A few years ago, Mark learned the same valuation methods that we studied in this unit. He decided to put his knowledge in practice and used the constant growth dividend discount model to value one company. Mark concluded that the company was undervalued and bought shares of the company.

After a while, the company’s price did not move toward the value he found. As a matter of fact, contrary to what he expected, the price of the company went down. He finally cried: Oh, If I only knew the true value of the company, I would not have lost money!

Why do you think Mark’s valuation did not work out well? Explain.