Thursday 1 December 2005
Legendary investor Warren Buffet said it couldn't be done but University of Queensland PhD student Jason Hall says there is a way to value tech stocks.
Hall, who will graduate on 16 December, said tech stocks were notoriously hard to value.
He said, "Stock in a company with a highly technical product or service offering is hard to value, especially since many don't make a profit initially - and some may even be losing money."
"Typically, equity analysts are forced to rely on some kind of rule of thumb to come up with a valuation."
Hall said his thesis explored how measures of volatility, growth, and competitive advantage could be used to arrive at a realistic valuation.
Hall has already graduated once from the University of Queensland Business School, earning a Bachelor of Commerce (Honours) in 1996. He then worked for Credit Suisse First Boston for three years before enrolling in his PhD in 2001.
He said, "Working in the finance sector, the absence of a sound approach to valuing tech stocks became obvious."
PhD supervisor Professor Steve Gray said he expected Hall's research to be immediately useful to equity analysts.
He said, "Finance is an area where there is constant movement from industry to universities and back again because our research is always focused on solving problems or finding better ways to do things."
"Jason Hall is a classic example - after three years in industry, he came on board with UQBS in 2001 as a student and staff member and could now slip seamlessly into another industry role.
"My hope is that he will stay in academia at least for a while as I believe he has a tremendous amount to offer our students."
Gray said Warren Buffett believed you could test a finance MBA with just one question - how do you value a tech stock?
He said, "Buffet said anyone who answered would automatically fail because there simply wasn't a credible way to do it."
"Thanks to Jason, there is now."
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