He explains that in an efficient market, the price is the best estimate of value and the purpose of any valuation model is then thejustiﬁcation of this value, as well valuation is often not a helpful tool in determining when to sell. Hyper-growth stocks market prices are determined by the perceptions (and misperceptions) of buyers andsellers, and not by anything as fabulous as stock flows or earnings. Perceptions matter, but they cannot be all the matter; Active prices cannot be justiﬁed by just using a fool theory.
Somemisconceptions about valuation are that a valuation is an objective search for “true” value this is completely wrong because all valuations are fragmented. The only questions are how much and in whichdirection besides the direction and magnitude of the inclination in your valuation is directly proportional to who pays you and how much you receive.
Sometimes in the actual market there’s this mistakenconception that a good valuation provides a precise estimate of value when there are no precise valuations and the paying to valuation is better when valuation is less precise.
But also he explainsthat how to use it well and that’s when there are a large number of trends comparable to the one being valued, these trend are priced in a market and there exists some common variable that can be used tostandardize the price. This approach use to work best for investors who have short time goals, are judged based on a relative reference (the market, other portfolio managers following the same...