“Warren talks about these DCF models. I’ve never seen him do one.”
-Charlie Munger
One major defect of discounted cash flow models is that they draw attention away from the enterprise as a whole—involving certain magnitudes of sales, profits and invested capital. My observation has been that the basing of investment upon DCF valuations will on average not yield satisfactory results, when you take a census of operations over many years and including many companies. (One criticism that I have to offer of the Wall Street approach—which applies to security analysts, investment companies and everybody else—is that so little effort is made to keep track of what has happened in the large number of analyses that have been made year after year—how they actually worked out.)
[...] Earning Power & Market Valuation Discounted Cash Flow Method Defective Net Working Capital Strategy: Historical Perspective Statistical Bargains: Historical Perspective [...]