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I found this wonderful talk – both in style and substance, in numbers and stories – as he mentions – delivered by Prof Aswath Damodaran (of New York University) at Google posted on Youtube over this weekend.
Here are some notes/ statements from this talk to takeaway:
“Accounting is not valuation”
“Goodwill is the most useless asset known to man – goodwill is a plug variable, the problem with goodwill is it sounds good”
“The Shareholder’s Equity is a reflection of the past. It is a record of everything that has happened to the company over its lifetime.”
“The value comes from Investments that you have already made or Growth assets”
“Growth assets is a bit messier. It is the value of investments I am expecting you to make over the future”
“You got to stop and make a reality check. What are you buying when you buy this company? Because the way you assess the company depends on that”
“You can’t make interest payments with ideas. If you are a young growth company, don’t go looking for trouble. You have to raise equity”
“Growth can be good, bad or neutral. So the question to ask is – what is the value you will create from the growth?”
“When I look at investing and valuation, there are two camps. There are the numbers people and there are stories people”
“The problem is that the stories people think that the numbers people are all geeks, and the numbers people think that the stories people are all crazy. And they can’t talk to each other. My endgame for my valuation class is to have numbers people with imagination, and stories people with discipline”
“And I think they (i.e. the numbers people and stories people) are both right and they are both wrong. There is something to be gained from the other side. And to me, that is the key to doing valuation right. Think about your weaker side and work on it – because that’s what is going to give you the power in valuation”
“When I hear strategic – I am going to run out to the door. Because you know what it means – that the numbers don’t fly but I really really want to do this. A strategic deal is a really stupid deal”
“If you have negative cash flows upfront, you should expect to see disproportionate positive cash flows at some point”
“I would rather be transparently wrong than opaquely right. And in this business of valuation, people want to be opaquely right. They will say things that are so difficult for you to construe that no matter what happens, they can say I told you so”
“Your estimates could be wrong, but that doesn’t mean you can’t make an estimate. Saying that there is too much uncertainty and then investing in a company, to me is the height of insanity”
“If you cannot value a company, atleast do the logical thing and never invest in those companies. But if you want to invest in growth companies, you have to get your hands around those numbers and make your best estimates”
“I have never got the urge to explain what some other person pays for something”
“Much of what you see passing for valuation out there is really pricing”
“Price and Value can diverge, and if they diverge, they can give you very different numbers”
” (On Social Media Companies and their valuation) This game is going crazy right now. People are buying users because that’s what the market is rewarding right now. You say- what’s wrong with that? Markets are fickle. Today they like users. Tomorrow they may not”
“This is a game – i.e. investing – where luck is the dominant paradigm. We like to think it is skill and hard work. It’s luck”
“There is no smart money. There is less stupid money and more stupid money”
“When we get big differences in value, it’s not because the numbers are different, it’s because we have different narratives. Not all of these narratives are equally likely.That’s really the question you got to ask. What is the right narrative for this company?”