Date of Completion

Spring 5-1-2015

Thesis Advisor(s)

Paul Borochin

Honors Major

Finance

Disciplines

Finance and Financial Management | Portfolio and Security Analysis

Abstract

In finance, there are several overarching schools of thought when viewing equity prices in the stock market, such as technical and fundamental analysis. I find the most enjoyment in quantitative matters, so naturally most of my experience with the stock market includes fundamental analysis. Proponents of this methodology purport that there is a true value of a security based on its financials, and that it will trade around that number eventually. Perhaps the most successful investor who uses fundamental analysis is Warren Buffett. Specifically, he believes in valuing a company’s equity by gauging their cash flows and projecting how they will grow. Buffett’s theoretical style of valuation is taught at the University of Connecticut by Professor Pat Terrion, who knows him personally and manages money using similar methodologies. In this paper, I test this valuation method using information from 30 companies (mainly the Dow 30) around the end of the Dot Com bubble. I then compare my results with how the securities actually traded in one, five, ten, and 16-year time horizons. All of this was geared to answering the question; how reliable is this method in determining the ultimate trading price of the companies?

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