Myth One: A valuation is an objective search for “true” value
- Truth: All valuations are biased. The only questions are how much and in which direction.
- Truth: The direction and magnitude of the bias in a valuation is directly proportional to who pays the valuator and how much that valuator is paid.
Myth Two: A good valuation provides a precise estimate of value
- Truth: There are no precise valuations.
- Truth: The payoff to valuation is greatest when valuation is least precise.
Myth Three: The more quantitative a model, the better the valuation
- Truth: One’s understanding of a valuation model is inversely proportional to the number of inputs required for the model.
- Truth: Simpler valuation models do much better than complex ones.
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