Valuations Matter: Intrinsic Value in The Age of Unreason
Real Vision’s Jack Farley welcomes Aswath Damodaran, legendary professor of corporate finance at New York University’s Stern School of Business, to discuss valuation techniques, Bitcoin, and the impact of inflation on market prices. Damodaran walks through the building blocks of fundamental valuation, examining discount rates, equity risk premiums, price to earnings ratio, and comparative valuation. He examines Bitcoin’s performance during the height of the pandemic as well as the investment debate between growth and value stocks. Damodaran argues that currencies and collectibles can only be priced—not valued. Specifically, he states that, unlike gold, Bitcoin is an ineffective collectible because it failed to behave independently of the stock market during the pandemic downturn. Furthermore, he explains the impact that inflation has on equity valuations and Federal Reserve actions. Filmed on June 3, 2021.
Key Learnings: Damodaran explains the mindset behind effective investing. He argues that analysis is not complete when an investor finds a company overvalued or undervalued because it is a singular judgment at a point in time. Damodaran believes that the mantra to buy quality companies leads investors to overpay for companies at prices that do not reflect intrinsic value. He stresses the idea that good companies can be bad investments while bad companies can be good investments at any point in time due to fluctuations in price.