The Dark Side
Every valuation is affected to some extent by the views that analysts have about how real growth and inflation will evolve over time. Making unrealistic or inconsistent assumptions about macroeconomic variables can result in serious errors in valuation. Idiosyncratic views about how these variables will evolve over time can also overwhelm other inputs into a valuation, making every valuation a joint result of company and macroeconomic views, with little to separate the two.
Unrealistic numbers: As noted in the preceding section, many valuations are either built on implicit assumptions about future growth or based on the assumption that what happened last year is a good measure of what will happen in the future. With both approaches, ...
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