Insightful and on point as usual. Interestingly, I have been having the terminal value debate with myself also. In a world of continuing disruption, you either have to make the terminal value significantly lower or zero or you have to increase the discount rate significantly. I don’t even know if WACC is relevant anymore for longer term investments. Option pricing models might make more sense but those come with their own set of issues around non-normal distributions. Not a great time to be making investment decisions (if you are prudent. Ignorance is bliss).
I was going to reply with a similar comment to Cory (our paths have crossed before, working with a common client) but framed more as a question: in your (actually, both of your) upcoming analyses, do you increase the terminal cap rate or increase the discount rate . . . or both?
Michael my view is need to lower your terminal value multiple and raise discount rates as risk is increasing, but I’ve worked with Cory and relied on his insights so would enjoy hearing his thoughts.
Great post, thanks for sharing it. Among my peers (~30 years old, grew up near SF, worked in tech my whole life), the notion that terminal value may be completely opaque has been a common belief over the last ~5 years. Appreciate your take on it
Insightful and on point as usual. Interestingly, I have been having the terminal value debate with myself also. In a world of continuing disruption, you either have to make the terminal value significantly lower or zero or you have to increase the discount rate significantly. I don’t even know if WACC is relevant anymore for longer term investments. Option pricing models might make more sense but those come with their own set of issues around non-normal distributions. Not a great time to be making investment decisions (if you are prudent. Ignorance is bliss).
I was going to reply with a similar comment to Cory (our paths have crossed before, working with a common client) but framed more as a question: in your (actually, both of your) upcoming analyses, do you increase the terminal cap rate or increase the discount rate . . . or both?
Michael my view is need to lower your terminal value multiple and raise discount rates as risk is increasing, but I’ve worked with Cory and relied on his insights so would enjoy hearing his thoughts.
Thanks Cory.
Great post, thanks for sharing it. Among my peers (~30 years old, grew up near SF, worked in tech my whole life), the notion that terminal value may be completely opaque has been a common belief over the last ~5 years. Appreciate your take on it
Thanks Julian. Appreciate your comment