if you were to use a relatively lower discount rate to value equities and overestimating there value – why would it result in overstating the attractiveness and result in an asset allocation of too much equity?
if you used a lower discount rate wouldn’t it be overestimed and value and then you would NOT want to allocate as much to equity? Makes no sense to me
If I use a low discount rate and overvalue S&P 500, let’s say I think its $3100… Well right now, the S&P is $2888… I would think that the current index is undervalued and a bargin, and I would buy more.
If my strategic asset allocation for Large Cap Core is 25%, due to my overestimation, I may swing it to my high limit and buy 30%.
You compare your estimate of their value to their market price.
If your estimate of their value is too high, then you’re more likely to conclude that they’re underpriced and invest in them.
Ah got it that makes sense now. Thank you!
My pleasure.
the analyst is never wrong bro. Never.
and that self-attribution bias is bull **** too.
(okay I’m being facetious but you get it?)