When I was new, I traded just the picture of prices. Later after living through a full cycles, I learned stocks were actually businesses. Business sell stuff to customers and generate revenue each year. Businesses have cash flows and earnings. Thats why when we look book 10 to 20 years, most businesses are more valuable today then back then.
Valuation looks at what things are worth today and also looks at future potential. Financial math is discounting the the future growth to make sure you get the best deal you can.
Valuation keeps you grounded. You can still day trade, swing trade, and option trade all you want. Valuation just helps you know the true value inside the business so you avoid some losers and pick more winners.
I'm watching you click on the spreadsheet columns to see how you set this up. What was your formula for Discounted EPS? I got everything else but that one.
optionfarmers
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@dmullinax, discounted eps is eps for that year discounted to that year, using discount rate of 10% as seen in sheet on left as input.
optionfarmers
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@dmullinax, lemme know how it goes, we can share notes
dmullinax
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@optionfarmers, I've recreated your entire spreadsheet from watching this video, and just need the formula from that one cell I mentioned. I use the TDAmeritrade's Intrinsic Value Calculator that is offered as a free download from one of their courses. You plug in data and it calculates the intrinsic value using the capital asset pricing model. This one, however is very interesting.
optionfarmers
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@dmullinax, oh are you talking about the cell with present value of total eps's? just add up the discounted values pv of earnings, is this =SUM(E16:Z16) heres one of the 'discounted eps' cells, =F7/(1+B$5)^F6
optionfarmers
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@optionfarmers, this formula is more a valuation discounter, for me and purposes, i try to extrapulate future valuations with future potential earnings like riding a time machine, but i discount back using the discount rate.
optionfarmers
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@optionfarmers, DCF too strict, and i dont like the terminal value calculation methods. realistically if investors hold for 5-10, thats a huge success already, and most stocks will definitely be around after the 5-10 period. so will have a valuation based market cap.