Why Most Promoters Don’t Know the True Value of Their Own Companies

In public markets, we often assume promoters know their business best. They run it, they build it, and they see the numbers long before anyone else. Naturally, we imagine they also know the “true” value of their company.
But the reality is far more uncomfortable: most promoters themselves don’t know the actual value of their company — not in a precise, measurable, mathematical sense.

This is not a criticism; it is a structural truth of modern business.

In a world dominated by intangible assets—brand, software, intellectual property, customer networks, data—valuation has become less of a science and more of a probabilistic art. Even Benjamin Graham’s disciple and Columbia professor Bruce Greenwald, in Value Investing, points out that there are only three ways to calculate value:

  1. Breakup Value (Asset / Replacement Value)
  2. Earning Power Value (EPV)
  3. Growth Value

When we reinterpret these frameworks in today’s intangible-heavy environment, something surprising emerges:
only the present earnings and assets can be estimated with reasonable accuracy—growth cannot.

And because growth drives most of the modern market’s valuation, everyone is guessing—including promoters.

The Three Pillars of Value (Greenwald’s Framework)

Greenwald’s book is unique because it tries to bring mathematical structure to valuation. According to him, the value of a business comes from three buckets:

  1. Breakup Value (Asset Replacement Value)

This is the cost to rebuild the company from scratch.
For old-economy companies—steel, cement, manufacturing—this was easy.
Land + machinery + inventory = replacement cost.

  1. Earning Power Value (EPV)

This is the value of a company if it doesn’t grow at all.
It reflects current normalized profits divided by the cost of capital.

EPV = Adjusted Earnings / Cost of Capital

This bucket is also relatively predictable because current profits are visible.

  1. Growth Value

This is the value created only if profits grow in the future.
It depends on assumptions about:

  • future market size
  • competitive advantage durability
  • management execution
  • innovation
  • customer habits
  • macro trends

This is where everything becomes uncertain.

Why Only Two Buckets Make Sense in a High-Intangible World

In the modern world, intangibles—brand, R&D, network effects, code—drive most of the value. And these intangibles cannot be measured on a balance sheet. Accounting standards treat them as expenses, not assets.

Because of this:

  • Replacement value becomes almost impossible to calculate
    (What is the replacement cost of Google’s search algorithm? Of Netflix’s recommendation engine?)
  • Earning power value remains somewhat visible, because publicly listed companies report profits.
  • Growth value becomes the main and often the only real source of long-term value.

So effectively, the three buckets collapse into two:

Bucket 1: Today’s Profits (Earning Power + Intangible Replacement Cost)

This includes what the company is already earning and the intangible infrastructure it has built.

Bucket 2: Tomorrow’s Profits (Growth Value)

This is entirely uncertain—and this is where markets spend 80% of their time debating.

Which company will grow?
At what pace?
For how long?
With what competitive advantage?

No book can mathematically answer these. Even promoters cannot.

Why Promoters Themselves Cannot Predict Growth Value

Promoters know operations deeply, but future profits depend on variables that even they cannot fully control:

  1. Customer preferences change unpredictably

Example: BlackBerry
In 2008, its promoters believed email-based QWERTY smartphones were unbeatable.
Two years later, iPhone and Android wiped them out.

  1. Competition can disrupt faster than expected

Example: Zomato vs. Swiggy
Zomato’s early promoters admitted in interviews that they underestimated how aggressively Swiggy would expand using logistics-first strategy.

  1. Regulatory changes can rewrite entire industries

Example: India’s pharma price controls
Promoters cannot predict how future policy will impact margins or approvals.

  1. Global macro trends are outside anyone’s control

Example: IT services (TCS, Infosys, Wipro)
Their growth depends heavily on US and European demand cycles—something no promoter can predict accurately.

  1. Technology cycles have become extremely short

What looks like a moat today may be irrelevant tomorrow.

Therefore, growth value is not a fact — it’s a belief.

And beliefs vary wildly across investors.

Real-Life Examples: How the Same Company Has Different Values for Different People

Example 1: Tesla

  • In 2019, analysts valued it at $30–40 billion.
  • In 2021, markets valued it at over $1 trillion.
  • The factories were the same.
  • The tech was the same.
  • The only thing that changed was future belief, not current profits.

Even Elon Musk had once said he didn’t expect Tesla to be valued like a trillion-dollar business.

This is Greenwald’s “growth value” at its extreme: an idea being priced, not current earnings.

Example 2: Zomato (India)

When Zomato listed:

  • Revenues were growing
  • Profits were negative
  • Market size was still evolving

Analysts valued it anywhere between ₹30,000 crore to ₹90,000 crore.
Why such a wide range?
Because future profits, not present ones, were the debate.

Even Deepinder Goyal openly said:

“We don’t know when we will be profitable. But we know we will.”

That is not a valuation statement; it’s a belief statement.

Example 3: Asian Paints

In the 1980s and 1990s, promoters themselves did not forecast that the company would become a dominant 55–60% market share giant.
Their belief then was:

  • The paint market would be fragmented.
  • Multinationals would dominate.
  • Margins would remain moderate.

Yet Asian Paints built a logistics and supply-chain moat no one foresaw.
The “growth value” was invisible even to the founders.

Valuation in the Real World: Everyone Has Their Own Answer

Let’s suppose a company earns ₹500 crore profit.
The market globally values companies at 20–60 times earnings based on growth.

So:

  • Conservative investor might say: 20× = ₹10,000 crore
  • Optimistic investor might say: 40× = ₹20,000 crore
  • A believer might say: 60× = ₹30,000 crore

All three are correct based on their assumptions.

Valuation is not a fact—it is a narrative wrapped around current data.

The Market Ultimately Prices Perceived Growth, Not Current Earnings

If everyone knows today’s profits…
If everyone sees the same balance sheet…
If everyone reads the same annual report…

Then where does the difference come from?
From the stories we tell ourselves about tomorrow.

This is why:

  • HDFC Bank trades at a premium — belief in consistent growth.
  • ITC traded at low multiples for years — belief in slow growth.
  • DMart trades at massive premiums — belief in decades-long expansion runway.
  • Nykaa’s valuation crashed — belief in sustainable growth weakened.

Growth value is nothing but human expectation priced into a number.

  1. It reduces overconfidence

When even promoters—who know the business best—cannot accurately predict long-term profits, investors should avoid believing they can.
This humility prevents costly mistakes that come from overestimating one’s forecasting ability.

  1. It shifts focus to quality and durability of business

Instead of obsessing over future projections, investors begin to evaluate whether the company has a strong moat, stable cash flows, and the ability to survive competition.
Focusing on resilience, not predictions, leads to better long-term outcomes.

  1. It prevents you from overpaying for hype

Many IPOs and high-growth stories rely more on narratives than numbers.
Understanding valuation uncertainty helps investors avoid paying inflated prices for companies still proving their business model.

  1. It helps identify mispriced opportunities

When markets panic or react emotionally to short-term events, strong businesses can become temporarily undervalued.
Investors who understand how value is truly created can spot these moments and buy quality companies at discounts.

Conclusion: Value Is What You Believe, Not What You Know

Bruce Greenwald gave investors a structured framework.
But in today’s intangible world, the math only works for the present—
the future is always a guess.

So valuation has essentially become:

  • Bucket 1: What we know (today’s earnings)
  • Bucket 2: What we believe (future growth)

Promoters don’t know the company’s future value.
Investors don’t know it.
Analysts don’t know it.

Everyone just has a different belief.

And that is exactly why markets exist—
because one person thinks the stock is undervalued and another thinks it is overvalued.

Valuation is not a number. It is a marketplace of expectations.

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