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Misunderstandings Of Retail Investors' Valuation Of Stocks

2011/4/13 10:47:00 24

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Most assets have certain valuation methods, and analysts' stock valuation results often confuse some investors. Some investors buy valuations much higher than those of stock prices, and it is still difficult to escape the bad luck of a huge loss. This situation is often committed in a common "valuation error". For stock valuations, there are several common misunderstandings.

Mistake 1:

Valuation model

It is quantitative, so the valuation result is objective.

Stock valuation plays a greater role in exploring the value of a company, but it is not what the idealists believe is that the valuation result obtained from the quantitative model is an objective estimate of the true value.

Because the input variables of these data often have a large number of subjective judgments, for example, the assumption of future growth rate is often subject to subjective judgment, and the slight changes of these input variables often bring huge differences in valuation results.

In addition, in the process of valuation, whether it is deliberate or unintentional, it is inevitable to make certain assumptions about the company and the macroeconomic prospects. Therefore, even the most prudent and meticulous valuation model, the final result is not necessarily objective. Since the estimation of cash flow and discount rate is bound to have some errors, the objective and accurate valuation requirements are unreasonable, so the general analysts often leave certain error intervals according to the valuation results.

Misconception two: strict valuation results are always right.

The result of any valuation model is affected by market information.

financial market

The information is constantly updated, and the prediction results of the company value also have great timeliness.

For example, the valuation of the pharmaceutical industry, because the current medical system and other aspects of the problem, so that the pharmaceutical industry can maintain a relatively high growth rate, so analysts will give a more optimistic estimate, if the objective environment has changed, the pharmaceutical industry prospects began to fade, analysts need to correct the valuation model in a timely manner, but from now on, relatively high valuation is reasonable.

From the time perspective, the reference function of valuation results is also changing.

Investment

People's psychological expectations are different, so they often hear similar expressions such as the downward trend of the valuation center.

Mistake three: the market is always wrong, and the valuation result is more important than the valuation process.

Generally speaking, the benchmark of most valuation results is market price, when the valuation result is far from the deviation.

market price

When the valuation result is wrong or the market price is wrong, in practice, the market should be considered correct first, until the analysts produce sufficient evidence to show that their valuation results are reasonable, which requires investors to be cautious about the valuation results.

At the same time, because the general investors may only pay attention to the valuation results of analysts, and ignore the logical process, this often brings greater blindness.

Through the understanding of the valuation process, other valuable information can often be obtained.

For example, investors are willing to pay high price for the extraordinary growth rate, the value of brand or industry monopoly, and so on. In the process of valuing the valuation, we can also find out whether the analysts are over optimistic or over pessimistic.