Ben Waber reviewed Stochastic Discounted Cash Flows by Lutz Kruschwitz
A Rigorous Review
3 stars
This book reviews a particular method for valuing firms, one that prioritizes mathematical elegance and the primacy of financial data over all else. This is still the basis of nearly all valuation today, and from that perspective reading this book is important for those who want to get a handle on the fundamentals. There's quite a bit of math here, and a background in basic accounting principles and corporate finance will be helpful. Reading this also makes clear how brittle the field is - valuation is of course an empirical question, not a mathematic one. While the authors do present plausible theories for why one should incorporate certain information into valuations, there's literally zero validation. For those familiar with the field this is unsurprising, but given the growing power of data in every other field it is incredible that this otherwise data-hungry discipline would forget all of those lessons when …
This book reviews a particular method for valuing firms, one that prioritizes mathematical elegance and the primacy of financial data over all else. This is still the basis of nearly all valuation today, and from that perspective reading this book is important for those who want to get a handle on the fundamentals. There's quite a bit of math here, and a background in basic accounting principles and corporate finance will be helpful. Reading this also makes clear how brittle the field is - valuation is of course an empirical question, not a mathematic one. While the authors do present plausible theories for why one should incorporate certain information into valuations, there's literally zero validation. For those familiar with the field this is unsurprising, but given the growing power of data in every other field it is incredible that this otherwise data-hungry discipline would forget all of those lessons when it comes to their most important calculation