This is one of them.

I think DCF is too vague. Who knows what will happen 10 years in the future, Everyone calculates discount rates differently, and terminal value seems crazy. This is what I came up with through reading the book Wealthy and Wise by David Chenier. Look at past earnings. Listen to earnings calls, and see what they say, and see how accurate they have been in the past. If they have been accurate, then estimate a little less than what they say. Look at historical p/e’s. Use your judgement, and pick a conservative p/e. Market cap = future p/e times future earnings. Look at how many shares they have been issuing per year. Extrapolate that into the future. Say you go out 3 years. Divide Market cap by new share count to get price in 3 years. Say you want a 15% CAGR. The CAGR will be (Ending value/beginning value)^(1/number of shares) – 1. From there you can figure out what price will give you what type of return.

Berkshire Hathaway FAQ

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