Kumar, B. Rajesh. "Perspectives on Value and Valuation." Valuation: Theories and Concepts.

London: Academic Is an Imprint of Elsevier, 2016. N. pag. Print.

This book was written by Kumar B. Rajesh. Rajesh is an Associate professor of Finance at the
Institute of Management Technology of Dubai. Rajesh has published 25 empirical journals and
has authored three books most notably Case Studies from Key Industries. He has coauthored
work seen in The Economist and The Financial Times.
This book is about valuation concepts and theories. This book aims to present a relatively simple
framework for valuation easily understood by finance students or a day traders. This book
combines and structuralizes theories of valuation into simpler, and more direct terms. The main
idea of the chapter, I will use in my paper, "perspectives on value and valuation" is to explain
how mathematical models can demonstrate valuation methods. The validity of mathematical
models rest in the assumption of how value is communicated. For example, a particular model
may be based upon discounted cash flow, which states a securities underlining value is the
combination of its future earnings. Thus, the mathematical model, discounted cash flow is just
the addition of all future cash flow (i.e. sales, tax cuts, and dividends). In this chapter,
perspectives on value and valuation, explains that the ability to guess the values of the variables
of the discounted cash flow model, is the ultimate goal.
Discounted Cash Flow:
1 2 3 4
0 = 1
+ 2
+ 3
+
(1 + ) (1 + ) (1 + ) (1 + )4
Where;
0 = The current price of the stock
r = Required return in the market
1 = The dividend paid at the end of the period

Using equations can help an investor, student or whomever needs to estimate the future value of
a security. The concept of equity spread can also be represented mathematically. Equity spread is
the equity value creation, meaning how much value the equity created in a given circumstance
relative to another. For example, if you were comparing how Dominos pizza performed to Papa
Johns. You would have looked at the spread between their stock performance over the same
period of time. Equity is defined, within this equation as any security representing an ownership
interest.
Rajesh explains, in the beginning pages of the book that value is always a derivative of a
securities future potential or value. For example, the price paid for by a stock (ownership in a
corporation) is influenced by the future value of the company. Considering that an investor buys
a stock low and intends on holding it for a higher price in the future all investors gamble that the
stock and company it represents will increase in value in the future. Rajesh takes this idea of
future value to the next level by asking when a stock is most valuable. Should an investor trade a
stock for a hefty profit now or wait for the stock to hit its year high later. In other words, is
something worth more today or tomorrow, particularly if it is always gaining value? Is a million
dollars worth more today or tomorrow? Rajeshs suggestion is only natural when the discounted
cash flow equation is taken to its natural conclusion. Imagine that the above equation for the
dividend discount model is used for a company, say Walmart. Assuming Walmart exists forever
and offers dividends forever should not the investor wait forever to sell since its value will peak
in an infinite amount of years. Rajesh points out that accurately predicting when to sell and when
to wait is difficult. When a product, good, or service has reached its peak value it is difficult to
know.
In order to measure value Rajesh believes it must be measured to something else. For example,
to know the value of Oreos we must compare them to other goods like chocolate chip cookies. In
practice, the difference in the value of food may be subjective and hard to quantify, but there are
some goods that can be accurately measured against each other. Rajesh looks to stocks for the
answer. Rajesh suggests that a benchmark be created by the individual investor or student that
should be used in every instance of valuation. Since the same standard is used then an accurate
measure of value can be obtained. Whenever trying to measure a securities value focus on value
drivers such as sales, margin of activity profit, tax rate, and expenses of capital: pay close
attention to the potential changes in value drivers since that would affect the current and future
value of said a security. Rajesh suggests to focus on so-called value drivers such as sales, R&D,
goodwill and leadership. Also setting performance benchmarks that quickly allow for an
underperforming, over-performing, or performing at expected level label to be assigned quickly.
Pay close attention to intangible assets, since they are often looked over but are invaluable in
valuation. For example, the Trump name is worth more now that he is president. The brand value
of Apple is 80% of its market capitalization.
In conclusion, this book has emphasized one extremely invaluable point to me. Value is based on
return buy low, sell high, we sometimes think of this phase in terms of money, stock, and
finance; but it can also exist in ideas like religion or politics. Is society going to be better off if I
join this political party? If I except climate change as a fact, will it make the world a better
place?
Otani, Akane, and Georgi Kantchev. "Blue Chips Advance to a Record." The Wall Street Journal
[New York City] 27 Jan. 2017: B11. Print.
This article was published by The Wall Street Journal, a trusted financial newspaper. The
authors Akane Otani and Georgi Kantchev are financial market reporters. Akane Otani has a
bachelors degree in English from Cornell university and a M.A. in Business and Economic
Reporting. While studying at Cornell she was a member of The Cornell Daily Sun. Georgi
Kantchev
This article is about the recent rise in the Dow Jones Industrial Average. The Dow Jones
Industrial average hereafter referred to as the Dow Jones has increased in value because
construction and financial stocks have increased. The Dow Jones is a collection of stocks that are
typically classed together to show how the stock market as a whole is performing. Since the Dow
Jones contains significant financial and construction companies its value increased overall as
investors bet that President Trumps proposed infrastructure spending and tax cuts will help the
financial and construction industries.
Overall, this article gives a clear example of how volatile the stock market is. After the election
of President Trump Goldman Sachs gained fifty percent in value. The influence of peoples
perception of value really influences the real world value of an asset even if the asset has not
changed. Did Goldman update its systems in a major way? No, but that is irrelevant to the
market. Maybe investors are gambling Trump will make an economy where Goldman could
succeed with the same effort and technology it always possessed. This article brought the me
closer to understanding how value can change without any physical change.
Faugere, Christophe, and Julian Van Erlach. "A Required Yield Theory of Stock Market
Valuation and Treasury Yield Determination." Financial Markets, Intuitions &
Instruments: Issues in Debt Valuation 18.1 (2009): 27-31. Print.
Christophe Faugere has a Ph.D. in Finance from the University of Rochester. Faugere studies
stock valuation models, stock returns volatility, e-commerce/network effects, and behavioral
finance. Julian Van Erlach is an analyst for Nexxus Wealth Technologies.
This article was published by Financial Markets, Institutions & Instruments. This article is
entitled A Required Yield Theory of Stock Market Valuation and Treasury Yield
Determination. The article was written as a general introduction to Christophe Faugere and
Julian Van Erlachs research and theories of stock market valuation. The article begins with the
authors pointing out the major assumption of most financial experts; value of the stock market is
in some way tied to the expected dividends of the stock market. After establishing the consensus
on valuation the authors pointed out several disparities in the assumption of value, in the form of
seven questions. The fascinating questions include: Why are stock market prices more volatile
than expected dividends? Why is the equity premium not accounted for by standard measures of
risk and our best asset pricing models? Why arent stocks behaving as an inflation hedge
instrument, as common sense would dictate? Why arent stock returns and treasury yields more
directly connected to measures of productivity/economic growth? Why does the yield spread
appear to behave as non-mean reverting processes when stock market returns are found to be
non-mean reverting processes when stock market returns are found to be mean-reverting in some
instances? Why is the so-called Fed model linking government bond yields with market P-E
ratios found to be a global empirical regularity, in spite of its perceived logical flaws?
If the value of the stock market is underpinned by expected dividends why are stock values
volatile? The researchers attempt to solve these questions by creating a general theory of stock
valuation. The researchers theory was trial tested by using it to accurately predict the present
and past values of the S&P 500. In order for their theory to measure the true value of the S&P
500 at any time they took taxes into account, something that is rare in economic theory. In
finance its assumed that taxes will never deplete a profit into a loss, because it is only a
percentage of the profit, and would never take more than a hundred percent it, thus taxes are
irrelevant in most economic theories.
Their valuation of the S&P 500 relied on two functions. First was the idea taxes would continue
forever on all future earnings of the index, the S&P 500. Second, the growth opportunities of the
after tax income. Another condition of the model is dependent on mean reversion. Mean
reversion is the idea that a security when at an extreme value relative to its historical average will
eventually revert back to the historical average.
Next, the authors explain several conclusions they drew from their theory. First, Since the
marginal investor wants to own an index of the S&P 500, the authors used a model to suggest he
gets the minimum acceptable after tax return. If the investor expects a return on investment, he
also considered what is known as the risk-free rate. The risk-free rate is the difference between
extremely safe securities like U.S. treasury bills and whatever security is being compared to
them. The risk-free rate is the representation of what the investor could have received easily as a
return versus what he received with more risk. The authors assumed that the investor would not
buy the index if he would make a smaller return than investing in risk-free treasury bills.
The idea of a risk-free rate is tied into the risk premium, which is derived from the risk-free rate.
Since the rate of treasury bills change regularly, the authors general model had to account for
these changes. As the risk-free rate changes, the thought processes of investors change; if the
goal of an investor is a three percent return then investing in treasury bills at three percent would
become desirable as opposed to a one percent treasury bill versus a predicted three percent return
in the S&P 500.
Overall, the idea of risk-free return coupled with the authors valuation model can present a good
model that can with some accuracy predict the future and past value of the S&P 500. If this
model can predict the value for this index it can be applied to other securities like ETFs
potentially creating wealth for any investors willing to utilize it.
Buttonwood. "Stocks for the Long Run?" The Economist. The Economist Newspaper, 13 Jan.
2016. Web. 16 Mar. 2017.
This article was published in The Economist magazine. This article is from a widely respected
source The Economists Buttonwood journal, which is cited and well trusted.
This article questions whether risk premium actually exists, and if investments in equities always
beat bonds. Risk premium is the idea that investments that are risker provide greater returns then
investments that are safer. The idea behind this lies in the idea of risk-free return. Before an
investor invests they consider the safest option, bonds. U.S. treasury bonds hold some of the
lowest returns for a security, but they are unmatched in safety. Safety mixed with the lowest
possible return is considered the risk-free return. When you subtract the risk-free return from a
security you get the value of your risk. This article argues off of international historic data that
this is not always the case and is primarily the case in the U.S. only because the U.S. dominated
the 20th century. In most other countries in Europe and elsewhere the equities underperformed
compared to bonds. The article suggested that the trend of the 21th century suggests bonds may
be the safest route.
This article showed me how models could potentially be wrong. In my research, I rely on some
instrument to tell me why do people value the way they do. If models are not accurate, to any
extent; A devastating idea, humans are chaotic and we are finding patterns that do not exist.
Kahle, Lynn R., Raymond R. Liu, Gregory M. Rose, and Woo-Sung Kim. "Dialectical Thinking
in Consumer Decision Making." Journal of Consumer Psychology 9.1 (2000): 53-58.
Print.
The authors of the paper are Lynn R. Kahle, Raymond R. Liu, Gregory M. Rose, and Woo-Sung
Kim. Lynn R. Khale is a consumer psychologist at the university of Oregons Lundquist college
of business. Raymond. R Liu holds a Ph.D. in Marketing and is a professor at UM Boston.
Gregory M. Rose is a professor at Southern Illinois University who specializes in experimental
psychology. Woo-Sung Kim received his Ph.D. in electrical engineering from Washington
University in St. Louis.
This paper is about dialectical thinking in consumer decision making. The point of this paper is
to explain dialectics, and how they can help us understand the world. The paper also suggests
that dialectics, while being used extensively in psychology has been neglected by consumer
psychology. The authors attempt to evaluate the potential uses in describing the consumer
making decision process. Dialectics think about an issue from many different perspectives, then
develop a conclusion despite contradictory information.
The basis of dialectics is that everything is related. For example, in evolution two polar opposites
mutation and heredity work against each other to create the perfect organism. Dialectic
thinking takes different criterias and standards, ideas that seem to have no relation, then relates
in a new to discover something amazing. Dialectics must consider everything in a state of change
with two opposing sides in a struggle. A victory in the struggle results in a qualitative change.
Such a struggle could be characterized in quantitative differences that would eventually lead to a
qualitative one. Dialectics believe that these changes in quantitative suggestion can be measured
before the big qualitative change.
Sometimes dialectics think in terms of what dialectics is not and not what it is. A well
understood idea about dialectics is that it is not a simple growth model. The changes seen are
strictly a result of opposing forces, think mutations, heredity, and environments effect on
evolution.
Decisions or rules a consumer goes through before deciding to purchase a product can be
understood through dialectics. Using dialectics to create a system to measure how consumers
utilize information to make a decision can determine how that decision was decided. Dialectic
thinking could be the result of unconscious thoughts in the consumers mind. Even though
people are not aware their minds are going through a mental algorithm of criteria to make their
decisions they maybe. The complexity of their dialectic thoughts can be determined by the age of
the person and their educational level, according to these researchers.
Decision making is one area of consumer psychology that dialectic thinking can benefit. The
idea that consumers use little or no dialectic thinking is posterity considering the different factors
that most of into play into purchasing a good. Dialectic thinking offers a differ view of the
consumer decision making model that may prove invaluable.