May
7
“I have never understood why MOS is offered as an alternative to the standard risk and return measures used in intrinsic valuation (beta or betas). Beta is not an investment choice tool but an input (and not even the key one) into a discounted cash flow model. In other words, there is no reason why I cannot use beta to estimate intrinsic value and then use MOS to determine whether I buy the investment. If you don’t like beta as your measure of risk, I completely understand, but how does using MOS provide an alternative? You still need to come up with a different way of incorporating risk into your analysis and estimating intrinsic value. (Perhaps, you would like me to use the risk free rate as my discount rate in discounted cash flow valuation and use MOS as my risk adjustment measure… That’s an interesting choice and worth talking about … I know that Buffett claims to do something similar, but he discounts only the cash flows that he believes he can count on, making his cash flows risk adjusted cash flows.)”
Musings on Markets: Margin of Safety: An alternative risk assessment tool?
