All,
I have been doing some light bedtime reading with the text: “Modern Portfolio Theory and Investment Analysis” 9th Edition.
Here is the Amazon Link: Modern Portfolio Theory and Investment Analysis
I found the the Discounted Dividend Model (DDM) is alive and well. You can find it in the text using the single-period and multiple-period methods.
We have gotten some good advice about the DDM in the forum.
But equal time is supplied in the text for “Cross-sectional Regression Analysis.”
From this section:
“Although DCF models are enjoying a rapidly increased popularity in the investment community, they have been adopted by only a small fraction of the practicing security analysts.”
And this:
“Still another approach is to take the broad determinants of common stock prices, earnings, growth, risk, time value of money, and dividend policy and to measure these and weight them together in some manner to form an estimate of the P/E ratio. This section reviews one way to do this. We discuss the use of cross-sectional regression analysis to define the weights the market places on a set of hypothesized determinants of common stock prices.”
In other words what we do here at P123 is very-much mainstream. More mainstream than DCF models according to this text.
Unlike regression analysis, P123’s method requires manual optimization but they are basically the same method. Regression is a machine learning method that provides automated optimization (or you can read some old texts and do the regression equations on a chalk board if you prefer).
Best,
Jim