Contrarian Valuation Insights and Questions Incorporating Bottom-up + Top-Down
I am trying to incorporate my macro understanding and views to enhance my bottom up valuations of equities.
At the market valuation level, it seems like a game of poker because you have to try and identify who are the biggest shareholders in the company and what are their goals - are they long termers or short termers - so it can help with anticipating the future supply and demand.
But at a macroeconomic level:
- it seems like there are essentially 4 main macro variables that directly affect a company's earnings: currency fluctuation, consumer prices, commodity prices, and interest rates. How would you guys incorporate these variables into your equity research valuation?
- Europe and the US are facing the same economic problem but with opposite approaches - austerity vs deficit spending. Which is the better approach? Isn't deflation a good thing because it induces savings, reduces debt, and ultimately spurs investments? And isn't inflation really just a hidden tax that encourages current consumption? It seems that all earnings should be adjusted to inflation and/or the risk free rate for more conservative valuations? Also what is the risk-free rate for a foreign company (like Portugal?)? Is it the government interest rate of that particular country or is it the US t-bill, or would using the government interest rate of the most debt-free, consistently growing country the more accurate interpretation of risk-free like Singapore or maybe Denmark?
- how does the buy side research report differ from the sell side? does anyone have reports?