I’m consistently surprised at the lack of basic financial literacy in the HN crowd. The title says this is a tool to create financial models, not that it is a well-tuned financial model. Yeah, you have to make better assumptions than straight-line extrapolation from last year’s trend to arrive at reasonable valuations. The point is that this shows you what assumptions you have to make to arrive at a rationally-calculated stock value, and pre-populates all of the other necessary data and formulas in a slick UI, which is pretty cool.
The models that make the big bucks are the ones that ingest a ton of other external data to predict the numbers that go in the data entry cells here. And yeah, those don’t get posted online for free.
Mmm. The one thing I mostly learned from doing DCF models myself in Excel was how sensitive the output was to the different inputs. It didn't really help me to do the modelling itself, the hard part is predicting the future, not the Excel formulas.
If you look at the Price Targets for many "growth stocks", you'll see that professional analysts struggle with this as much as anyone.
Even for stocks with predictable profit models like resource extraction companies, it can be near useless because as soon as some external catalyst people didn't expect comes along triggers the commodity price to change significantly, the DCF valuation goes out the window.
IMO DCF is more useful for sensitivity analysis than actually valuing a business in some "accurate way".
All that being said -- it is definitely valuable to understand where price targets come from!
Any way do regional and or segment breakouts? The way I see your tool, it's a great tool for the back of the napkin-ers but as it is right now, it doesn't obviate modeling because you're still going to have to do the breakouts in excel.
Also, I think it'd be great to set your defaults assumptions for a stock to breakeven pricing, and allow users to adjust from there.
I see a tool like this being useful, but I think positioning it as a deep valuation tool is much less useful in the mindsphere of investors as an elite pen and napkin, which I think people would use.
You'd be surprised to learn then that most PE deals run on the back of literal pen and napkin models. In our process at my former firm, one of the largest megafunds out there, we would scout and model new opportunities using elaborate models, report them to the MDs who would then literally whip out a notepad or a napkin mid-presentation to decide whether the investment had potential. If it was in the grey zone, it was on us to demonstrate that it had merit, using more complicated modelling and analysis.
That doesn't surprise me at all, I've heard it's the same in private credit. I think a lot of the initial ground work that's done in due diligence and modelling is more to flush out any red flags than to inform the investment decision itself, and a model is only as good as its assumptions anyway...
Spot on. We used a bunch of screening processes to mine opportunities, then use models to weed out the duds, or to buttress our investment thesis before presentation to the MDs.
>The models that make the big bucks are the ones that ingest a ton of other external data to predict the numbers that go in the data entry cells here. And yeah, those don’t get posted online for free.
Do such models even exist? As far as I know NN are only good at function approximation. Why do we think that the market evolves according to a mathematical function? To me, financial markets seem chaotic in nature.
It’s like asking why are gym memberships and diet advice more marketed than eating less and free body weight exercises you can do anywhere. There is a market for solutions and good news, whereas there isn’t one for bad news, even if it’s free.
Yes but it's not really about the number crunching itself (NN's or something else), but more about modelling the "wider world" ("macro") outside the company that could drive its business. Like if you wanted to project an oil company's cash flows into the future, you'd do a lot of analysis and number crunching on things like IEA projections, known oil reserves, risk scenario analysis and the like.
It highlights an education opportunity for OP. Some people think this is a proprietary financial modeling system because they don’t know what a DCF is.
I feel like OP would have been better off not pre-populating the models, just to make the point of the tool clearer. A lot of folks here seemed to have missed the point of the tool.
The models that make the big bucks are the ones that ingest a ton of other external data to predict the numbers that go in the data entry cells here. And yeah, those don’t get posted online for free.