Pain. Pain and the color red. That’s what I see when I look at my portfolio these past few months. Not only is the S&P kicking my ass, but the NASDAQ 100 is too — specifically because I’m allocated heaviest in the mid-cap SaaS sector, where multiples have dropped precipitously since November. If you’re reading this there’s a pretty good chance you’re in the same boat.
The sensitivity of valuations to discount rates is important, in part, because of how often the discount rates used are wrong. Like inflation, the discount rate isn't a single number, but for ease of use, is often treated that way. I haven't looked at this, but I bet the heuristics used to compute the discount rate swing with the hype cycle.
Awesome post, Patrick. Thank you for sharing! Your commitment to always build your own DCF model for the business instead of buying the stock just because it’s priced at <10x ARR resonates and reminds me of the framework described in the Dhandho Investor.
It’s so easy these days to either automate a trade or use an app like Stock Alarm to send you a notification to buy when a “watchlist” company is down 20% (I’m guilty of this), but that’s a poor substitute for doing the work to determine what the company’s valuation should be based on your assumptions.
Please keep writing more - especially about your approach to valuations!
The sensitivity of valuations to discount rates is important, in part, because of how often the discount rates used are wrong. Like inflation, the discount rate isn't a single number, but for ease of use, is often treated that way. I haven't looked at this, but I bet the heuristics used to compute the discount rate swing with the hype cycle.
Really great perspective through and through!
Awesome post, Patrick. Thank you for sharing! Your commitment to always build your own DCF model for the business instead of buying the stock just because it’s priced at <10x ARR resonates and reminds me of the framework described in the Dhandho Investor.
It’s so easy these days to either automate a trade or use an app like Stock Alarm to send you a notification to buy when a “watchlist” company is down 20% (I’m guilty of this), but that’s a poor substitute for doing the work to determine what the company’s valuation should be based on your assumptions.
Please keep writing more - especially about your approach to valuations!
Stellar post Patrick! I found this really insightful and helped me understand recent valuation changes.