Insider: The challenge of value investing
One must question whether a discount rate of 8 per cent on an asset can be sustainable when bond yields are at an all-time low, writes John Looby.
The choice of a discount rate to assess the value of an asset is a challenge for every investor. It is the crucial prerequisite to deciding whether or not an asset should be bought, and is used in conjunction with a reasonable assessment of the likely, sustainable earnings flow at the current price.
The father of value investing, Ben Graham, chose a simple formula that incorporated his assessment of the sustainable earnings of the asset...
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