Author Topic: Morningstar lower discount rate?  (Read 2717 times)

wescobrk

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Morningstar lower discount rate?
« on: April 19, 2015, 08:37:08 AM »
Does anyone else on the board use Morningstar premium?
I use a lot of skepticism on their analysis but occasionally they have some reasonable stuff on a company.
I've noticed a higher value recently for a lot of companies they cover and they have put they are lowering their discount rate from 10% to 9% but the only reason they give is "their new methodology and investors expectation of returns." Huh? what the hell?
The Fed is about to raise raise for the first time in 9 years and Morningstar is lowering their discount rate for a lot of companies they cover.
I've never bothered to see if i can call anyone at Morningstar to ask this question but just curious if anyone on the board knows why Morninsgstar is lowering their discount rate?


benhacker

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Re: Morningstar lower discount rate?
« Reply #1 on: April 19, 2015, 08:59:50 AM »
I think these two charts are what I would use if I wanted to defend a discount rate reduction:

30 yr TSY yield -- http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=tyx&insttype=&freq=2&show=&time=13

10 yr TSY yield -- http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=tnx&insttype=&freq=2&show=&time=13

I think the discount rate and associated growth rates embedded in DCF models are very complex and misunderstood, but it seems clear to me that US investment managers are tacitly agreeing that they should expect lower returns going forward... corporate boards are doing the same (via higher priced buybacks).

Ben Hacker
Beaverton, Oregon - USA

randomep

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Re: Morningstar lower discount rate?
« Reply #2 on: April 19, 2015, 11:04:57 AM »

I own morningstar premium for over 10yrs.

Don't pay attention to it anymore and won't renew when it expires. I've notice when their fair value diverges from the market value, they'll tweek their calculations to close the difference. This probably another case in point.


berkshire101

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Re: Morningstar lower discount rate?
« Reply #3 on: April 19, 2015, 11:31:56 AM »
I like Morningstar for their most analysis.  But now that Schwab provides that service with a brokerage account through their partnership with Morningstar, there isn't a need for subscribing to the service directly.