The AI (ChatGPT) Stock Investing Handbook: Gordon Growth Model

Here is the response from ChatGPT for the prompt growth model entered on January 11, 2023

The Gordon Growth Model, also known as the Gordon-Shapiro Model, is a financial model used to estimate the intrinsic value of a stock based on its dividends. The model assumes that a stock's dividends will grow at a constant rate, and that the stock's price will be equal to the present value of its future dividends. The model is based on the following equation:

P = D / (r - g)

Where: P = stock price D = current annual dividend r = required rate of return (also known as the discount rate) g = constant growth rate of dividends

The Gordon Growth Model is widely used in finance and is considered to be a simple and intuitive way to estimate the intrinsic value of a stock. However, it does have some limitations. For example, it assumes that dividends will grow at a constant rate, which may not always be the case in reality. Additionally, it does not take into account other factors that may affect a stock's price, such as changes in interest rates, economic conditions, and market sentiment.

It's important to note that the Gordon Growth Model is a theoretical model and should be used as a reference point, not a definite value. Other factors such as company's future prospects, the industry and the overall market conditions should be considered when making a decision to invest in a stock.

Dividend Discount Model Two Stage Dividend Discount Model


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