Warren Buffett has pointed out that the conceptual roots of the DCF analysis stretch back to Aesop, who shared this evergreen valuation philosophy in The Hawk and the Nightingale.

A Hawk catches a Nightingale, and as the smaller bird pleads for its life, it suggests the Hawk could let it go and hunt larger prey that will make for a more satisfying meal.

The Hawk replies:

“I should indeed have lost my senses if I should let go food ready to my hand, for the sake of pursuing birds which are not yet even within sight.”

Said another way: “A bird in the hand is worth two in the bush”.

To apply Aesop’s fable, an investor must answer three questions:

• What is the certainty that there are birds in the bush?

• When will they emerge, and in what quantity?

• What is the risk-free interest rate for discounting those future arrivals back to the present?