This was interesting, especially with the DCF example at the end - it’s pertinent to business sell decisions (assuming your ownership structure allows you to make a decision) should I sell at an 8x multiple of revenue, or hold at an X% growth rate and Y% cash flow? What’s my net after 10 years?
The point of Jensen’s inequality if I understand correctly is that you’d underestimate the value of holding using a basic estimate approach, because you’ll underestimate the compounding cash flow from growth?
It depends on whether future returns increase. One tends to draw the optimistic version of Jensen’s inequality (and in general, of convex curves), but it also applies to decreasing functions.
The point of Jensen’s inequality if I understand correctly is that you’d underestimate the value of holding using a basic estimate approach, because you’ll underestimate the compounding cash flow from growth?