- ☀️Daily Log:
- Buffet and Graham Investing Principles investment
- 0. Don’t try to make your money investing. Learn a skill and develop it to get paid
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- Find an undervalued company. Calculate the value of the company using DCF and be conservative - buy at a high discount rate
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- Dollar cost average into your value picks and index funds
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- Don’t try to time the market ever. All your holdings should have a large enough time horizon that even a 3-year bear market is a blip on your radar
- “If you want three opinions, ask two economists looking at one set of data”
- “Give me a one-handed economist! All my economists say ‘on the one hand… and then on the other” - President Truman quotes
- Discounted Cash Flow (DCF) Model
- Valuation method to estimate the value of an investment based on expected future cash flows
- Similar to net present value (NPV) except that it doesn’t deduct the upfront cost of the investment
- $$DCF=\frac{CF_1}{1+r^1}+\frac{CF_2}{1+r^2}+…+\frac{CF_n}{1+r^n}$$
- Where $$r$$ is the discount rate and $$CF$$ is the cash flow for the given year
- Assumptions on the future cash flow is where the art of prediction comes in
- The dividend discount model such as Gordon Growth Model is using CDF to value stocks
- Procedure
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- Forecast the expected cash flow
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- Select a discount rate - based on the cost of financing the project or the opportunity cost presented by alternative investments
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- Discount the forecasted cash flow back to present day to compare against initial investment
- Retrospective::