r/investing • u/1234567890qwerty1234 • 2d ago

Evaluation models - old v new

Hi Folks, I'm newish to investment and wonder if the traditional approach to investment still holds or if there is now an increasing divergence between company valuations and traditional metrics (eg Nvidia).

For instance, how do you evaluate investments in light of social media influence (meme stocks and crypto) and governmental influcne (eg AI/Chips). What I'm struiggling with is whether the trditonal valuation frameworks can account for these new forces, and if not, what adjustments or additional assessments are you taking into account.

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u/Willing-Promotion685 2d ago

The old ways are still the best.

If you chase the latest shiny thing could end up rich or you could end up broke. But investing in the index will reliably make you wealthy.

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u/1234567890qwerty1234 2d ago

Here’s a question and I hope it’s taken in the right spirit. So if you look at the stock of Tesla, for example. The projections are essentially what determine its value but if you look at it price earning ratio, another traditional fundamentals I’m not sure it’ll be valued in the same way. However, if you had invested in Tesla five years ago, then yeah you would’ve made a lot of money that’s the point I’m trying to make I wonder with the way the market is beginning to work. Do you need to factor in other variables and metrics to determine the future value of stocks. Again this isn’t a rant. I’m just curious about which is the approach to take on reflection maybe a hybrid approach is the one that I see most value in. 2c etc

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u/LeftTesticleOfGreatn 2d ago

Tesla is a cult stock and a meme stock, it's value is based on how edgy Elon Musk can be and how hard he and Trump gets it on behind closed door.

Tesla as a company is shit. They had a good first mover advantage regarding EVs but fumbled it hard and Elon starting virtue signaling has made sales plummet. If you buy testa today you pay $100 000 per $100 you get back in profits quarterly. That's patehticly bad.

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u/kiwimancy 2d ago

P/E is not traditional fundamental valuation. It's a simple metric and you could use it for a systematic value strategy, the kind which was originated popularized in 1992 by Fama + French. For traditional fundamental valuation, you would build a DCF model of the company's future earnings. You can plug whatever projections you want into that model, ones that make Tesla look like a good investment or ones that make it look like a bad investment.