Suppose the owner of a local business in your hometown offers you to buy his company, giving you four weeks to come up with a binding bid. How would you go about valuing the business?
Would you get to know the management team, understand the corporate culture, test the products and talk to suppliers and customers? Or would you rather find a suitable group of comparable listed companies, regress their share price against an arbitrary index and thus derive the business risk based on this metric? – Common sense of course advises the former, whereas academia usually – and sadly – opts for the latter.
Common sense and common stocks
This divergence between what investors should and what they often actually end up doing can probably be traced back to business school and academia with its urge to let the field of company valuation and investing appear as a science, when it really is an art. That is why I subtitled my book on the topic with “the art of company valuation“, painting a more nuanced and hopefully more honest picture of the field. This blog will hence take a fresh look at many valuation and investment topics, always pragmatic with a focus on quality.
In essence, we will try to take a look under the hood: understanding a business from the ground up. This is of course also done by analyzing the financial statements, but calculating ratios is not an end in itself. It is rather the starting point to combine quantitative figures with qualitative insights to arrive at a judgment about the quality and value of a business.
This is not a one-topic blog, but rather an exploration of my circle of competence: the world of (company) valuation, legal and economic issues in sovereign debt restructurings, recommended literature, and other related topics from the domain of decision making under uncertainty.
To start off, the focus of the blog will be on providing additional and updated information on the book “The Art of Company Valuation and Financial Statement Analysis: A Value Investor’s Guide with Real-life Case Studies” and up-to-date valuation topics.