Aswath Damodaran: My Karmic View In Investing

In his recent interview with Poli Finance, Aswath Damodaran discussed his karmic view in investing. Here’s an excerpt from the interview:

Damodaran: I’ll be quite honest. I think every market, every group of investors thinks they’re special. They think you value tech companies you think you need a special valuation model to value tech companies.

VCs think they need a special market to value startups. Brazilian investors think they need a special model to value Brazilian companies. Indian investors the same way. I’ll be quite honest, you know what drives the value of any business, no matter where it is in the world and what time you’re looking at it is it’s cash flows, growth, and risk.

The difference is when you’re in an emerging market those cash flows, growth, and risk can be affected by things that the company doesn’t control. That’s really the only difference.

All you can do is demand a higher return for investing in the company and let God take care of the rest. I have what I call the karmic view in investing.

There are lots of things I don’t control. If I spend my entire time thinking about all the things I don’t control I will never ever complete valuing a company.

I’ll give it in the context of the U.S. In the U.S a lot of people now are worried about interest rates and the Fed and what’s going to happen to the Fed. You know what when I value a company in the U.S I don’t for a second think about that while I’m valuing the company because if I do it’s going to be a distraction.

How am I going to value Airbnb or Coca-Cola if I’m spending all my time thinking about what the Fed will do, and my advice to you if you’re valuing Brazilian companies is don’t spend all of your time assessing macro risk, what’s going to happen in Brazil because the reality is none of us know and you have a job to do.

You want to value Natura get to it. Value the company. Let the macro variables fall where they might but recognize you’re going to be far wronger in emerging market companies, not because you’re not doing your job but because there are things you don’t control.

You can watch the entire interview here: