[xcasperx]

This is assuming a (or near) 100% efficient market. Which it definitely is not.

Analysts use different methods to discount cash flows: https://www.investopedia.com/articles/professionals/072915/d...

Finding R (what to discount by) can be difficult to do: https://www.investopedia.com/articles/investing/021015/advan...

I don't work in IB or PE so take what I put with a grain of salt, just what I've learned.

Also, you know markets aren't near efficient when people invest in $ZOOM and not $ZM and when Elon tweets $TSLA stock is too high.

You can look at daily gainers and losers and watch them over the course of the week. They are extremely volatile.

If you're talking about the S&P500 it's a little easier to do. A little over 50% of the value of S&P 500 is the top 50 companies by weight. The top 100 equate to 70% and the top 250 equate to 90%.

[tfehring]

There's a pretty good technical illustration of how the discount rate impacts stock prices here [0].

This does provide one plausible answer to the headline question from TFA: Corporations' expected future profits are lower than they were pre-COVID, but the valuation discount rate is lower because the expected future return for assets in general is lower, so the present value of corporations' expected future profits is the same-ish as it was pre-COVID.

[0] https://johnhcochrane.blogspot.com/2018/02/stock-gyrations.h...