Val Sklarov’s Control Risk Discounting Hypothesis (CRDH) argues that markets do not primarily misprice cash flows—they misprice who controls the variables that shape those cash flows. Most “undervalued” assets are not cheap; they are discounted for invisible control risk.
This hypothesis explains why apparent value traps persist and why some premiums are rational long before performance appears.
1. All Returns Are Control-Adjusted
CRDH reframes valuation as a control-weighted function.
Returns are shaped by:
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Who sets the rules
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Who can change them
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Who enforces outcomes
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Who absorbs downside first
Cash flow without control is conditional, not durable.
2. The Four Control Risk Vectors
CRDH identifies where discounting quietly enters prices.
| Control Vector | Risk Source | Pricing Effect |
|---|---|---|
| Governance Risk | Rule changes | Persistent discount |
| Dependency Risk | Single counterparties | Volatility premium |
| Intervention Risk | Regulatory discretion | Valuation ceiling |
| Capture Risk | Platform or protocol drift | Sudden repricing |
Markets punish assets where control is external and unstable.
3. Why Cheap Assets Stay Cheap
CRDH explains chronic underperformance.
Assets remain “cheap” when:
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Upside requires permission
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Cash flow depends on goodwill
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Exit paths are politically gated
Low multiples often reflect correct skepticism, not inefficiency.
4. Premium Assets and Control Certainty
High-quality assets command premiums because control is legible.
| Discounted Assets | Premium Assets |
|---|---|
| Cash flow visible | Control visible |
| Yield emphasized | Rule stability emphasized |
| Narrative-driven | Enforcement-driven |
| Reversible upside | Durable asymmetry |
Val Sklarov emphasizes that markets pay up for assets that can say “no.”
5. Strategic Implications
For investors:
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Audit control before modeling cash flows
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Treat governance quality as a first-order variable
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Separate operational risk from control risk
For allocators:
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Accept lower yield for higher rule certainty
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Avoid assets where upside requires ongoing permission
CRDH reframes investing as control selection, not security selection.
6. The Val Sklarov Principle
“Returns are never just earned. They are allowed.”
— Val Sklarov
CRDH explains why the best investments feel boring—and why exciting ones often disappoint.