Aswath Damodaran: The Venetian Glassmaker – Dumbing-Down Valuation Techniques

Johnny HopkinsAswath DamodaranLeave a Comment

In a recent interview with Barron’s, Aswath Damodaran discussed glamour stocks, gig-economy companies, buying Tesla, and valuation techniques including how investors can dumb-down their valuation process to the bare minimum. Here’s an excerpt from the interview:

Barron’sTell us about teaching stock valuation.

Aswath Damodaran: Everything I know about valuation I’ve learned in the process of teaching that class. I remember October 1987, the one-day collapse of the S&P 500 index, down 22%. The next day, I’d go back to class and talk to people about how can the market change 22%? And you still believe in value? And the 1990s dot-com boom and bust. I had to talk about, whether I wanted to or not in 1997. How can a company with very little revenues, and everything in the future, be worth what it is? There was nothing on valuing young companies in 1997. I had to improvise what I’ve known about valuation.

And improvise is the key word. It’s how I’ve finagled my way to where I am today, by improvising. Because every time I run into something I’ve never seen before, I go back to basics, and amazingly there’s so much give in the basics that I can stretch them to meet just about any requirement that I need, any conditions I face. But to me, every crisis is a crucible. It tests my faith. It checks my philosophy. And it teaches me new things.

Barron’s: What are the basics?

Cash flow, growth, and risk. I tell people about a Venetian glassmaker in the 1400s; when he sold his business, people didn’t check earnings reports. They checked what’s cash in, cash out. How stable are these numbers? And they did their own version of a discounted cash flow valuation. All we’ve done is taken those basics and added layers and layers, sometimes too many layers. Whenever I’m in doubt, I go back to those basics.

You can read the entire interview here:

Aswath Damodaran: Barron’s – Buying Tesla at $180 and Other Investing Nuggets From NYU Professor Aswath Damodaran.

For all the latest news and podcasts, join our free newsletter here.

FREE Stock Screener

Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple:


Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.