The discount cash flow (DCF) analysis is one of the most popular methods used to value stocks. But despite its popularity, the metric has multiple drawbacks a report from Societe Generale, penned by James Montier (author of The Little Book of Behavioral Investing) in 2008. The biggest problem with using the DCF Calculation is quite simply that humans are terrible at forecasting. As the DCF analysis relies on forecasts of future cash flows to compute an underlying business value, the very fact that humans are terrible at forecasting should discredit the metric altogether. Still, even if we choose to ignore…
DCF Calculation Can’t Be Trusted, Because We Are All Terrible At Forecasting
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