At uni we were recommended to use the discount cash flow method.
This method does not use historical information but is based on future predictions of cash flow and discount them to arrive at a present value estimation.
What is a 'Discounted Cash Flow (DCF)'
A discounted cash flow (DCF) is a valuation method used to estimate the attractiveness of an investment opportunity. DCF analysis uses future free cash flow projections and discounts them to arrive at a present value estimate, which is used to evaluate the potential for investment. If the value arrived at through DCF analysis is higher than the current cost of the investment, the opportunity may be a good one.
We were taught that historical information such as financials may be useful to some degree but it won't predict future earnings. I think that makes a lot of sense.
Do you?
If I can find time I will give you information from our lecture slides but it won't be in the immediate time frame.
Seeing all these posters relying solely on history and charts made me realise that this is a very dangerous method to teach new comers.
So for the sake of a healthy balance we now have options in our investment strategies.
History and/or future. What should it be?
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(20min delay)