maybe there is no alternatives from applying your own expectations for the future based on hard knowledge of the firms and businesses?
Thanks Anders.
Really good observation but the devil is in the details. The inversion of the DCF model gives you the market equilibrium of expectations. If implemented correctly the bias is as low as possible. Now, your job, as an independent thinker, is to figure out whether the company can exceed those expectations.
So in the Coca-Cola example Munger actually gets expectations wrong as judged from his prediction and extrapolation of past experience.
Thanks for staying open minded. There's some really good take aways in your post and I do believe that the aspirering of avoiding losses is the primary road to succes i investing.
Currently I am reading "Richer, Wiser, Happier" by William Green and find that every chapter is packed with the best thinking of the worlds best investors in a life time including Charles Munger. Though I only have modest savings, I believe the intellectual framework can bear the rewards in many parts of life.
I am looking foreward to your hopefully coming interesting posts if you get the time apart from your new equity fund.