Wednesday July 27
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Discussing Costco DCF
o
Changing input price in cell B19
o
“Circular references” possibly intentional;
option value depends on estimated value
o
Over the course of ten years, if the company
moves toward the general economy, it starts to reflect to general economy; he
treats the company as converging to that
§
After making a change, the estimated value/share
is $142.30; much higher than $88
§
Damodaran’s assumption is that the long-term
cost of capital is so much higher because it regresses toward the mean – Bianca
§
Cost of capital is not something to intuit- it’s
something you have to study
§
At 6%, the estimated value/share is much closer;
but 6% is not a reasonable number;
·
Damodaran’s template may contain his personal
assumptions; if you want to change it, you can
o
PEG also shows that Costco is overvalued
compared to the comparables; PEG = PE/G
§
PEG doesn’t have any theoretical basis – Brad
o
Yahoo analysts predict a 5-year growth rate of
9% for Costco?
o
Probably paying for Schwab analyst’s reports-
can we look at those?
o
Could DCF be more applicable to smaller
companies?
§
“If you guys disagree with the market on Costco,
I would tend to think that you’re wrong; on what basis could you know more
about the consumer retail mega-chain business compared to all who follow it?”
§
Is DCF too sophisticated for SIF? Do we
understand what it’s actually doing?
§
>>Bianca gets roasted lmao (but seriously,
luv u –Claire)
§
“In finance, every company makes money”
·
Sarepta Therapeutics makes RNA-targeted
therapeutics
o
It’s hard to valuate these companies because
orphan diseases/drugs get faster approval, plus you get a coupon for a faster
approval of a not-orphan disease/drug (added value of 1-2 million). Some
companies sell coupons to other companies
§
An orphan drug serves a small percentage of the
population (rare disease)
§
The hardest part of RNAi (RNA interference) is
delivery
§
BIND technologies was bought/is being bought by
Pfizer ($40 million)
§
Pharmaceuticals are very, very hard to predict
§
“Your portfolio is vanilla” –Brad
§
“Most people who make money in pharma make money
in VC (before it gets bought out or has an IPO), or bet on sales, not tech”
·
Sun Catalytix
o
Fuel from water and sunlight; pivoted to flow
batteries
o
“Better battery technology- it’d be worth a
fortune” - Brad
o
“Mass producing hydrogen wasn’t feasible,
couldn’t beat the market price” –Paul
o
“A total change in the outlook for the Student
Investment Fund from just holding big stocks and talking BS about the new
iPhone to really understanding companies that are going to work, and companies
that aren’t; take short positions, possibly. That’s gotta be a double count-
use your Caltech science knowledge to invest. You’ve gotta know that DCF well
enough to put it in there.”-Brad
·
“We should have asked Brad stuff about portfolio
analysis.” “He doesn’t believe in that.” “He doesn’t have any ideas about
keeping a certain percentage of cash?” “No, I don’t think so.”
·
Should we put the cash in an ETF? Should we invest
in bonds? How should we structure this?
·
Our goal for the summer should be to figure out
a ratio we want in equity, and figure out some safe companies we want to invest
in; or, we can save some stuff in liquidity for the new people; or perhaps the
new people don’t want to invest quickly?
·
Are the feds lowering interest rates in
September? They did just lower bond rates to an all-time low. Perhaps at a
small bank, it’s better. We should at least get a sense of what the returns
could be.
·
Low beta; doesn’t move much relative to market;
can’t win much, and can’t lose much.
·
BBB is at the bottom of the market grade
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AG&C looks useful
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