What is the most dangerous thing about discounted cash flows?
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nowell
Apprentice
Joined: 12 Sep 2005
Posts: 7
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 Posted: 05/26/08 - 08:56 Post subject: |
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| I have recently been looking to start with investments. I have accumulated fair amount of assets and I have looking into the most efficient way to invest in day trading. I would like to know one thing. What is the most dangerous thing about discounted cash flows? Any info will do. It will really mean a lot to me. |
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rem
Apprentice
Joined: 01 Aug 2005
Posts: 2
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| Posted: 06/25/08 - 03:20 Post subject: |
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| Any investment carries with it a risk in part. If you are day trading, no strategy is worth without stop-loss order. It is practically your insurance in one of the riskiest ways of trading, as it effectively sets a maximum loss per day. Now, a discounted cash flow is a sort of a way you are looking at what will be a good investment target for you. You probably know how it works (predicting future flow and making a subsequent discount from the sum). Now, the major danger is overestimating market rationality, that is rational investments from the side of the people upon whom your success as an investor is dependent. Of course, that does not mean you should not use it, but have some reserve. For some more info, go to http://www.investopedia.com/terms/d/dcf.asp. |
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