Enlightening Propositions
When confronted with uncertainty or missing information, we are tempted to adopt loosely backed rules of thumb and make inconsistent assumptions about growth, risk, and cash flows. The following sections outline a few propositions that can guide us in making better judgments and estimates, and result in better valuations.
Proposition 1: Be Steadfast on Principles, Open to New Tools, and Flexible on Estimates
A principle is a core idea, a tool is what you use to put that idea into practice, and an estimate is what emerges from that tool. There are a few basic principles in valuation that we should never compromise on, no matter what the counterarguments are. They include the following: (a) that an asset derives it value ...
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