Valuations

Further to what was being said earlier, the paradign shift happening around the world has at the same time caused an upheaval in valuation of quite a number of assets as well.

The upheaval is as such: previous valuation method is predicated on cash flow and focused entirely on valuing the essence of present money; but in recent times, there is a shift towards monetizing the probability of political events.

This new paradigm takes into consideration the existence of a political economy as opposed to a political and an economic one. Therefore, previous methods takes into consideration valuing visible cashhflows and profits- and now it takes into consideration the impact of the larger social-political context that might impact future cash flow and profits. And it is largely true that we lived in a world where the economy and politic will find it difficult to be separated but the novelty also meant that any minute policy changes would have a knee jerk effect on the markets. This has caused to me, largely unjustified volatility in the markets as a result of some obscure policy announcements.

The political economy must be seen in the context of power structure and relations rather than policy movements. Taken into considerations of a political economy means finding out who gets what and when- and not changes in policy wordings. It is foolhardy to place influence onto an executive or politician whose job is not to safeguard the market but rather to that larger context- whom at most times have nothing to do with global markets.

It is also at the same time the cause of disjuncture in valuations in the global markets as a result of divergent views of various policies. One think it is good and the other think is bad- and this caused an schizophrenic effect almost ruining the science of investment and finance in the first place.

It is my view that previous methods in valuation remain rather robust and exhaustive in predicting valuations of assets- but it is in the art of predicting the impact of future events that remain elusive. And therefore in trying to rationalizing and determining largely I believed random future events would take more than analysing policy wordings but rather a studious understanding of how the world really works.

The biggest mistakes most of these models makes is trying to fit reality into categories and models as opposed to the other way round. And when I know your model, it would indeed easy to game it.

And you make the also the biggest mistake any smart person normally would make- by determining what is largely rather fluid aggregating parts.