Don’t Let Valuation Models Fool You: Think Like a Business Owner

#Issue 27 The One Question That Matters More Than Any Financial Model

Most people think investing is all about complex valuation models—DCF, terminal value, WACC, and so on. But the truth is, these are just tools. And tools are only useful if you know how and when to use them.

In reality, the most powerful valuation tool is common sense.

Ask yourself a simple question:

“Would I be happy to buy this entire business and own it for the rest of my life at this price?”
If the answer is yes, then you’re valuing the business the right way—like an owner, not an analyst.

When you think like an owner, you don’t get distracted by fancy formulas. You try to understand the business deeply:

• Where does the money come from?

• How predictable are the profits?

• Does it need a lot of money to grow?

• Is that money needed once or again and again?

Without understanding the business, no model will help you. You’ll just keep changing numbers and getting different results. One day your model says it’s undervalued, the next day it looks expensive—and all because you changed a few assumptions.

Why Simple Thinking Wins

Here’s something powerful: if someone doesn’t know how to use a complex model like DCF, they might actually have an advantage. Why? Because they can’t fool themselves with numbers.

If you know DCF too well, you might end up twisting the numbers to justify what you already want to believe. That’s dangerous. As the quote says:
“The last level of deceit in life is deluding yourself.”
Once you start lying to yourself, there’s no going back.

Final Thought

You don’t need to be a finance expert to value a business well. You just need to understand the business clearly and think long-term. Keep it simple. Don’t play games with numbers. Don’t trick yourself.

And always ask:
“Would I buy the whole business at this price?”
If the answer is yes, you’re on the right track.

Happy Weekend!

With Love,

Priyank

Want to Think Like an Owner? Read These

If you’re trying to build real investing sense—not just memorize models—here are a few books that can really help:

1. The Little Book of Common Sense Investing by John Bogle
   Teaches why owning the whole market through low-cost index funds often beats active stock picking. Great for building discipline.

2. One Up on Wall Street by Peter Lynch
   Shows how to spot good companies just by observing your day-to-day life. Investing can be simple if you pay attention.

3. The Dhandho Investor by Mohnish Pabrai
   Focuses on low-risk, high-return bets and thinking like a business owner. Super simple and full of practical wisdom.

4. The Essays of Warren Buffett (compiled by Lawrence Cunningham)
   A masterclass on treating stocks like pieces of real businesses. Read this if you want to sharpen your long-term thinking.

5. Common Stocks and Uncommon Profits by Philip Fisher
   Goes deeper into understanding business quality and the role of management. Timeless lessons, even today.

6. Simple But Not Easy by Richard Oldfield
   A lesser-known gem that reminds you investing is more about patience and mindset than predicting the next quarter.

If you read even 2 of these, your way of looking at stocks will change forever.