I recently asked about the ethics of writing articles explaining how people applied the dark arts in practice. Hopefully, such an article would help people resist those dishonest approaches more than it would aid people in employing them.

So here you go: How to Pitch a Growth Stock: Cognitive Bias Edition. I'm not sure of what LW thinks about cross-posting in general, so here is just a highlight:

The key principle here is the conservation of conservativeness. You want an estimate for them that is both very large and sounds conservative. To do this, you take advantage of scope insensitivity and arbitrage between the TAM stage and the company-specific stage. By making the company-specific stages (market share, profit margin, valuation) sufficiently conservative sounding, you can get away with an aggressive TAM [Total Addressable Market] estimate while keeping the whole thing sounding conservative. Scope-insensitivity means you can increase the TAM estimate at a lower cost of conservativeness than you can the company-specific elements, so there are gains from trade.

So once you’ve multiplied your TAM, market share, profit margin and valuation, you come up with an estimate for what this company could be worth in the future. However, you now deny that this is an estimate. Instead, it’s just an idea of the size of the market – you don’t actually expect they’ll reach it. This explicit denial protects you against any accusations of over-optimism, but you’ve successfully primed your audience on a really high number. If market sentiment is a battle between greed and fear, you’ve helped the greed side.

And a crucial subtlety – that valuation that you didn’t make is what the stock might be worth in the future. Because of the time value of money, you would need to discount that back to get to a current valuation. Since it credibly might take 10 years for the market to mature, even with a moderate 10% discount rate your valuation should really take a 61% hit. But by denying it was a valuation, you’ve avoided this step.