Aswath Damodaran: Moneyball Investing

Johnny HopkinsAswath DamodaranLeave a Comment

In his recent interview with Invest Like The Best Podcast, Aswath Damodaran discussed his version of Moneyball Investing. Here’s an excerpt from the interview:

Damodaran: I think the most common one is that you let recent history drive your forecast more than they should. I mean, this is well established by April finance, which is what’s happened in the recent past. I’ll be quite honest, the aftermath of COVID, I made COVID part of my stories for a little too long. I finally let go, because I think it was such a big part of our personal lives that we assume that this was here to stay, that everything that you saw happening was now a long term trend.

When you look at the Zooms, the Pelotons, the companies that benefit COVID and how quickly they’ve come back, it’s a recognition that when we sit down to value companies, as human beings, we tend to wait in our most recent experience the most. It’s one reason why I look at data. I call this my version of playing Moneyball, which is I look at data, not because I want to drive everything to data, but to get a sense of perspective.

And it’s one reason why when inflation came back, I had to go back a hundred years to think about, because if I thought about just the last 10 years, it’s very easy to dismiss it. So I think my biggest weakness often is the lack of perspective, and of course there’s bias, which is sometimes you’ve fall in love with a company and your story for the company to the point that you’re not willing to listen to others. I call this keeping the feedback loop open.

I’m human like everybody else, I get defensive when people critique my story. But I’ve learned that to make my story better, I’ve got listen, and I’ve got to say the three most powerful words in investing, so I was wrong. I mean, my most successful valuation exercises have come about after I’ve said, I was wrong.

You can listen to the entire discussion here (57:29):

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