- Don’t expect precision from business valuation, but accuracy helps a lot.
- Calculating net present values, liquidation values, and stock market values are the best methods to use according to Klarman.
Today, we’re really digging into the essence of Seth Klarman’s book Margin of Safety.
Some think the market, being efficient, will tell you the exact value of a business, but history has shown that in the short term it often happens that the market values businesses extremely irrationally, either on the upside or on the downside. Knowing how to properly value a business gives an investor the perfect investing edge as it allows them to disregard what the market thinks and turn that into their own advantage by exploiting market mispricings.
Let’s see what Klarman has to say about business valuation by going through chapter 8 of his book. More →