Value Investing Monte Carlo for DCF Valuation?

Monte Carlo for DCF Valuation?
The Greatest Value Investor You’ve Never Heard | Macro Ops
The Bear Case on India (Part 1)
Startups and Uncertainty
Contractual Complexity in Debt Agreements - The Case of EBITDA
Interesting doco on stock market mania in the lead-up to the tech bubble (featuring Iomega and lots of 90s Jim Cramer): "Betting on the Market" (Frontline, 1997)
The Curious Case of Aurelius Capital v. Puerto Rico

Posted: 26 Nov 2019 12:37 PM PST

Hello Reddit,

Hoping someone can help me understand the role of a Monte Carlo simulation in regards to discounted cash flow valuations and/or reach out to me via DM to talk about my DCF valuation as is.

submitted by /u/thr0wway1234567898
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The Greatest Value Investor You’ve Never Heard | Macro Ops

Posted: 26 Nov 2019 08:38 PM PST

submitted by /u/lingben
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The Bear Case on India (Part 1)

Posted: 27 Nov 2019 03:43 AM PST

This was written with Indians in mind, so some cultural references may not apply here

You can see this on my blog at: https://pradyuprasad.wordpress.com/2019/11/25/the-bear-case-on-india-part-1/

Here's why (same text):

Some famous international investors like Prem Watsa and Mohnish Pabrai have bought into the India Growth Story (IGS). I feel that the IGS is overhyped, and projections of India becoming an economic superpower are unlikely to happen unless major policy and cultural changes are in place.

When Prime Minister Modi was elected in 2014, there were projections that he would be India's Thatcher or Deng Xiaoping. These projections have been untrue. Economic growth in the country has slowed down with Q1 real GDP growth being at 5%, compared to 7.1% in 2018, and 8.2% in 2017. Unemployment according to the Center for Monitoring the Indian Economy a private sector company is 7.5% compared to 5.9% in 2018 and 5% in 2017. Worst of all, real consumption appeared to have declined by 3.7%, for the first time in 40 years according to a leaked report from the government.

India optimists like Bill Gates have said that the country has significant potential and can get millions out of poverty in the next few years. I disagree. I think that India is headed for stagnation of growth in the long run and the current slowdown is just the first step in it.

The contents of the IGS:

The history of the IGS can be traced back to a 2003 paper by Goldman Sachs and a 2000 analysis by the Brookings Institution. It said that with the right policies, India would be a country with ~$3500 GDP per capita in 2030 and $8124/capita in 2040.

Most proponents of the IGS believe that in the next 30 years or so India will have high (>8% real economic growth), will be an economic superpower with a billion and more consumers. This amazing country will benefit from a demographic dividend, from the 10 million Indians entering the job market every year who will find jobs, spend, save and invest. Another part of this story is that there will be massive fixed investment in roads, bridges, and others which will lead to more economic growth. I will now take down the first part of the IGS: the labour myth.

The labour myth: Jobs, people (and the lack thereof)

It is no secret that India is having trouble creating jobs now. Over the last year unemployment has shot up to 7.5% from 5.9% a year ago. The government attempted to hide this by stopping the release of the NSSO labour survey before the elections, which was leaked to the media.

A big part of the IGS is this:

Indians will enter the work force
Get jobs
Spend that money.

People? What people? It's only men here

Indians are not entering the workforce. In most developing countries, labour participation rates are between 60 and 80%. The 75th percentile is 67% LPR, and the median is 62%. But India is at at a low 51% (the 13th percentile) with its neighbors being Gabon and Suriname. None of the GS papers or the Brookings piece anticipated this. In a country full of young bright educated (or so they claim) youngsters over half of them stay at home and chose not to go to work.

See this photo: https://imgur.com/a/vYPOJdS

The standard objection to this is that India's young are educating themselves.They are building human capital for their future and so this should be excused. This shall be shown to be untrue later in this post series. The lack of participation of Indians from the workforce is not equal across the genders.

Almost 79% of males in the working age in India chose to look for a job, but only 21% of females do so. The male participation rate is within global norms but the female labour participation rate falls laughably short. In fact the only countries which do worse than India in this are Egypt, Morocco, Somalia, Iran, Algeria, Jordan, Iraq, Syria and Yemen. It is worth noting that 3 of those countries are undergoing wars -Yemen, Syria and Iraq, 2 of them have mass protests against the government – Iran and Egypt and Somalia has a joke of a government. India is among the worst globally here. But why does this indicator matter? After all who cares about this number?*

I think you should, if you care about the health of the Indian economy. If India were to have normal (~40%) labour participation rates with average incomes ($1900) each then there would be at least an approximate 156 billion USD** (6%) boost to the economy. Moreover around 80 million women are sitting at home when if we had better education, and social norms that allowed for it. You don't have to be a radical feminist to see what a waste this is to the economy. There are 80 million women at home, not working. They would if they were born in the US, Germany or Taiwan.

You should care because the demographic dividend may not even happen if half the country isn't participating in it. The projected 'dividend' isn't happening if half the country doesn't work.

*If that doesn't piss you off enough, here's this: Pakistan beats India by 1 percent. It has a female labour participation rate of 22%.

****My analysis is an ESTIMATE. This is a back of the envelope calculation. I'm not an economist.**67% of India is in the working age (15-64). That is 897 million people. 48% of these are women. That is 430 million women. Only 21% of these chose to participate in the labour market. That means that there are 90 million women in the labour market today. I'm going to assume they ged paid the per capita GDP rate which is 1900 USD. Which means if these women earn the average income, they earn 171 billion USD. If more (~40%) of women participated then we'd have 170 million women in the workforce. If they too get paid at the same pay they'd get make 327 billion USD. This is 156 billion USD more than what they are earning now. The India economy is 2.59 trillion USD. 156 billion is 6% of that. And this doesn't count for the multiplier effect from the spending, the fact that women usually spend more on their children (when given cash transfers) which means a higher long run growth rate, and the social effects of this (lower family violence, lower birth rates).

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Startups and Uncertainty

Posted: 27 Nov 2019 03:10 AM PST

submitted by /u/Beren-
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Contractual Complexity in Debt Agreements - The Case of EBITDA

Posted: 26 Nov 2019 05:58 AM PST

submitted by /u/Beren-
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Interesting doco on stock market mania in the lead-up to the tech bubble (featuring Iomega and lots of 90s Jim Cramer): "Betting on the Market" (Frontline, 1997)