Forum Archive Index - November 1999

[skumar@royalsunalliance.co.nz]

Mark,

Your approach could be dangerous for many reasons.
Firstly, the ecnomic fundamentals have to  be incorporated in the equation. If
your discount rate is a catch all phrase for all the risks and uncertainities
then it will be okay. In that case your discount rate has to be justified.
Comparing with like companies will be one approach. But there may be fundamental
differences between your target and comparable company.

Secondly, earnings tend to be more smmothed by management to increase the
impression of stability of the company. In this case dividend growth model would
be helpful. cashflows as we all know are more volatile than earnings as it
contains what analystscall"noise" in it.

however, as you say you are a long term value investor the above points may not
be applicable to you.

Suren



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