I am probably going to ruffle some feathers with this one, but one of my goals in posting here is to become a better investor, and to learn things that I otherwise wouldn't push myself to know.

That said... I hate DCF models. I hate all pricing models tbh, I think price targets are silly. I can see where there's value in trying to determine if someone is grossly under/overvalued, but otherwise it feels like noise to me.

Why, you ask? Well for one thing, it's entirely dependent on the assumptions that I put in. Without actively working for the company and being a part of the strategic decisions, all I have to go off of is what management has put out for projections, their own interviews, and other analyst guesses - so to me, I can make the numbers dance any way I want to. How does that help me determine if something is a buy or a pass?

Let's pretend you were trying to value CVS in 2016. You punch in all your numbers to your little model, you project revenue growth, EPS growth, all the things. Then December 3, 2017 they announce a $69B merge with Aetna. Instantly transformed cvs into a totally different company, now vertically integrated from insurance carrier to pharmacy. How the $&#@ do you model THAT?

Fine, that's a one off example - let's assume you did a dcf of, idk literally any company in Q4 2019. Did your model factor in a global pandemic, followed by intermittent supply chain shortages, followed by mismanaged inventory, rising inflation, and interest rates almost tripling in the 48 months you modeled out? Ironically enough, with all of those ebbs and flows, some of those dcf models probably worked out ok, but to me, it just feels like a huge dance to justify your positioning or purchase/sell decision.

You know why I'm so cynical about these types of complex, multi year models? I highlighted part of it, but part of it has been molded by my own experiences. I said it'd be borderline impossible for me to project something independently without some sort of internal knowledge of the strategy, future products, etc. I am confident in this because I spent six years at a manufacturing company that had an annual plan, and a monthly reforecast, the forecast was due in week 2 of the month, yet they still couldn't nail down their numbers. So the FP&A department, God bless their souls, would HAVE the inside knowledge as to what sales were in the pipeline, what was in production, how many people we had, how many hires were starting when, and they STILL couldn't hit their forecasted numbers two weeks after publishing them for the month. But me, a retail investor with no insider knowledge, is supposed go project what Company X's revenue and net income look like in 2028 and use that to back into what a "fair" price is for today?

Of course, I say all of this, but if you ask me how I determine whether or not I'm buying at a good price, I'm likely going to tell you I'm going off gut feel, so maybe I'm just gambling over here anyways 🤣