Aswath Damodaran: How To Value Companies During Covid-19

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Here’s an interview with Aswath Damodaran with Forbes India in which he discusses how to value companies during times of uncertainty, like we have with Covid-19. Here’s an excerpt from the interview:

Q. How do we value companies if we don’t know what cashflows are going to be like, what the terminal value is or what proper risk-free return is? How do we value anything at this point?

The degree of uncertainty varies across time; what we have right now is macro-uncertainty which is what is worrying. In most times, people hide behind numbers or projections as if they are facts. Every number you project in the future is an estimate, an uncertainty. With some companies, we feel more secure of their numbers than others, but to argue that you are not uncertain at any point doesn’t make sense to me.

If you think about statistics, uncertainty doesn’t stop you from making estimates. The only thing is that the estimate will have a much wider range. So, if you value companies in a period like this, you are facing exactly the same kinds of uncertainties you face during any other period. The only thing is, you are more likely to be wrong—and guess what, everybody is facing the same scenario. You are just as uncertain as everybody else and you have to make your best judgment; ironically, it’s in periods of maximum uncertainty that the payoff could make your estimates the greatest, because most people give up. Right now, many people in the market have thrown up their hands.

You can read the entire article here: Aswath Damodaran Interview – Forbes India.

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