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Be conservative in your estimates when valuing a company from "summary" of The Intelligent Investor by Benjamin Graham
When valuing a company, it is crucial to be conservative in your estimates. This means erring on the side of caution and underestimating rather than overestimating the value of the company. By taking a conservative approach, you are less likely to be blindsided by unforeseen risks or challenges that could impact the company's performance. One way to be conservative in your estimates is to use historical data and trends as a guide. Instead of projecting rapid growth based on the latest industry fad or hot stock tip, look at the company's past performance and growth rates. This can give you a more realistic picture of what the company is capable of achieving in the future. Another way to be conservative in your estimates is to factor in worst-case scenarios. Consider what could go wrong with the company's business model, industry dynamics, or overall market conditions. By preparing for the worst, you can better assess the company's resilience and ability to weather potential storms. It is also important to take a critical look at the assumptions and inputs you use in your valuation model. Are you being overly optimistic in your revenue projections? Are you underestimating the impact of competition or regulatory changes? By scrutinizing your assumptions and being honest about potential risks, you can arrive at a more conservative estimate of the company's value.- Being conservative in your estimates is not about being pessimistic or undervaluing a company. It is about being prudent and realistic in your assessment of the company's prospects. By taking a conservative approach, you can better protect yourself from potential downside risks and make more informed investment decisions.
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