Aswath Damodaran: Investing is Pricing, Not Valuation – Why Long-Term Investors Hold the Advantage

During this interview with AIKYA, Aswath Damodaran explains why investing is really all about pricing. He believes that valuation is a long-term game that most people are not equipped to play. He suggests that the excuse that valuation is too difficult to do is simply an excuse for people to avoid facing up to the assumptions they are implicitly making. Here’s an excerpt from the interview:

Damodaran: Investing is really pricing. Nothing wrong with it because you as a trader you make money on pricing.

You buy at a low price you sell at a high price and essentially your entire apparatus is designed to figure out shifts in momentum, in pricing.

I mean valuation is a long game and most people don’t have the time horizons to play it.

It requires a different set of tools. But I think that in the 1990s you priced dot.com companies but it didn’t go away right with the dot.com bust, you moved on to pricing social media companies, now you’re pricing AI companies.

Why?

You know the excuse is there’s too much uncertainty. You can’t do valuation because estimating cash flows is difficult to do.

I mean I think we’ve forgotten basic statistics. Just because estimating something is difficult to do doesn’t mean we can’t make the estimate, tt comes with a range.

But it’s an easy excuse people use for hey I can’t value companies I’m going to use 100 times revenues when in fact implicitly you’re making all the assumptions you have to make in valuation but because they’re implicit you don’t have to face up to them.

You can watch the entire discussion here: