The DCF Model Explained - How The Pros Value Stocks/Businesses

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Today, we discuss the DCF, one of the more detailed approaches to valuing a stock.
If you'd like to support the channel, you can do so at Patreon.com/ThePlainBagel :)
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DISCLAIMER:
This channel is for education purposes only and does not constitute financial advice - Richard is not responsible for investment actions taken by viewers. Please seek out a registered advisor if you require assistance (while Richard is a registered portfolio manager at WDS Investment Management, he does not provide advice through The Plain Bagel, which is not affiliated with his employer).

Опубликовано:

6 сен 2024

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Комментарии : 394

@ThePlainBagel 2 года назад

Happy Friday everyone! If you'd like to try out Blinkist, head over to www.blinkist.com/theplainbagel to get unlimited access for 1 week to try it out. You'll also get 25% off if you want the full membership.

@vidhitnaik2386 2 года назад

Thank you so much for your content!! Yours and Patrick’s channel among a few others inspired me to register for my CFA. I’m currently sitting my CFA level 1 in feb! - ps I’m an engineering student lol so no finance background. I just seem to love it thanks to channels like yours! 😌

@eliteffsquadron9932 2 года назад

Pls make a detailed video on how to get a stocks value

@andrewtaylor3030 2 года назад

📌Thanks for the video,investment is the key,you can be rich like these millionaires by working your ass out,most of them don’t work upto 3hrs everyday.They earn passively from their investments which most minimum wage earners don’t do,life is sweet when you have different sources of income,invest in something to expand your earning

@fuhat1040 2 года назад

There is guy trying to be you.

@larsvandorp1298 2 года назад

Some examples would be great since I am not sure about the once I made

@radumurzea6112 2 года назад

I’ve been following your channel for a very long time (almost 2 years I think), it’s the first comment I ever leave here. And I do it only to say this: PLEASE make another video with a full example of applying DCF. It doesn’t matter if it ends up being 1 hour long, I would absolutely watch it multiple times in order to fully grasp DCF (which can be quite complicated). Thank you.

@bmadoub1729 2 года назад

uitate la lectile lu martin shkreli de investing, intra in detaliu

@healerghost 2 года назад

@SpencerGD 2 года назад

Nah, dude. You left a comment 5 months ago, but imma let it slide.

@radumurzea6112 2 года назад

@@SpencerGD I must’ve forgotten :))

@SebastianLopez-nh1rr 2 года назад

Agree!!

@theMixElite 2 года назад

I was literally 1 hour before this video went out, trying to find out good explanation of DCF. Wow.

@midimusicforever 2 года назад

Going through the details could definitely be interesting, but it would be even more interesting to see you discuss how to actually do those estimates well. That's the important part.

@sheefo6217 2 года назад

learned this ad nauseam in university 6 years ago, and it all looks clean and scientific but then once they make you do it yourself and you go through it you realize just how subjective it really is. Finicking a tiny bit with your growth rates and wacc can essentially make any stock a buy or sell, and once I got access to a bloomberg terminal you can see that kind of playing out with analyst predictions. It can really get whacky when you are valuing companies that are not profitable yet, and some unique industries like gold mining that have a negative terminal growth rate, or crypto and tech where you can't really quantify how impactful the product will be and thus how exponential their growth will be. It just added another notch to index investing in my book over trying to stock pick.

@perzonne6302 2 года назад

lol sounds useless then

@victorgbs 2 года назад

@@perzonne6302 like most attempts at stock picking, even if trying to be rational about it. Join the Bogleheads instead! One of us! One of us!

@OopsFailedArt 2 года назад

@@perzonne6302 for most of us yes. There are extremely talented people who are very good at making the right assumptions. Problem is, and this will shock you, they tend to not reveal their research. I have had the pleasure of knowing someone that was truly gifted here but the amount of research she put in for a single stock was mind blowing. As a result, she normally held no more than 5 companies which would be in advisable for anyone without her skill level

@poisonpotato1 2 года назад

Can always use the tried and true engineer's method of applying a safety factor to round off assumptions

@sadikinjeryon9082 Год назад

One most important prequisite to use DCF model in stock valuation is: the stability and consistency of company growth. If the company doesn't have those things, DCF is useless. Also, use it only for 3 years forward estimate, no longer than that. Predicting the not-so-far future of economy, industry and company performance is not easy job (because we never know exactly what will happen in the future), and it will be far more difficult if we try to predict longer timeframe (more than 3 years ahead).

@ASult-qr5ib 2 года назад

I'd love to see more details! I actually would love to see an example where calculations are done step by step to see how the value of a company is estimated, even if the company is fictitious like the example here. great video as usual!

@seventoejoe3307 2 года назад

Second this! It's very difficult finding an understandable DCF instruction on the web. I read through the article on investopedia and was still like... Uhh what did I just read again? This is much more clear cut.

@cedricdellafaille1361 2 года назад

third on this! the explanation is really well done but i need some examples to fully understand

@gabriel_wedman 2 года назад

fourth on this!

@SalchichaStudios 2 года назад

Please go super in depth in a part 2. Love what you do man

@ammt1999 2 года назад

One of the best videos you ever made! Make more videos like this teaching how to apply theory while adding details about what's industry standards and your own experience, really useful!

@Hyperpandas 2 года назад

There is an interest in you going through a step by step example and maybe diving into the details (1:40). Signed, probably everyone who watches your videos. 😀 PS: Only if you want to. This video is great as it is too.

@massdestroyer5134 2 года назад

This was amazing. I’m a finance and accounting major and a deeper dive into the dcf would be awesome. The way you explained it made it easy to grasp. Love the vids

@thelawenforcerhd9654 2 года назад

You do understand that if you add a single random variable to the analysis it is COMPLETELY WORTHLESS? Just throwing that out there. Sorry to interrupt your fanboying.

@waveril5167 9 месяцев назад

Then don't put random numbers in it. Investors have used this method for years and it helps. If you put random numbers in it, you can just guess. @@thelawenforcerhd9654

@TheLadyFool 2 года назад

Boy, I wish I'd had this video during my finance class - I recognized most of the components, but having you break the algebra into pieces and reminding us what it actually represents was extremely helpful!

@JackDuffley 2 года назад

No, Richard. Everyone knows that valuing stocks is best done by communicating with the moon gods and asking them where the rocket ship should land 🚀🌕

@ThePlainBagel 2 года назад

Don't worry, I cover that in the next piece, "Shamanistic rituals and sacrificial practices for getting gains,"

@johnterry5954 2 года назад

@@ThePlainBagel I’ll be eagerly waiting for this ☝️

@karlhoffam3630 2 года назад

Hi John

@andyvasist418 Год назад

Hi karl

@ricseeds4835 2 года назад

I don't know if he already did but this definitely requires a hands-on step-by-step example for a real company using their financial statements.

@shreyanpurwar1085 2 года назад

This is probably the best video regarding DCF I have ever seen. Beautifully explained. But like the other comments, it would be amazing if you could do a video applying the DCF model to an actual company, referencing the concepts you made in this video to help clear some minor confusions.

@maxmassetti2392 2 года назад

Analyst: *does DCF* Analyst: *comes to the same realisation that everything in the market is overvalued*

@Jr2728 2 года назад

Damn right😂🤣😂🤣

@tiendoan1333 2 года назад

So underrated

@Marque734 2 года назад

maybe your analyst uses a too high RRR or looks at the wrong stocks

@ardendba 2 года назад

Low interest rate could be the reason the required return from stock market is much lower than before since 10 years treasury yield is only like 1.7% As long as your return from marketable security is higher than 1.7%, the investment makes sense. your only opportunity cost would be missing out other securities which provide higher returns

@Jr2728 2 года назад

@@ardendba but nobody wants higher interest rates

@davidwalsh9807 2 года назад

Yes please Richard, I would love to see a run through- that would be super interesting

@David.Marquez 2 года назад

I think It's great how a lot of investors have their own variations and principles on how they do DCF, great to see a Plain Bagel video on it!

@InvestorCenter 2 года назад

Great to see someone on RU-vid teaching fundamentals on investing

@MyFinancialFocus 2 года назад

Everyone knows the only real way to value a business is by measuring how many short sellers are shorting the stock and then going to Wall Street bets to hype it up so it can be short squeezed.

@davidhunter1429 2 года назад

lmao, I laughed so hard.

@selwynparker5793 2 года назад

I am guessing You must be very young in the world of finance.

@karlhoffam3630 2 года назад

Hello Mr. Parker

@karlhoffam3630 2 года назад

I really wish to chat with you privately , you seems and sound learned and educated . Can I get a guide from you ..?

@Adrik808 2 года назад

@@selwynparker5793 I'm guessing you can't spot sarcasm

@danielcarvalhobica630 2 года назад

You perfectly summarised in a clear way half of a master course I'm taking... wow

@adrumwhisperer 2 года назад

you just clearly and concisely summarized 2 quarters of college investing/corporate finance courses in under 15min. Good job, Mr. Bagel! Best video, yet!

@dmitriytimchuk771 2 года назад

This vid went out almost the exact time I started thinking of finding a good educational material on calculating a stock price, sometimes I feel like I live in the matrix

@petterromano3686 2 года назад

Definitely do more videos like this. Especially as a finance and accounting major, I’d love to see more

@ignazlangeslagvanasselen4940 2 года назад

your voice is amazing to listen to I wouldn't mind a 1 hour long video further delving into the dcf model or other ways to value a company

@sanchitcop19 Год назад

The most important thing I've learnt from this video as that I don't care about evaluating individual stocks as much as I thought I did and should probably stick to ETFs

@kayak2hell 2 года назад

Thanks for appreciating that your audience has different levels of education, understanding, and interest in personal finance. Kudos for breaking down a more technical subject in a way that doesn't alienate any segment of your audience.

@jaypunekar590 2 года назад

A detailed explaination of DCF model would be really helpful. Please make a second video. BTW, Love your content! Keep it up!

@drek273 2 года назад

aswath damodaran

@karlhoffam3630 2 года назад

Hello

@robertwright8844 2 года назад

Yes, I'd love to see a full example worked in detail. Thanks for the video!

@Windschutzscheibe Год назад

You've explained in under 15 minutes what my professors couldn't under a whole semester. Much appreciated. It's easy to get lost in the small complex steps of calculating the estimates, and by the end you don't even remember why you are doing this in the first place. The typical example of the tree and the forest. It's also worrying how this pattern is recurrant in my other subjects as well, where almost no emphasis is placed on the purpose of things, but the theory and technical background is overemphasized, and the technical part is what's asked almost exclusively in the exams as well...

@YuriZhylyuk 2 года назад

Thank you for another interesting video. Walk through of DCF calculation using financial reports from some publicly available data source (like yahoo finance, etc.) would be greatly appreciated.

@vladpruna95 11 месяцев назад

Hey Richard, I'm still waiting and hoping for a more in depth guide/example of the DCF model, it would be very helpful and much appreciated. Please keep up the good work, your channel is great!

@chazigo3106 2 года назад

Please Please Please! Make a thorough explanation video of a DCF. I love the way you break things down and that video would SERIOUSLY help me! Much love.

@Fir3Chi3f 2 года назад

This is so much more complicated that I anticipated

@investinglens 2 года назад

Discounted Cash flow model is a must know for any investor, Love the in depth video format!

@richardpyo4426 2 года назад

Nice video Richard. Would love to see these more advanced financial concepts in the future too!

@finnschroder2499 2 года назад

I had to do a DCF Valuation for a university project last week😅 This video would’ve been enormously helpful 😩

@Marque734 2 года назад

That's a very clear explanation. Some are very mechanical do this, do that and never explain why. Then I read Pr. Damodaran papers that explain in detail why you use this value and that value but don't explain how you actually do it. You hit the golden middle, thanks!

@howardhuynh2336 2 года назад

Great video! I think the video going through an example would be great

@feripnooi 6 месяцев назад

This video made me realize just how outrageous those investment Ti kT oks and internet gurus really are when they talk about investment being easy. It really is a highly-technical job with years of experience required and not something you can do by finding silly "patterns" on a graph in your bedroom. Thank you Bagel, for opening my eyes.

@Eveningredening Год назад

I want to express my interest in that more detailed second video. Much love to you, bagel.

@yeehaw5741 2 года назад

holy hell, someone else made a dcf video just a couple hours before yours, and i was like "damn cant wait till The plain bagel comes up with a video about dcf" and you read my mind !

@dfresh2989 Год назад

Nice job! I just learned all this in a masters level securities valuation class. We went through a lot of detail into each of these, but you made it really simple and easy to understand. Thanks

@JustinRothberg 2 года назад

Yes. Step by step please. Been trying to figure this out for quite awhile and always get lost somewhere.

@graemepederson4661 2 года назад

Hey, this will be my first comment on your channel. I love your stuff and the more complicated topics you explain really well. It sets you apart from other channels in finance and i would absolutely love to see more like this from you in the future. Great video and thanks for making all of these.

@heshanpalliyaguruge6333 Год назад

PLEASE DO STEP BY STEP SIR. As a young finance nerd, I am very keen. I take lots of inspiration from you and Dr. Damodaran

@user-nq4ow8tu9y 3 дня назад

Ive tried numerous strageties and this is by far the best if keeping in mind candlestick patterns trends etc. Winning 80% of my trades .🕶

@MrMineHeads. 2 года назад

Loved this video and I want to see more on this topic! There's also the Five Factor Model for determining return to equity, but Ben Felix can explain that 😉

@nucreation4484 3 месяца назад

After all the work that you put in with valuing and taking time researching, about how frequently are you able to find something that you're seriously starting to consider investing in?

@1Route69 2 года назад

Thank you for the video! Very well explained. What about companies that are diluting their shareholders, should DCF take that into an account? Surely, the number of shares for these will be very differet in the future (some companies release dozens of % of new shares or even more within a year). (the same question also about share buybacks) Or it doesn’t matter because the only thing about the future we care about here is the future cash flow and nothing else?

@giuseppeo77 2 года назад

Great video Richard! Yes! Please bring on the example video. Keep up the good work and thank you!

@cirodirosa6752 2 года назад

Thank you! Please go through an example! I think Tesla would be a striking example.

@eeerish 2 года назад

Great one Richard! Would love to see a more in depth drill down of the model with an example, would be very helpfull. Thanks!

@cedricdellafaille1361 2 года назад

my dear lord my head is blown i wonder how many times i need to rewatch the video to fully comprehend it all into detail

@selwynparker5793 2 года назад

A lot to take in even after studying this stuff over 22 years ago. A great helpful refresher. I would like more on valuation of assests/equities.

@ZKaiLe 2 года назад

Definitely the best explaination of DCF all over the tube

@vivekmenon4118 Год назад

Thanks for the video. A very easy to understand step by step introduction & walkthrough of DCF.

@danienishanov738 2 года назад

A second video with a full example is crucial, practice is everything, love your channel and in any case thank you for this video

@martijnbrulezz 2 года назад

Would like to see the step by step case analysis! 👍

@Jay-tv8nk 2 года назад

It would be great for you to do a bit of a series on the different parts of DCF! I would 100% watch that.

@johneberle5814 2 года назад

This is exactly what I needed and I would love a deeper dive in a second video!

@FinancialShinanigan 2 года назад

More helpful than the finance course I paid thousands of $ for

@SebastianLopez-nh1rr 2 года назад

I’m interested in an example! 👏🏻

@MountainFinance 2 года назад

Great video. I think a lot of your audience will really appreciate a glimpse into the DCF.

@richardye9805 2 года назад

Thanks for the video Richard, I loved it. I would also like to see a more detailed example!

@d_15745 2 года назад

Yes! We need a more in-depth DCF vid please!

@floxy20 2 года назад

I didn't realize such economic modelling was so creative. Speculation meets Magical Thinking. As a retail investor I'll (profitably) stick to dividend yield, i.e. how much does the company make for ME.

@Bantobror 2 года назад

Yes! But at the same time it can be nice to see that the company makes alot of money excluding the yields, that money can be used for acquiring other companies or investing into production, etc :)

@floxy20 2 года назад

@@Bantobror That's for people with bags of money who may have more sophisticated maneuvers in mind than my humble retail investor outlook.

@drek273 2 года назад

@@floxy20 wow your self deprecation is oscar worthy

@Rainn_F 2 года назад

had some fun doing DCF until all my stock picks are over-valued. then i just go back to comparing multiples within industry. Its fun to play with all sorts of assumptions but at the end of the day like all forecasts, the further out it is the less accurate it is. Even weather forecasting models are only somewhat accurate an year out. DCF should be one of many tools you have to value stocks/businesses. Anyways, great video like usual.

@joaopedrorocha5693 Год назад

i didn't finished watching the video ... but yes, give us the glorious details!

@chuksajeh1813 2 года назад

As someone that wants to get into investing, would you just use this, or would there be other factors to consider when looking into a company?

@andrewsharpe7630 2 года назад

If you are new to investing then the DCF forumula is likely the last factor you'd want to look at. Too complex and far too many changeable assumptions for a newbie. Learn the basic ratios (P/E, P/S, P/FCF, etc.), learn how to read income statements and balance sheets, pay attention to the earnings reports of companies you want to invest in, with attention given to "guidance" (how much a company believes they will earn/ grow their business in the future) etc.

@chuksajeh1813 2 года назад

@@andrewsharpe7630 appreciate it thank you man! 🙏🏾

@travelchimps6637 2 года назад

Another video on this topic with an actual stock would be amazing. 🤩

@SuperJohnep 2 года назад

Thank you for making this video even though my eyes began to cross about halfway through 😂

@zanechan6533 2 года назад

Man, please, do a step by step walkthrough on this!

@pradanal.m.r.8276 2 года назад

Hi Richard, how about help us to run through how fund manager use DCF, in conjuction with other analysist? Therefore we can get a whole picture of how the fund manager determine the 'worthyness' of a company. Because just DCF alone, I think anyone here who motivated enough, could find it on internet

@triple_gem_shining 2 года назад

Your channel is amazing. Technical knowledge presented concisely and clearly. Thank you!!!

@neeleshj8059 2 года назад

Hey can you please make an explainer about defi. The content online seems to be all over the place.

@percevalzinzin5983 Год назад

Nice vid again! Best method to evaluate Plain Bagel: Discounted Cash... Flour :-)

@tomaszvinys2389 2 года назад

Hi, Richard! Thank you for a great video. Indeed you have a lot of experience and you're able to explain these formulas in a way that's entertaining and understandable. I'm definitely waiting for more such series. Oh, and yes - a real world example would make such explanations totally perfect :)

@pailynjarlangattil6160 2 года назад

Just started watching the video. The dcf formula looks alot like the internal rate of return formula.

@Axel-xj8rl 2 года назад

Please make a follow-up! Appreciate this vid so much.

@MrGadhikari 2 года назад

Richard, you should put together a book with all these topics you cover. I'd buy it.

@johnthicks8568 Год назад

I only use dcf for everything. Stocks, buying apartments, investing retained earnings in my business. There really isn't anything else. Investing is just laying out cash now to receive cash inflows at some point in the future. I never try to calculate a precise figure. I just look for opportunities that jump out at me.

@jeiuanne331 Год назад

Please make a more detailed example for DCF!

@samsonsoturian6013 2 года назад

There's implications to this math everyone likes to ignore: If either interest rates or taxes go up, the current value of the stock drops. In case you're wondering how spooky action by Washington demolished your Tesla calls.

@Mr.cat578 2 года назад

Would be interested in seeing a detailed example. Enjoy the content.

@romansokolovskii6941 Год назад

Thank you for a great explanation! There's something I don't get: why does the stock market grow over the long run in real terms? Why aren't the factors contributing to that (say, productivity growth) just priced in?

@justinbeghly1435 2 года назад

Really great explanation

@applefav101 2 года назад

Just started the video, but I'm super grateful you're covering something a little more complicated!

@Tzannisss 2 года назад

I think everyone wants to see that second more in-depth video, including me!

@graemepederson4661 2 года назад

Please make a video about finding market value of debt too!

@neilcampbell5963 2 года назад

Yes 2nd more in depth video please this was absolutely superb!

@toughmonkey5414 2 года назад

Please make a video on how to build this in excel for professionals. Thank you

@buzz3608 2 года назад

Please make a full example. Alot of retail investors just kinda send it on stocks and don't understand the concept of a fair price from a quantitative measure.

@carlaboujawdeh 2 года назад

love you videos and yes PLEASE make another video with a full example of applying DCF

@Zadeska 2 года назад

Thank you for making this video! It's very well done. Please do a Part 2 video with a concrete example, either with fake companies (Bagel Company A and Bagel Company B) or by using 2 real companies (like 2 Canadian bank stocks or something). Honestly, you can't go wrong with whichever method you choose.

@Dfm_Sushil 2 года назад

Can we use this method for banking stock analysis????

@juselara02 2 года назад

The plain bagel called me a pro 😍. Amazing explanation!

@razzKey 2 года назад

So this is why they made me study calculus in economics major...

@bharatbheesetti1920 2 года назад

Love this video! You should definitely dive a little deeper into the process and maybe run out a possible dcf valuation of any public company. That would be awesome. Keep up the good work!