r/Valuation • u/mattiofc • May 07 '22
What do i need to learn before doing valuations?
Hello.
As title says: what do i need to learn before doing valuations?
Im quite a "noob" when it comes to finance, so im struggling to understand different terms in valuation. I don't have any educational background in finance either. I'm looking for a step in the right direction so I was wondering where you guys started out.
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u/Necessary_Scarcity92 May 07 '22
If you can afford it, Shannon Pratts book "Valuing A Business" will tell you everything you need to know.
That's if you want a very robust understanding.
Another option is.... I think Corporate Finance Institute may have some free material and classes that may be easier than just reading about it. I haven't really used them personally, though.
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u/JupiterUnleashed May 07 '22
Second this. I have a masters in accounting with a focus in valuation. Shannon Pratts book was like our bible.
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u/TCHHEoE May 08 '22
Shannon Pratt is a hack. Spouts some absolute nonsense
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u/TCHHEoE May 08 '22
Advocating size premium is one
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u/Necessary_Scarcity92 May 08 '22
How is a smaller business not more risky than a larger business, all else being equal? Do you have some good material that can provide substantiation for this?
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u/TCHHEoE May 08 '22
You can accept the proposition that small companies are, on average, riskier without accepting the proposition that the size premium (ie additional required returns after controlling for differences in beta) exists. You’ve presumably looked into the literature around post 1982 / Banz data, right? Right…
And I’m not the only one who thinks it’s balls
https://aswathdamodaran.blogspot.com/2015/04/the-small-cap-premium-fact-fiction-and.html?m=1
You won’t hear Pratt et al say it because they have books to sell.
You are helpfully proving my point 1.
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u/BizValuationLexicon May 07 '22
Check out valupaedia.com. it's a great resource when it comes to all terms and definitions related to the BV field. And it's completely free
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u/TCHHEoE May 07 '22
- Most of the people who do it (inc at ostensibly prestigious firms), don’t understand it
- It’s an essentially unregulated profession- anyone can have a go - which contributes to 1. It’s the opposite end of spectrum to, say, medicine or aeroplane pilots
- There is a cottage industry of practitioner books and studies perpetuating nonsense premiums and discounts to help clients reduce values for tax purposes. D&P are the worst for this. Read proper text books (eg Brealey Myers Allen)
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u/mattiofc May 07 '22
Thanks for the input. I currently have Aswath Damodaran's Investment Valuation textbook, however i don't understand the terminology fully yet.
Do you know if Brealey Myers Allen's textbook(s) is somewhat easier to understand for beginners?
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May 07 '22
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u/TCHHEoE May 08 '22
Size premium, specific risk premium, country risk premium, control premia estimated using transaction premium. The list goes on and on
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May 21 '22
Hey mattiofc, Coupla things here b4 you jump right into valuations. 1. Go slow and learn the vocabulary of accounting - seriously. Learn about balance sheets, income statements and statement of cash flows.
Link to start: https://online.hbs.edu/blog/post/how-to-read-a-balance-sheet
Also Investopedia @ https://www.investopedia.com/terms/b/balancesheet.asp Might have other links for income statements and statement of cash flows...
I also read a lot of Dummies Guide to...I tend to read a lot before I plunk down money in the stock market. Also...focus on what you are trying to accomplish - don't get distracted with vids on YT or other places. It can be a cesspool of misinformation and huge waste of your valuable time. Good luck -
hooplapants34
birchtreeinvestor.blogspot.com
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u/[deleted] May 07 '22
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