Aswath Damodaran: Investors Should Hang-Out With People That Disagree With Them

During his recent interview with Morningstar, Aswath Damodaran explained why investors should hang-out with people that disagree with them. Here’s an excerpt from the interview:

Damodaran: I’ve learned some of the most valuable things in valuing companies from listening to people who disagree with me the most.

Another hallmark of the world we live in is we tend to hang out with people who think just like we do. We pat each other on the back, we agree with each other, and then we go back to our desks, and the whole thing blows up and say, how could that happen?

I encourage people to hang out with people who think less like them. The first person I showed my Airbnb valuation to was not an analyst, it was to a friend of mine who is an Airbnb host.

Because I wanted to see the holes in my story. What am I missing in the interaction between Airbnb and a host that I’ve not brought into valuation?

You’re not going to hear that by talking to an expert in that area or to another analyst. You’re going to get more about that from talking to people who have rented an Airbnb recently or are hosts on Airbnb.

So, I think with every valuation talking to people that you might not think are… These are not valuation people that I talk to but people who know the business.

Valuing a company is understanding the business. Understanding a business is not going through a financial statement and computing ratios. It’s figuring out what makes a business tick.

You can listen to the entire discussion here: