Business Valuation

What is Business Valuation and How do i value the business that i am holding?

The fluctuation of my portfolio value from one month to the other has been forcing me to think hard and thoroughly about my valuation method in valuing businesses.

Sunningdale's share price had reached its peak of about $2.40 per share a few months ago and has dropped down to $1.40 per share as per current price (my paper profit has also dropped down by $60k).

AEM'share price had reached its peak of about $1.90 per share a few months ago and has dropped down to $0.83 per share as per current price (my paper profit has also dropped down by $50k).

Have i been wrong in valuing the businesses i am holding so that i have missed out the opportunity to take profit earlier? 

Have my portfolio management and allocation been wrong so that i have less cash to add more to those businesses that their shares price have been hit down tremendously while the business fundamental remains strong?

Have i selected the wrong businesses which are not suitable to my personality and i do not understand them?

Have i been not knowing enough that i do not know a lot of thing about the businesses i am investing in so i have failed to act correctly?

Is my current strategy correct and i just need to make some adjustments to it?

These questions have been running around in my head for minutes....hours.....

days.....nights.....weeks.....months..........still .....I do not have the answer yet.

I am still searching......trying to fix the puzzles.............

I think only time will be able to tell. 

Investing is a journey, it is a process. 

Investing is Not a destination. 

I have to keep thinking, improving my investment system with on-going experiences in many business cycles.

In this post, I will only talk about Business Valuation which is related to my First Question above.

Have i been wrong in valuing the business i am holding so that i have missed out the opportunity to take profit earlier? 

Recently i read an article about the Interview between Forbes with Prof Aswath Damodaran about business valuation. 

The link of the article is here:
https://www.forbes.com/sites/kevinharris/2018/07/17/professor-aswath-damodaran-on-valuation/


Below are few important points i have noted them down:

What is Valuation?

1. Digging through a business,

2. Understand the business,

3. Understand its cash flow,

4. Growth,

5. Risk.

And try to attach a number to the business.


Risk is a very important part in valuing a business.


In today's market, we have to think the Risk of:

1. Risk premium of the market we are in,

2. Risk premium of the rest of the world,

3. Risk currencies and how we use them in valuation,

4. Risk in business life cycle which has shortened in today market, e.g. Yahoo has started from a small startup to a successful company and to no company in 25 years.


In investing:

(1) Philosophy is more important than technique,

(2) Self introspection,

(3) Build our own investment philosophy,

(4) Think through what we think about the market,

(5) Try to figure out why companies are doing what they are doing rather than what other people think about companies or what other people think about investing.

To always keep our eyes on economic growth, as long as the economic growth is solid and able to backup the valuation of US or market equities, the valuation is still ok.


I also have signed up Investment Quadrant with TheFifthPerson recently, and i noted them down a few Valuation Models from TheFifthPerson:

(1) Fast Grower (Unstable Cash Flow): PEG (PE to Growth rate)

(2) Predictable Earnings: PE

(3) Asset Heavy: PB (Price to Book)

(4) Cyclical Industry: Price to Sales

(5) Predictable Cash Flow: Discounted Cash Flow

(6) Earnings Distorted by Depreciation/Amortization: Price to Cash Flow


To be continued..............................................................