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ValuFocus Investing: A Cash-Loving Contrarian Way to Invest in Stocks by William F. Mahoney, Rawley Thomas

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Section Three

Brief Discussions of Various Investing Methods

How Best to Combine Investing Methods with LCRT's Models

Each chapter in Section III offers a brief discussion of the existence of intrinsic valuation, the importance of price level estimation, and various investing methods. We explain why we have decided not to use some methods and how best to incorporate others into the LCRT valuation framework.

Chapter 9: Do Stocks Have Intrinsic Value?
Chapter 10: The Pros and Cons of Various Methods and Models
Chapter 11: Suppose You Love Your Current DCF Model

Hopefully, this chapter will stimulate you to reexamine your methods and implicit underlying assumptions for investing. For example, Chapter 10 includes:

  • Why Use Analysts' Traditional Cash Flow Forecasts. Why Not.
  • Why Use Dividends to Value Stocks. Why Not.
  • Why Use the Simplest Model, EBITDA. Why Not.
  • Why Use Earnings. Why Not.
  • Why Use Price Level from Regression Analysis. Why Not.
  • Why Use Residual Income or EVA(R). Why Not.
  • Why Use Cash Flow ROI, CFROI(R), Cash Economic Margin, or Cash Economic Return. Why Not.

I strongly recommend that the very best way to distinguish these models is to test them. Empirically test your model with the measurement principles of robustness, accuracy, nonbias, and predictive capability, based solely on historical data without analyst intervention. Chapter 14, “Our Automated DCF Model—The Better Model” and Chapter 30, “Comparing Our Model against Three Popular DDMs” explain these measurement ...

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