Introduction

My name is Johny Nilsson and I like to write about valuation. Valuation of stocks and preferably very large stocks.

Valuation is both simple and complex. The value of an asset is simply the discounted sum of its future cash flow. It is so simple it can be described in ONE sentence. Well, in reality it is more complicated than that. But I sometime remind myself that investing is about buying at a low price and selling at a high price and running a business is about buying och producing at a low cost and selling the product or service at a higher cost.

So why is valuation perceived as complicated and a skill that only very few financial professionals have? Maybe, because the valuation experts want others to think it is more complicated than it is, to make more money and have higher status. Maybe, because in the beginning of the 90s, when the spreadsheet program Excel was new, the first valuation models were very large and complex. I know because I was building those models myself 1990-1995 when I was only 25 years old and I was very proud of my first models. But then you rather quickly realize that the models were too complex and required to0 much work. When a model is too large it becomes what is called a "Black Box" - you make your assumptions on a number of variables and then the model spits out a number, a value, but no-one understands how that number is generated, not even the maker of the model.

My ambition with this newsletter is to make valuation more understandable and transparent and less of a "Black Box".