Biotech Values

[10nisman]

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

You're talking about using a static investment model vs. dynamic modeling. Your examples are based on applying a static investment model and in some cases for decades (Eastman Kodak, GE, ATT, etc.), which no intelligent person in their right mind would ever do. Models need to be reviewed and updated based on changes to the industry, company, competitive landscape, macro environment, etc.

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.

This gets back to my earlier comments that the "discount rate" used matters.

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.

You're acting like models shouldn't be used because they could end up being wrong because one didn't accurately predict a large potential disruptive change to a given industry over a short-time frame. This is why most use multiple scenario modeling to take into consideration various potential scenarios (Base, Best, Worst), when arriving at an estimated valuation.

If you don't use DCF models to estimate potential valuation, what are you using to determine whether and when to buy or sell?