A reader sent me the link to an article claiming that National Oilwell Varco (NOV) was overvalued by thirty percent, and asked me what I thought. The article was one of thousands like it churned out hourly by the investing-industrial complex. In a nutshell, its argument ran like this:

  • Oil price collapse has had a huge knock-on effect on National Oilwell?s revenues and profits (as measured by earnings before interest, taxes, depreciation and amortization ? EBITDA).
  • The second half of 2015 would be ?hideous? due to impending demand shocks.
  • Modeling EBITDA for the remainder of 2015 and applying an appropriate multiple to it (5.0 times) generates a value of $30 / share ? roughly 30% below today?s stock price.

Reading this article, I suddenly realized why so many people are confused about value investing. [Continue reading on Forbes…]