Biotech Values

[zipjet]

I'm not against using DCF to value companies. As I said, I taught it. I have also used the tool for over 50 years. I have been investing for close to 60 years so I am not purely an academic.

I am against believing that modeled results will hold up for long. Too many things can and do change.

A pillar of value investing is investing in companies with predictable positive growing cash flows that you can discount to determine value. Lots of what we thought predictable and stable have proven not to be. Huge companies are gone (Eastman Kodak) or a shadow of their glory days (GE, ATT) - the widows and orphans have not fared well in them.

A couple of years ago the Treasury was issuing 30 year bonds at 1.25%. Models that used that rate to determine VALUE, produced wildly erroneous results. Despite that, the relative value of the choices may still be good, but the models predicted value is not. Utilities and banks looked golden a couple of years ago at those rates. They have not done so well.

A year ago, staples looked safe at prevailing rates and consumption levels. Now the consumption looks weak taking earnings and growth rates down and food stocks are being questioned as the GLP-1 drugs ramp changing eating patterns. Models of value that looked appealing last year are sad today.