Aswath Damodaran, known as the ‘Dean of Valuation’ is a professor of Finance at the Stern School of Business at New York University. He teaches corporate finance and equity valuation.
He has an MBA and Ph.D. and has written financial books as well as featured articles in Forbes, The Wall Street Journal, Financial Times and MANY more…
I somehow convinced him to come on the show and teach me about finance and the markets.
Aswath is first and foremost a teacher. He writes about finance to inform his thinking. He then teaches to help iron out his concepts even further. And he LOVES it.
Teaching is a craft. Not art, not science. You learn by doing, get creative. Then get better.
3 E’s of teaching:
- Energy — learning requires a critical mass of energy.
- Empathy — remember to think like a beginner.
- Enthusiasm — if you’re not excited, why would others be?
Ways to be a better teacher:
- First write to get clarity
- Then talk about it to think it through further
- See Aswath’s Baruch College teaching lecture
In any crisis, liquidity is king. Companies with little debt and lots of cash will survive AND come out stronger (since competition gets wiped out).
- Apple has enough cash to pay all expenses with no revenue for 16 months
Getting Perspective. Aswath tells students to take a step back and think what the future landscape will look like. In 2022 who will be the winners/losers from this?
- Current actions can cause long standing behavioral changes.
- Will there be less business travel? More food delivery?
The “Sleep Test”. If you’re lying awake at night wondering about what’s happening to your portfolio… You’re failing the test.
Aswath’s 4 Market Strategies.
- Bargain Basements — price marked down, little debt, little risk.
- Risky Bets (“Ten Baggers”) — boom or bust. Majority will lose, but few make 10x.
- Safety Companies — lots of cash, no debt. (FB, MSFT, APPL)
- Change Agents — changes in consumer behavior.
“Less is more” is one of the oldest rules in investing. Historically, the more active the investor the worse the returns.
- If buying stocks don’t buy 15, buy 4.
- The more people can see what their stocks are doing, the worse their returns
Pricing vs. Valuation. Two games to play in the market.
- Pricing — buy and hope for a higher price.
- Investing — try to value companies. (this is what Aswath teaches)
Investing is proactive, not reactive. The essence of investing is when markets make mistakes. When do markets make mistakes? When everyone’s confused and uncertain. Your chances of finding a bargain now are much greater because people are panicked.
The “Factory” Economy Analogy. Think of the economy as a factory.
- At full capacity, additional capacity causes breakdown
- Right now factory is being shut down causing excess capacity
- Stimulus and Fed are trying to increase capacity
Aswath taught me SO much about the markets in finance. Go check out more of his stuff for more updates and to help stay informed.
What’s one thing you learned in this episode?