The Valuation Handbook: Valuation Techniques from Today's Top Practitioners

CHAPTER 8

Modern Tools for Valuation

Providing the Investment Community with Better Tools for Investment Decisions

 

David Trainer

CEO, NEW CONSTRUCTS, LLC

 

 

This chapter presents the New Constructs analytical approach for picking stocks. While many firms have claimed to execute similar analytical approaches, no other firm rivals the scale and analytical rigor of New Constructs’ research and analytical platform. By removing the accounting distortions found in published financial statements, our methodology enables us to analyze the true economic profitability of businesses. In turn, we demystify stock market valuation by explicitly quantifying the future economic performance that must be attained to justify stock prices.

The founding purpose for New Constructs is to bring more integrity to the function of the capital markets. We fulfill this purpose by delivering to investors more accurate information on the profitability and valuation of stocks. Nevertheless, we cannot accomplish this goal by ourselves. Investors must use the better information, and, for the most part, they do not. After hundreds of meetings, we can report that the analytical rigor of the professional money management community is deplorable. Most of them do not believe they need to understand true economic profits of the business in which they invest. There are three reasons that investors have been successful without conducting their due diligence:

1. They are too rich to care, and believe there is no need for ...