“Aswath Damodaran Says “Go Back to Basics” Regarding Valuations

In a speech he delivered at this year’s CFA Institute Annual Virtual Conference, NYU finance professor Aswath Damodaran said, “It is precisely times like these that matter most. You need to go back to the first principles of valuation. Everything I have learned about valuation has been in the context of a crisis.” He advised investors to stick with traditional valuation tools “with adjustments for the pandemic,” sharing the results of his analysis of more… Read More

Interview with Aswath Damodaran

In an interview with the Economic Times, NYU Stern Business School finance  professor Aswath Damodaran shared his views on the current market environment and plight of active management. Here are highlights of his comments: While the last decade has been a remarkable one for U.S. equities, Damodaran points out that compared to the last 8 decades, it “falls right in the middle” and in fact was the fourth best performing decade among the last nine.… Read More

Damadoran on the Dilemma of Disruption

At the 2019 CFA Institute Equity Research and Valuation Conference, NYU finance professor Aswath Damadoran spoke about disruption and the challenge associated with valuing disruptors. “As human beings, we don’t like to deal with uncertainty,” he said, adding that we typically respond with either prayer, denial, heuristics, herding behavior, or by outsourcing to experts. For investment professionals, however, Damadoran argues that the “disruption dilemma” goes much deeper because it brings uncertainty into “every number that… Read More

Corporate Debt and the Fallout from Rising Rates

The potential for and timing of an interest rate hike is the source of endless speculation and presents several layers of potential fallout for highly leveraged companies, according to Validea CEO John Reese. In a recent article for The Globe and Mail, he discusses the various factors at play. A wall of maturities: Rising rates could jolt the bond market. Jeffrey Gundlach of DoubleLine has said that “hundreds of billions” of corporate and high-yield bonds… Read More

The Weakest Link in Today’s Market

Expending more than you take in works for a diet, but it doesn’t for the stock market. That’s the upshot of a recent Wall Street Journal article by Steven Russolillo, who writes that today’s ultra-low interest rate market is allowing share prices to “stay higher for longer than under more normal circumstances.” What could “end this game” he argues, is the amount of cash companies are paying out to investors–which is now exceeding the earnings… Read More

Key Pillar of the Market – Share Buybacks – Could be at Risk

Rock-bottom interest rates allow the market to stay higher for longer than it would otherwise, writes Steven Russolillo in this week’s Wall Street Journal. One factor that could end the party, however, is the amount of cash companies are paying out to investors. Not surprisingly, robust dividend payments and buybacks are big draws for investor dollars. However, the article quotes New York University professor Aswath Damodaran as saying, “This is the weakest link in the… Read More

Investing Internationally: Countries or Companies?

The topic of global investing through allocating country risk was addressed in a recent CFA Institute interview with NYU finance professor Aswath Damodaran. While the goal of this approach is to minimize risk through maximizing diversified country exposure, Damodaran believes that much of it is misguided. “Here’s the strange thing: You don’t even have to leave your domestic market if you’re an American or a European to get country risk exposure.” He asserts that, by just… Read More

Margin of Safety: How Misconceptions Could Hurt You

NYU finance professor Aswath Damodaran focuses on myths associated with the concept of “margin of safety” (MOS) in a recent post on his Musings on Markets blog. MOS is thought of as a tool for value investors to protect themselves against uncertainty. Ben Graham brought the term into value investing and Seth Klarman has argued that investors gain the margin of safety by “buying at a significant discount to underlying business value and giving preference… Read More

NYU Prof, Damodaran, on Price vs. Value: Reading Earnings Reports

NYU finance professor Aswath Damodaran writes in the blog Musings on Markets about “the pricing and value game and how they play out, especially around earnings season.” Contrasting the two concepts, Damodaran says that value “comes from a company’s fundamentals, i.e., its capacity to generate and grow cash flows,” while pricing “is a market process” that results from supply and demand and is “a function of market mood/sentiment and incremental information about the company.” Accordingly,… Read More

The Fed & The Equity Risk Premium

While the equity risk premium is currently quite high by historical standards, New York University professor Aswath Damodaran says that might not be an indication that stocks are cheap. In a post on his “Musings on Markets” blog, Damodaran notes that the equity risk premium (the spread between the risk-free rate and expected stock returns) has historically moved in the same direction as the risk-free rate. From 1960-2003, for example, a 1% increase in the… Read More