Show me the dividends: A review of the dividend discount model.

Today I am review the dividend discount models. This is the start of an extensive review on how the intrinsic value of a stock is estimated. The basic dividend discount model seems to be the most simplified variation. To the best of my understanding states that the stock price should equal the present value of all future dividend payments plus the final sales price (or perpetuity if you are never planning to sell.).

(Imagine an equation here as soon as I find away to add equations on blogger)

The recurring problem you will find with this and any of the valuation models is that you must accurately estimate future dividends, present value on a future sell date and the market capitalization rate. Any slight error in any three estimates can lead to a noticeable deviation from your calculated intrinsic value and the actual intrinsic value. Any determination on whether a stock is under valued or overpriced will be incorrect.

Equity Valuation Models: I have to start somewhere

So my plan was to jump head first into studying for my Series 24 but that has been delayed by situations outside of my control. But... I need to keep learning and growing. So I amended my plans. I will still keep toward my goals. Although this admittedly makes them more challenging (which I actually invite). After some soul searching and some analysis on where I stand knowledge wise I have added ANOTHER item to the list. Last year I studied Equity Valuation Models briefly. I throughly enjoyed learning about dividend discount models but after going over the items that previously studied I realized I still did not have a firm grasp with the concepts of valuation models. So I have decided to not only review everything I studied but also go more in depth with greater rigor on the subject. I feel like learning this will be invaluable and because I enjoyed it previously I hope the new academic rigor will reignite the passion. So with further ado I start with Book Value.

Back to the Basics: Setting goals for 2010

2010 is a big year for me personally with my upcoming marriage to my beautiful fiancee. So I have been racking my brain to map out ways to make it a big year professionally. So I set out some goals to help me improve my financial expertise. I wanted my goals to be SMART Specific, Measurable, Relevant, and Timely. So here they are.

1. Study, take and pass Series 24 by June

2. Study, take and pass Series 66 by December

2. Study, take and pass CFA Level 1 Exam by the end of the year

3. Write a fiction/finance book by December

4. Finish reading a book per month.

Now this seems daunting and some may say unrealistic. But I have always been one to say if I aim for excellence even if I fall short I will hit pretty damn good. 2010 is a year for growing both personally and career wise. I want to prove that I can achieve both.