Session on Uncertainty for the Motley Fool
It is natural to feel uncertain about your value estimates, once you are done valuing a company, and second guess yourself. In this session, I start with the basic Excel tools you can use to ask what if questions, but then quickly shift away from the spreadsheets to talking about uncertainty in valuation, categorizing that uncertainty and the tools that you can use to deal with uncertainty. With whatif analyses, I talk about deciding which variables to ask questions about and how to create break even tables with multiple variables. Moving on, I address the times when scenario analysis and decisions trees can be useful in dealing with uncertainty. Finally, I look at the power of simulations. In closing, denying the existence of uncertainty or cowering in its presence does not make it go away.
(At the start, I had trouble with the Goalseek function in solving for revenue growth. Don't ask me why, but it seems to work with the Solver function to yield a growth rate of 28.46% to get to the current stock price)
Slides: https://www.stern.nyu.edu/~adamodar/p...
Paper on probabilistic approaches:
My valuation spreadsheet: https://www.stern.nyu.edu/~adamodar/p...
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