How do you value an investment? A deep dive into the science, the art, and everything in between
20th March 2026
Valuation sits at the core of every investment decision, yet it remains one of the least precise areas of finance. Two experienced investors can look at the same asset and arrive at completely different conclusions. That is not a flaw in the system. It is the system.
This week, we are stepping back to examine how investments are actually valued, what different methods are trying to achieve, where they work, where they fail, and how the landscape is evolving.
This week, we are stepping back to examine how investments are actually valued, what different methods are trying to achieve, where they work, where they fail, and how the landscape is evolving.
What are we actually trying to measure?
At its simplest, valuation attempts to answer one question: what is this asset worth today relative to what it will deliver in the future?
That sounds straightforward, but it immediately introduces uncertainty. Future cash flows are unknown. Discount rates are subjective. Markets are influenced by human behaviour.
Valuation, therefore, is not about precision. It is about probability.
Traditional valuation methods and what they tell us
Most valuation techniques fall into a few broad categories.
Price-based ratios such as price-to-earnings (P/E), price-to-book (P/B), and price-to-sales (P/S) aim to give a relative measure. They answer questions like: how expensive is this company compared to its earnings or assets?
These are most useful when comparing similar businesses within the same sector. A low P/E in isolation does not mean “cheap”. It may simply reflect weaker growth prospects or higher risk.
Discounted cash flow (DCF) models attempt something more ambitious. They project future cash flows and discount them back to today using an assumed rate of return. In theory, this is the purest form of valuation.
In practice, small changes in assumptions can produce wildly different outcomes. A DCF is often less a precise valuation and more a structured way of thinking about the future.
Dividend yield and income-based approaches are more relevant for income-generating assets such as mature equities, bonds, and property. Here, the focus shifts from growth to sustainability and reliability of income.
For bonds, valuation is more mechanical. Yield to maturity, duration, and credit risk dominate. However, even here, market conditions and sentiment can distort pricing significantly.
At its simplest, valuation attempts to answer one question: what is this asset worth today relative to what it will deliver in the future?
That sounds straightforward, but it immediately introduces uncertainty. Future cash flows are unknown. Discount rates are subjective. Markets are influenced by human behaviour.
Valuation, therefore, is not about precision. It is about probability.
Traditional valuation methods and what they tell us
Most valuation techniques fall into a few broad categories.
Price-based ratios such as price-to-earnings (P/E), price-to-book (P/B), and price-to-sales (P/S) aim to give a relative measure. They answer questions like: how expensive is this company compared to its earnings or assets?
These are most useful when comparing similar businesses within the same sector. A low P/E in isolation does not mean “cheap”. It may simply reflect weaker growth prospects or higher risk.
Discounted cash flow (DCF) models attempt something more ambitious. They project future cash flows and discount them back to today using an assumed rate of return. In theory, this is the purest form of valuation.
In practice, small changes in assumptions can produce wildly different outcomes. A DCF is often less a precise valuation and more a structured way of thinking about the future.
Dividend yield and income-based approaches are more relevant for income-generating assets such as mature equities, bonds, and property. Here, the focus shifts from growth to sustainability and reliability of income.
For bonds, valuation is more mechanical. Yield to maturity, duration, and credit risk dominate. However, even here, market conditions and sentiment can distort pricing significantly.
Different assets, different frameworks
One of the most common mistakes in investing is applying the wrong valuation framework to the wrong asset.
Growth equities often appear expensive on traditional metrics because their value lies in future potential rather than current earnings. Early-stage technology companies are a classic example.
Value equities, on the other hand, may screen as cheap but remain so for extended periods if the underlying business is structurally challenged.
Property is often valued using income multiples and comparable transactions. Commodities tend to be driven more by supply and demand dynamics than traditional valuation models.
Gold has historically sat in a unique position. It produces no income, so valuation is largely relative. It is often assessed through real interest rates, currency debasement, and its role as a store of value.
Different ways to look at stocks: styles and philosophies
Beyond valuation ratios, there are fundamentally different ways investors approach equities. These are not just techniques, but philosophies that shape how opportunities are identified.
Value investing focuses on buying assets that appear undervalued relative to fundamentals. This is the traditional approach associated with metrics such as low P/E or P/B ratios. The underlying belief is that markets misprice assets in the short term, but revert to fair value over time.
Growth investing takes almost the opposite stance. Investors are willing to pay higher multiples for companies expected to grow earnings rapidly. Here, valuation is secondary to future potential. Many of the largest technology companies have historically sat in this category.
Momentum investing is based on the idea that trends persist. Assets that have performed well continue to perform well, at least over certain timeframes. This approach is less concerned with intrinsic value and more focused on price behaviour and market psychology.
Quality investing prioritises companies with strong balance sheets, consistent earnings, and durable competitive advantages. These businesses may not always appear cheap, but they tend to demonstrate resilience across market cycles.
Income investing focuses on yield. This is common in dividend-paying equities, REITs, and certain structured products. The key risk here is not just valuation, but sustainability of the income stream.
Factor investing attempts to systematise these approaches, identifying persistent drivers of return such as value, momentum, size, and quality, and building portfolios around them.
No single approach consistently outperforms in all environments. Markets rotate. Value can lag for years before recovering. Growth can dominate until interest rates rise. Momentum can reverse sharply.
This reinforces a key point. Investment success is rarely about selecting a single “correct” style. It is about understanding how different approaches behave and ensuring portfolios are positioned accordingly.
The rise of alternative frameworks
As markets evolve, so do valuation methods.
The emergence of intangible-heavy businesses has reduced the usefulness of book value. Companies today derive value from software, networks, and intellectual property rather than physical assets.
Network-based valuation models have become more prominent, particularly in technology. Metrics such as user growth, engagement, and platform dominance are often more relevant than short-term profitability.
This evolution is not accidental. Markets adapt. When a valuation method becomes widely adopted, its edge diminishes. This is a form of financial natural selection.
If everyone uses the same model, prices will quickly reflect it. New approaches emerge to exploit what others are missing.
One of the most common mistakes in investing is applying the wrong valuation framework to the wrong asset.
Growth equities often appear expensive on traditional metrics because their value lies in future potential rather than current earnings. Early-stage technology companies are a classic example.
Value equities, on the other hand, may screen as cheap but remain so for extended periods if the underlying business is structurally challenged.
Property is often valued using income multiples and comparable transactions. Commodities tend to be driven more by supply and demand dynamics than traditional valuation models.
Gold has historically sat in a unique position. It produces no income, so valuation is largely relative. It is often assessed through real interest rates, currency debasement, and its role as a store of value.
Different ways to look at stocks: styles and philosophies
Beyond valuation ratios, there are fundamentally different ways investors approach equities. These are not just techniques, but philosophies that shape how opportunities are identified.
Value investing focuses on buying assets that appear undervalued relative to fundamentals. This is the traditional approach associated with metrics such as low P/E or P/B ratios. The underlying belief is that markets misprice assets in the short term, but revert to fair value over time.
Growth investing takes almost the opposite stance. Investors are willing to pay higher multiples for companies expected to grow earnings rapidly. Here, valuation is secondary to future potential. Many of the largest technology companies have historically sat in this category.
Momentum investing is based on the idea that trends persist. Assets that have performed well continue to perform well, at least over certain timeframes. This approach is less concerned with intrinsic value and more focused on price behaviour and market psychology.
Quality investing prioritises companies with strong balance sheets, consistent earnings, and durable competitive advantages. These businesses may not always appear cheap, but they tend to demonstrate resilience across market cycles.
Income investing focuses on yield. This is common in dividend-paying equities, REITs, and certain structured products. The key risk here is not just valuation, but sustainability of the income stream.
Factor investing attempts to systematise these approaches, identifying persistent drivers of return such as value, momentum, size, and quality, and building portfolios around them.
No single approach consistently outperforms in all environments. Markets rotate. Value can lag for years before recovering. Growth can dominate until interest rates rise. Momentum can reverse sharply.
This reinforces a key point. Investment success is rarely about selecting a single “correct” style. It is about understanding how different approaches behave and ensuring portfolios are positioned accordingly.
The rise of alternative frameworks
As markets evolve, so do valuation methods.
The emergence of intangible-heavy businesses has reduced the usefulness of book value. Companies today derive value from software, networks, and intellectual property rather than physical assets.
Network-based valuation models have become more prominent, particularly in technology. Metrics such as user growth, engagement, and platform dominance are often more relevant than short-term profitability.
This evolution is not accidental. Markets adapt. When a valuation method becomes widely adopted, its edge diminishes. This is a form of financial natural selection.
If everyone uses the same model, prices will quickly reflect it. New approaches emerge to exploit what others are missing.
Bitcoin and the challenge to traditional valuation
Few assets have challenged conventional thinking more than Bitcoin.
It has no cash flows, no balance sheet, and no traditional yield. Applying a DCF model is meaningless.
Instead, Bitcoin has forced investors to think in terms of monetary properties. Scarcity, decentralisation, security, and adoption become the key drivers.
Frameworks such as stock-to-flow, network value to transactions (NVT), and comparisons to gold as a store of value have emerged. None are perfect, but they reflect a shift away from traditional equity-style valuation.
For many, Bitcoin is less about valuation in the traditional sense and more about positioning within a broader monetary transition.
New instruments, new questions
Innovation is not limited to new asset classes. It is also reshaping existing ones.
Products such as Strategy’s STRC preferred stock blur the lines between equity and fixed income. They introduce elements of yield, equity exposure, and structural complexity.
This raises important questions. How should such instruments be valued? Are they closer to bonds, equities, or something entirely new?
Traditional fixed income analysis may not fully capture the embedded risks. Equity-style analysis may overlook the income characteristics.
These hybrid structures are becoming more common, and they require a more nuanced approach to valuation.
Risk and return: the role of theory
Modern Portfolio Theory (MPT) brought structure to the relationship between risk and return.
It introduced the concept of diversification, efficient frontiers, and the idea that investors should optimise portfolios rather than focus on individual assets in isolation.
While widely used, MPT is not without limitations. It relies on assumptions such as normal distribution of returns and stable correlations, which do not always hold in real markets.
Behavioural finance has added another layer, recognising that investors are not always rational. Emotions, biases, and herd behaviour play a significant role in pricing.
More recent approaches, such as factor investing, attempt to systematically capture sources of return such as value, momentum, and quality.
Each framework provides a lens. None provide a complete picture.
Active vs passive: the valuation paradox
One of the most interesting developments in recent decades has been the rise of passive investing.
Index funds do not attempt to value individual securities. They simply track the market.
The data is clear. Over longer time periods, the majority of active managers struggle to outperform their benchmarks after fees.
This raises a paradox. If active managers are responsible for price discovery, but passive flows dominate capital allocation, how efficient are markets really?
In reality, both play a role. Active managers set prices at the margin. Passive investors provide scale and cost efficiency.
For investors, the key question is not which is “better” in isolation, but how each fits within a broader strategy.
Few assets have challenged conventional thinking more than Bitcoin.
It has no cash flows, no balance sheet, and no traditional yield. Applying a DCF model is meaningless.
Instead, Bitcoin has forced investors to think in terms of monetary properties. Scarcity, decentralisation, security, and adoption become the key drivers.
Frameworks such as stock-to-flow, network value to transactions (NVT), and comparisons to gold as a store of value have emerged. None are perfect, but they reflect a shift away from traditional equity-style valuation.
For many, Bitcoin is less about valuation in the traditional sense and more about positioning within a broader monetary transition.
New instruments, new questions
Innovation is not limited to new asset classes. It is also reshaping existing ones.
Products such as Strategy’s STRC preferred stock blur the lines between equity and fixed income. They introduce elements of yield, equity exposure, and structural complexity.
This raises important questions. How should such instruments be valued? Are they closer to bonds, equities, or something entirely new?
Traditional fixed income analysis may not fully capture the embedded risks. Equity-style analysis may overlook the income characteristics.
These hybrid structures are becoming more common, and they require a more nuanced approach to valuation.
Risk and return: the role of theory
Modern Portfolio Theory (MPT) brought structure to the relationship between risk and return.
It introduced the concept of diversification, efficient frontiers, and the idea that investors should optimise portfolios rather than focus on individual assets in isolation.
While widely used, MPT is not without limitations. It relies on assumptions such as normal distribution of returns and stable correlations, which do not always hold in real markets.
Behavioural finance has added another layer, recognising that investors are not always rational. Emotions, biases, and herd behaviour play a significant role in pricing.
More recent approaches, such as factor investing, attempt to systematically capture sources of return such as value, momentum, and quality.
Each framework provides a lens. None provide a complete picture.
Active vs passive: the valuation paradox
One of the most interesting developments in recent decades has been the rise of passive investing.
Index funds do not attempt to value individual securities. They simply track the market.
The data is clear. Over longer time periods, the majority of active managers struggle to outperform their benchmarks after fees.
This raises a paradox. If active managers are responsible for price discovery, but passive flows dominate capital allocation, how efficient are markets really?
In reality, both play a role. Active managers set prices at the margin. Passive investors provide scale and cost efficiency.
For investors, the key question is not which is “better” in isolation, but how each fits within a broader strategy.
So what makes a “good” investment?
A good investment is not defined solely by valuation.
It is a combination of:
An asset can appear “cheap” and still perform poorly. It can appear “expensive” and continue to outperform.
Valuation informs decisions, but it does not determine outcomes.
The Brigantia perspective
At Brigantia, we do not rely on a single valuation framework or attempt to predict short-term market movements.
Our focus is on building structured, diversified portfolios aligned with long-term objectives.
We recognise that valuation is an evolving discipline. Different assets require different approaches. Markets adapt, and so must investors.
This is why financial planning sits at the centre of what we do. Cashflow modelling, scenario analysis, and ongoing review allow us to move beyond isolated valuation metrics and focus on outcomes.
Ultimately, successful investing is not about finding the perfect model. It is about applying sound principles consistently over time.
If you would like to review how your current portfolio is positioned, or how different valuation approaches impact your investments, you can book an initial consultation with us below:
A good investment is not defined solely by valuation.
It is a combination of:
- Alignment with your objectives
- Appropriate level of risk
- Reasonable expectations of return
- Diversification within a wider portfolio
- Discipline in execution and ongoing management
An asset can appear “cheap” and still perform poorly. It can appear “expensive” and continue to outperform.
Valuation informs decisions, but it does not determine outcomes.
The Brigantia perspective
At Brigantia, we do not rely on a single valuation framework or attempt to predict short-term market movements.
Our focus is on building structured, diversified portfolios aligned with long-term objectives.
We recognise that valuation is an evolving discipline. Different assets require different approaches. Markets adapt, and so must investors.
This is why financial planning sits at the centre of what we do. Cashflow modelling, scenario analysis, and ongoing review allow us to move beyond isolated valuation metrics and focus on outcomes.
Ultimately, successful investing is not about finding the perfect model. It is about applying sound principles consistently over time.
If you would like to review how your current portfolio is positioned, or how different valuation approaches impact your investments, you can book an initial consultation with us below:
