Unlocking the Intrinsic Value: 5 Essential Variables for Stock Valuation w/ Aswath Damodaran (MI249)

Rebecca Hotsko chats with @AswathDamodaranonValuation. In this episode, they discuss the importance of having an investment philosophy and how to figure out what your investment philosophy is, the difference between having an investment philosophy and strategy, why Aswath believes it’s better to be a generalist than a specialist in one area of investing, and much, much more! 

Aswath Damodaran is a professor at NYU of corporate finance and valuation and has taught thousands of students how to value companies and pick stocks.  He has written numerous books on valuation and has also made all of his university courses available online for free. Aswath is one of the clearest teachers of finance and investing in the industry and has taught thousands of students how to value companies and pick stocks. 

IN THIS EPISODE, YOU’LL LEARN:
00:00:00 - Intro
00:02:05 - The importance of having an investment philosophy and how to figure out what your investment philosophy is
00:03:53 - The difference between having an investment philosophy and strategy
00:07:33 - Why Aswath believes it’s better to be a generalist than a specialist in one area of investing
00:10:54 - An example of what a growth investor’s investment philosophy may be, such as famous growth investor Peter Lynch
00:14:00 - What are value drivers and how to apply them in our valuation process
00:14:23 - The 5 basic variables we need to value any business
00:19:42 - How to convert these value drivers into a DCF or intrinsic value model
00:22:04 - The most common mistakes investors make when valuing a company and how to avoid these
00:23:41 - Aswath’s test on how to figure out if your growth rate is reasonable
00:25:20 - How to figure out what discount rate we should use
00:32:18 - Why Aswath doesn’t believe in a “hold forever mentality” of stocks in a value investing approach
00:33:57 - How often we should revisit our valuations for companies
00:50:50 - How do companies get on Aswath’s radar?

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WHO I AM:
I’m Rebecca Hotsko, an investor and entrepreneur 💼 based in Canada; co-founder of a luxury boat ⛵ sharing club in Kelowna, British Columbia. I graduated from the University of Saskatchewan with a bachelor’s degree 🎓 in Economics and completed CFA level I and II. I gained valuable experience working as an analyst for the Bank of Canada 🏦, the federal energy regulator and in investment management. My passion for teaching others how to invest using time-tested strategies backed by empirical data led me to create an investing blog 💻 in 2020. 

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[nevermind]

1. Revenue Growth
2. Margins (earning efficiency)
3. ROIC (invested capital efficiency)
4. Discount Rate (risk of cash flows)
5. Failure Risk

[darnellcapriccioso]

My spouse and I are adding a variety of stocks/ETF to my present holdings for the long term, We've set aside $250k to start following inflation-indexed bonds and stocks of companies with solid cash flows, I believe it is a good time to capitalize on the market for long-term gains, but it wouldn't hurt to know means of actualizing short term profit

[sarawilliam]

As an elder millennial, one of the few advantages is having lived through the Great Recession. My advice. Reduce unnecessary expenses, increase your savings by investing in financial markets and do not sell. One thing I know for sure is that diversifying your income can help insulate you from much of the craziness going on in the world.

[hondusspa]

Extremely appreciate her silence while he responds and speaks. This interview is 100% on point.

[samace]

Aswath Damodaran is a phenomenon, I appreciate all the Free resources he posts. He is a major component to my education as an investor, I personally consider him my investing sensei. Always challenging my thinking, and reminding me to have humility. Great Teacher.

[rajivehanda]

If there is one interview which distills everything about valuation in simple lucid language, THIS IS IT !

[herotiramisu]

One of the most underrated interview with such a legend who dedicated his entire life in sharing his knowledge and experiences in finance with all people for FREE. I guess people just like to know what to buy or what to sell other than to know how to catch a fish.

[angelbertsombrio]

Im surprise only few people are watching this channel. One of the best and realistic interviews i've seen for a while. Its really important to be honest to yourself as an investor. Thanks for all the info.

[c.t.u.o]

I started stacking to SAVE wealth. I've always been the type of person to spend my entire paycheck. I hate having money just sit in the bank. I am under pressure to grow my reserve of $950k. before I turn 60, I would appreciate any advice on potential investments.

[Tufty]

Great video from a living legend! I was fortunate enough to attend Damodarans Valuation class 20 years ago at NYU. 👍

[aadhardev]

Though I am new to investment, I found this talk profound from the utmost authority in valuation. I repeated this twice to make notes and more strangely, I found them applicable to "life in general" apart from other things that I do! Fantastic questioning skills in display from Rebecca too!

[loganlasvegas]

I’v heard professor Damodaran speak dozens of time. Every time, I hear and learn something new, particularly on a new perspective or simplifying complex concepts.

[danielmerinsky]

I would wager that no person in the world has done more for valuations in last 20 years than prof. Damodaran. I use his public data all the time at work.

[chandrannatarajan]

Thank you professor and Rebecca for such an important session. It was great to hear about how often we should re-visit the portfolio? Valuable information for modern day investing. Thank you guys and stay blessed always 🙏

[nekornl]

i really gained a lot from the subject, flow and overall communication between host and guest. one of the best interviews i’ve ever experienced…thank you.

[sublyme]

I LOVED his response at 37:53, and it perfectly explains why there are so many discounts on great companies at the end of the year.

[sujoydalal]

Sir, you are one of the best teachers I have ever had. Thank you.

[mohammedmohsin]

Am extremely happy so many people are confused on intrinsic value. Makes investing so easy for those who really make money

[CarilonCapital]

Thanks for asking such great questions! These are some really powerful nuanced thoughts by Aswath

[royjones]

Great interview. Makes indexing seem like an even better idea.