DbDVita's  Instablog

Given my approach to fundamental intrinsic valuation, encompassing the assessment of reproduction book value, normalized (zero-growth) earnings power value, and lastly (if applicable) franchise value, the outcome of my bottom-up company research proves to also be very valuable as a source of feedback on the whole.

Consider for a moment that the "market" is to some extent an accurate discounter of the future - meaning, it is, partially, efficient. The key argument here is that we shouldn't ask ourselves in a binary way, is the market efficient or not, but what exactly is the market discounting?

Back to the aggregate assessment of my personal equity portfolio. When comparing the normalized EPV (remember, zero growth), to the value prescribed by the market, it's presently within 3%. That's pretty accurate. Overall, I happen to totally agree. The area in which the market is acting rather inefficiently today is in terms of providing me the future value of profitable growth (where I'm quite confident that these companies will continue to earn Returns on Invested Capital well in excess of their cost of capital) for FREE! With all of this macroeconomic commotion over slow or absent growth, "Mr. Market" has basically forgotten about the possibility that these strong and competitive companies will endure this shorter period of stress and continue to create valuable growth in the long distance future.

DBD