Aswath Damodaran: Investors Should Hang Out With People Who Don’t Think Like Them

In his latest interview on The Investor’s Podcast, Aswath Damodaran recommends investors hang out with people who don’t think like them. Here’s an excerpt from the interview:

Damodaran: Yeah. One of the books I have, Narrative and Numbers About Stories. I started that because I noticed that we live in a world where we tend to hang out with people who think just like we do. So if you go to work in investment bank, you are surrounded by people who got roughly the same kinds of degrees you did around the same time in your life as you are, who think the same way about the same things, who get trained by the same people, and guess what? You all agree with each other. No surprises there. You go to Silicon Valley, you got these VCs and founders who tell each other the same stories, and they think the world revolves around their stories.

After a while, there’s no disagreement there because you’re all thinking the same way. Now, I tell people, “Hang out with people who don’t think like you.” One of the problems is when you do valuation, you tend to hang out with other valuation people and you show them a cost of capital and a cash flow, and that does it because this is the way they’ve been taught to do valuation. When I valued Airbnb when it went public, the person I showed it to was somebody who lives a few blocks away from me in San Diego who doesn’t know the first day about finance, but she owns three Airbnbs.

She’s a host, and I talked her. I showed the valuation, not with specifics, but I wanted to get a sense of, “Is this right? Am I getting the economics of this right? I’m assuming that Airbnb passes on cost to you and doesn’t bear the cost. Is that what’s happening? The thing she pointed out that I was missing on how Airbnb collects fees and why it does some things well and some things badly, and why she was thinking about listing on Vrbo for her next rental, and I listen because what she was saying was not specific to my valuation. I was learning things about the business. I would never have learned.

I tell people I’ve learned more about Uber from Uber drivers than I would ever have learned by talking to all of the top management in Uber put together because I’m learning about how Uber treats its drivers. What do they do? How did you end up driving for Uber? What did they do well? What did they do badly? How does search pricing work? Did they let you keep 20% of the search price? Because that’s what we need in valuation is that… I mean nobody’s an expert in everything. So there’s going to be some aspect of every business you’re valuing where somebody out there knows more about that aspect than you do.

So stay humble. Listen to people. I mean, walking into a retail store and talking to the sales people might be one of the great ways you can get an understanding of how the gap is doing as a retail business, what is happening in the insides of the business, because that should become part of your investing story.

You can watch the entire discussion here: