Author Topic: Valuation - McKinsey  (Read 16990 times)

jawn619

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Re: Valuation - McKinsey
« Reply #20 on: August 09, 2015, 08:57:49 PM »
Most of my favorite books on valuation are mentioned above.

The books mentioned above cater to different sets of needs and provide different perspectives.

Damodaran's investment valuation is most comparable to McKinsey's book, in that they do a deep dive on the minutia of valuation. Except for the part about using beta to estimate required returns, it is useful to know almost all the other facets of valuation covered in these books. You might not actually make LIFO to FIFO adjustments or currency translation adjustments in real world valuation - it is one thing to know how these are impacting the financial statements and consciously ignore them for simplification and not knowing what is going on and if it is a positive or negative or if these effects cancel out over the long term. Even if you end up just using multiples, knowing the underlying assumptions behind them helps you to think more clearly. I found out I had been abusing the DCF method before I read Damodaran's book in depth - one of many many but this is most glaring.

I personally liked Damodaran's book much better than McKinsey. Perhaps because I started with Damodaran's book and breezed through McKinsey as they cover very very similar material with a slightly different terminology.

I also like Jeffrey Hooke's book and Greenwald a lot. They provide a completely different perpective, Hooke's a high level overview and how to value different types of businesses using industry specific methods. Greenwald comes about from a completely different angle based on moat vs. no moat and reinvestment opportunity.

I think reading Damodaran or McKinsey's book and both Hooke's and Greenwald provides a nearly comprehensive valuation toolkit for investors.

Vinod
If you had to chose between the McKinsey book and Damodaran's book, which would you chose?

McKinsey's. I enjoyed both but got more out of McKinsey's


undervalued

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Re: Valuation - McKinsey
« Reply #21 on: September 14, 2015, 09:21:26 AM »
So I have been reading Valuation by McKinsey since I received the new edition. Just finished reading the chapter about forecasting.

The question is.. Is it normal that I still feel that I don't know where to start?

I am trying to apply what I've learn and I think I need to:

1. Find 1 company to value
2. Bring 10k history data for at least 5 years worth of data
3. Forecast what the company will earn for next 5 years
4. Find and identify value drivers ROIC, FCF, and value the company
5. Repeat #1 thru 4 for their competitors
6. Probably wait and buy the company shares when it's cheap?

Even after compiling all these data, what do I need to do to understand what the data means?

Do you guys usually read 500 pages 10Ks http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/500-pages-a-day-of-10k's-10q's-what's-your-technique/msg235730/?topicseen#msg235730 first then when you find an interesting company do a valuation or do you guys do valuation for an industry and learn about trends?
« Last Edit: September 14, 2015, 10:00:47 AM by undervalued »
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vinod1

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Re: Valuation - McKinsey
« Reply #22 on: October 16, 2015, 08:00:45 AM »
Most of my favorite books on valuation are mentioned above.

The books mentioned above cater to different sets of needs and provide different perspectives.

Damodaran's investment valuation is most comparable to McKinsey's book, in that they do a deep dive on the minutia of valuation. Except for the part about using beta to estimate required returns, it is useful to know almost all the other facets of valuation covered in these books. You might not actually make LIFO to FIFO adjustments or currency translation adjustments in real world valuation - it is one thing to know how these are impacting the financial statements and consciously ignore them for simplification and not knowing what is going on and if it is a positive or negative or if these effects cancel out over the long term. Even if you end up just using multiples, knowing the underlying assumptions behind them helps you to think more clearly. I found out I had been abusing the DCF method before I read Damodaran's book in depth - one of many many but this is most glaring.

I personally liked Damodaran's book much better than McKinsey. Perhaps because I started with Damodaran's book and breezed through McKinsey as they cover very very similar material with a slightly different terminology.

I also like Jeffrey Hooke's book and Greenwald a lot. They provide a completely different perpective, Hooke's a high level overview and how to value different types of businesses using industry specific methods. Greenwald comes about from a completely different angle based on moat vs. no moat and reinvestment opportunity.

I think reading Damodaran or McKinsey's book and both Hooke's and Greenwald provides a nearly comprehensive valuation toolkit for investors.

Vinod
If you had to chose between the McKinsey book and Damodaran's book, which would you chose?

Did not see this until now. I would pick Damodaran's book. To me the terminology is a bit more intuitive. But you cannot go wrong with either one.

Vinod
The fundamental algorithm of life: repeat what works. –Charlie Munger

Mohammed Al Alwan

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Re: Valuation - McKinsey
« Reply #23 on: October 19, 2015, 04:51:01 AM »
 McKinsey book is an excellent reference on the topic but a better book in my view which I think is underrated is Greenwald book which provides the best valuation framework I have come across.However,with regard to valuing franchise or growth companies greenwald second book which is competition dymetified is better than first book .The author is supposed to finish an updated version of his first book value investing where he update his work on franchise investing but for a reason or another is not yet out.

spartansaver

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Re: Valuation - McKinsey
« Reply #24 on: November 24, 2015, 01:44:06 PM »
Working my way through and noticed something that struck me in chapter 2. Often we are taught to think about a project as having an expected cf where you take the average of the different cf's based on probability and work them out. In Valuation they point out that sometimes a project with a small probability to produce a negative cashflow can have a much greater effect on the entire organization, that project should not be undertaken. I believe that Buffett over the years has made a strong case for this by constantly reminding us of how even under the worst circumstance of a Supercat the company would still operate healthy. Sorry for the rambling, but I thought it was important to point out.

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Liberty

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Re: Valuation - McKinsey
« Reply #26 on: April 14, 2019, 05:38:29 AM »
"Most haystacks don't even have a needle." |  I'm on Twitter  | This podcast episode is a must-listen

Saluki

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Re: Valuation - McKinsey
« Reply #27 on: April 16, 2019, 10:48:53 AM »
I have one of those two books (I forget which one) sitting in my queue on my bookshelf.  My GF works at Mckinsey and asked if I wanted a copy.  I will move it up the queue based on the reviews here.  thanks guys and gals.
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