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Excess Returns: A comparative study of the methods of the world's greatest investors by Frederik Vanhaverbeke

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CHAPTER D

VALUATION

“If I were running a business school I would only have two courses. The first would obviously be an investing class about how to value a business. The second would be how to think about the stock market and how to deal with the volatility.”

WARREN BUFFETT (WWW.THEBUFFETT.COM/QUOTES/VALUATION.HTML)

THE MOST CHALLENGING step in fundamental analysis is valuation, i.e., the computation of a stock’s intrinsic value. The problem is that business valuation is more of an art than an exact science. It requires a lot of estimates, projections, qualitative and quantitative considerations, and so on. Indeed, the value of a business depends on its future cash flows, which, in theory, have to be estimated based on a thorough fundamental ...

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