I love it when Professor says "well, you ask me then..." when in fact, I'm not and actually have no idea what to ask. Lol. But it's nice and helpful that you ask the right questions for us. :D
You are the best Aswath, I remember when you visited us in Argentina 5 years ago, great lessons from the prince of valuation, thank you for share your knowledge with us.
Hi sir . This is Ishaan Prasad Kulkarni. I am 14 years old and I invest. I have read your book - the little book of valuation at least 15 times . I absolutely loved the book . I am a huge fan of yours and I love value investing. I really want to meet you sir. I have read multiple books written by Peter lynch and Ben Graham . I am your biggest fan sir. I think you are the king of value investing.
Sir, how are you deciding projected earnings and growth for past years, while calculating ERPs for the same? Are you referring to some database of analysts's opinions and consensus in the past of future growth and earnings? Was that thing even a thing in the remote past??
Professor thank you for a very informative video, but I have a question about how much value is driven by cash paid to shareholders. Wouldn't any cash flow not paid to shareholders still add value in a enterprise value based metric? Why is the dividend discount model still a relevant metric for investors/analysts? Thank you again professor
If one may ask: Why did you go with buying puts - spending money instead of writing them at the S&P 500 level you would be comfortable with getting it delivered to you (3000 ?) should option become exercisable and getting some money with it ?
hello Professor, thank you as always and a quick question: At 7min 10sec, you said that "the risk of default stays high", but the default spreads are slightly lower than the median spread and quite a bit lower than average historic spread. Was it your error and it should have read ("even if the market went thorugh the crisis the risk of default stays low? or how otherwise low default spreads would point to high default risk (for AAA and BBB bonds)? thank you Alek
Take a look at actual defaults. They are high towards the end of 2020 and are expected to stay high into the first part of 2021. The bond market seems to think that this will pass and spreads have stayed low.
Thank you Professor. I see, it's clearer now. I wonder also whether the optimism of bond market would be driven by increase in debt, or is it a rather unfounded optimism.
I've wondered about the finishing words "invest according to your own judgement", or the saying "follow your own investing philosophy". I think everyone is already following their own judgement or philosophy. Believing that someone has better judgement than you on the matter is a judgement itself. Only following experts as guides to invest might also be an investing philosophy? Yet someone does better than others. I love the word "healthy" in the ending though. I mean one may win or lose, but losing when following one's own exact judgement may still bring the least distress. Just some shower thoughts.
Thanks for your wonderful videos! I have a couple of questions: -What are (if you want to disclose it) the cash percentage and the market hedges percentage in your portfolio? -If I understand correctly, in the same economic conditions lower interest rates should mean higher market valuations and viceversa, thus prices of bonds and stocks should be positively correlated. Why has this historically proven not to be the case? Or what is wrong with the positive correlation argument? Thanks for your time ;-)
Theoretically, lower interest rates should mean higher market valuations as that would mean that the discount rate for cash flows is lower. As the discount rate is generally = Interest Rates + Risk Premium. If Interest Rates are low, the aggregate discount rate should be lower for cash flows - note that the discount rate is synonymous with the required rate of return by the market. - Bonds : The price moves inversely (i.e., negatively correlated) with interest rates. This is because the coupon payments (i.e., value of fixed payments over the life of the bond) is fixed - and hence, when interest rates drop, the market is willing to pay more for relatively higher coupon payments; and vice versa. - Stocks : Stock valuations generally are premised on discounted cash flow models as well - and hence, when interest rates are low, the discount rate is also lower. Hence as the discount rate is lower, this means that the market is willing to pay a higher price for the same amount of cash flows - and vice versa. But that is only if you take into account bonds and stocks in isolation - if you have the option of investing in bonds and stocks at a given time, you'll have to think of what cash flows you ultimately want to pay for. When interest rates drop, bonds prices will increase - making bonds less attractive, and making equities more attractive instead. And vice versa. Obviously, this is an oversimplified way of explaining it - there's the notion of how quantitative easing is keeping bond prices higher, and that equities having higher upside relative to fixed payments of bonds as well that needs to be factored into this. Feel free to correct me or add onto this - always looking to learn more :)
@@hirokihirayama2366 i definitely agree with your explanation. So when interest rates go down, bonds prices inevitably go up and stocks prices should also go up. When interest rates go up, bonds inevitably fall and stocks should fall to. This means stocks and bonds should move together, but historically it has not been so.
@@alemadd Hi Alemadd, Yeah, and seems to be the case due to substitution effects - as bond prices are higher due to lower interest rates, equities look more attractive as the upside of equiteis are much higher, and hence, do not seem as expensive as bonds relative to the cash flows you are receiving (i.e., bonds have fixed payments whilst equities tend to have either growth in their dividends, or have higher chances of increment in prices due to market fluctuations/buybacks).
Can someone explain why the terminal growth rate is the same as the risk free rate? I didn’t understand what the professor meant when he said the risk free rate is a good proxy for the terminal growth rate?
Let me simply summarize this. Return on equity assets are at a low and risk premium on it over safer asset such as bonds are also at a low because of the liquidity the fed brought to the system shooting up the prices of assets in general and also making money cheap thus tolerance for risk is also much higher thereby demanding lesser standards of return in comparison to the level of risk in that asset. It's the fed That is why one should look at return on an adjusted basis when they are trying to compare returns in the past. We do inflation adjusted earnings so as to look at returns after factoring cost of money. We can also do FED policy rates adjusted earnings so as to look at returns to exclude effects of stimulus. Everything can look good if you have an economy pounded with life support and everything can look bad if you have an economy that is in crisis and without life support
Anyone knows what the source is for the data in slide 7? Like I know its S&P but where is he getting it from? (FactSet? Bloomberg? or some other software?)
Prof, where do you get your projections from analysts from? (Do you simply find 5-10 from different sources online, and average them out based upon their accuracy on past predictions? Or is there a better way?)
In pervious videos he would say if he uses a specific analyst. Here he didn't, my best guess is he averages out all the major analysts, the more analyst predictions the more it will average out, similar to law of large numbers. Although obviously projected earning and percentage pay out iis the assumption with this type of analysis.
@@etantl1438 Yea I had trouble with this valuing my local market. Guess we could just do bear/base/bull case and go nuts if we don't know anyone and see what happens.
They supply the growth in the near term and will kick in with cash flows later. Also, since this is the S&P 500, the tech companies that make it are bigger and some of them like Apple are among the biggest cash returners in the market.
Вобщем или оценка +20% или оценка -40% по индексу в зависимости от экономики и процентной ставки. Так как никто не ждет ни повышения ставки, ни сильного восстановления экономики, будет боковик с отдельными интересными отраслевыми историями, имхо.
I love it when Professor says "well, you ask me then..." when in fact, I'm not and actually have no idea what to ask. Lol. But it's nice and helpful that you ask the right questions for us. :D
You are the best Aswath, I remember when you visited us in Argentina 5 years ago, great lessons from the prince of valuation, thank you for share your knowledge with us.
What an excellent lecture to keep us grounded in a market of increasing uncertainty. Thank you Professor!
Great point at 10:32 about the presumption that the future data is going to look like the past.
love your teaching style and content is a pure gem, best ever professor to learn valuation without any prejudice and bias.
This video was one of the best to learn Erp and its effects on valuation .
Love it, this risk premium concept reminds me reading on Howard Mark's the most important thing book
Thank you for this post. Your analysis is thorough and educative.
Many thanks for this excellent and highly valuable content Professor, greetings from Europe
Great as always. Thank you, Prof. Damodaran.
This is very insightful
thanks for sharing Prof! as brilliant as usual!
Hi sir . This is Ishaan Prasad Kulkarni. I am 14 years old and I invest. I have read your book - the little book of valuation at least 15 times . I absolutely loved the book . I am a huge fan of yours and I love value investing. I really want to meet you sir. I have read multiple books written by Peter lynch and Ben Graham . I am your biggest fan sir. I think you are the king of value investing.
@Aswath Damodaran you're not aswath damodaran
Thank you professor for keep posting these valuable thesis.
My weekly education! Thanks professor!
Thank you Mr Damodaran. Greetings from Colombia!
You are the best! Congraluations...
Thank you Professor! Appreciate all your uploads, always very insightful and valuable.
Wow Prof !
This was I think classic.
as soon as my second semester gets underway aswath has a new video. i spent free time last year listening to his vids
I've found a gem(this yt channel)❤️
Love the content. Thank you.
Sir, how are you deciding projected earnings and growth for past years, while calculating ERPs for the same? Are you referring to some database of analysts's opinions and consensus in the past of future growth and earnings? Was that thing even a thing in the remote past??
Professor thank you for a very informative video, but I have a question about how much value is driven by cash paid to shareholders. Wouldn't any cash flow not paid to shareholders still add value in a enterprise value based metric? Why is the dividend discount model still a relevant metric for investors/analysts?
Thank you again professor
Wow... thank you for sharing
not even enrolled in these classes but Imma bout to watch his lectures
If one may ask: Why did you go with buying puts - spending money instead of writing them at the S&P 500 level you would be comfortable with getting it delivered to you (3000 ?) should option become exercisable and getting some money with it ?
Thank you for the lesson
hello Professor, thank you as always and a quick question: At 7min 10sec, you said that "the risk of default stays high", but the default spreads are slightly lower than the median spread and quite a bit lower than average historic spread. Was it your error and it should have read ("even if the market went thorugh the crisis the risk of default stays low? or how otherwise low default spreads would point to high default risk (for AAA and BBB bonds)?
thank you
Alek
Take a look at actual defaults. They are high towards the end of 2020 and are expected to stay high into the first part of 2021. The bond market seems to think that this will pass and spreads have stayed low.
Thank you Professor. I see, it's clearer now. I wonder also whether the optimism of bond market would be driven by increase in debt, or is it a rather unfounded optimism.
Thank you, Professor! 🙏
Stay well!
Prof. i'm looking forward for your Stats class..
Solid, Solid, Solid! Great info!
Cant thank you enough for all your content!
Excellent talk, thank you!
Can we get an equivalent of this data/excel sheet for 2021 pleassssee???!!
Is there a problem with entry/exit of companies from the s&p 500, for comparing values for different years of the ERP projected?
I've wondered about the finishing words "invest according to your own judgement", or the saying "follow your own investing philosophy".
I think everyone is already following their own judgement or philosophy. Believing that someone has better judgement than you on the matter is a judgement itself. Only following experts as guides to invest might also be an investing philosophy?
Yet someone does better than others.
I love the word "healthy" in the ending though. I mean one may win or lose, but losing when following one's own exact judgement may still bring the least distress.
Just some shower thoughts.
Thanks for your wonderful videos! I have a couple of questions:
-What are (if you want to disclose it) the cash percentage and the market hedges percentage in your portfolio?
-If I understand correctly, in the same economic conditions lower interest rates should mean higher market valuations and viceversa, thus prices of bonds and stocks should be positively correlated. Why has this historically proven not to be the case? Or what is wrong with the positive correlation argument?
Thanks for your time ;-)
Theoretically, lower interest rates should mean higher market valuations as that would mean that the discount rate for cash flows is lower. As the discount rate is generally = Interest Rates + Risk Premium. If Interest Rates are low, the aggregate discount rate should be lower for cash flows - note that the discount rate is synonymous with the required rate of return by the market.
- Bonds : The price moves inversely (i.e., negatively correlated) with interest rates. This is because the coupon payments (i.e., value of fixed payments over the life of the bond) is fixed - and hence, when interest rates drop, the market is willing to pay more for relatively higher coupon payments; and vice versa.
- Stocks : Stock valuations generally are premised on discounted cash flow models as well - and hence, when interest rates are low, the discount rate is also lower. Hence as the discount rate is lower, this means that the market is willing to pay a higher price for the same amount of cash flows - and vice versa.
But that is only if you take into account bonds and stocks in isolation - if you have the option of investing in bonds and stocks at a given time, you'll have to think of what cash flows you ultimately want to pay for. When interest rates drop, bonds prices will increase - making bonds less attractive, and making equities more attractive instead. And vice versa. Obviously, this is an oversimplified way of explaining it - there's the notion of how quantitative easing is keeping bond prices higher, and that equities having higher upside relative to fixed payments of bonds as well that needs to be factored into this.
Feel free to correct me or add onto this - always looking to learn more :)
@@hirokihirayama2366 i definitely agree with your explanation. So when interest rates go down, bonds prices inevitably go up and stocks prices should also go up. When interest rates go up, bonds inevitably fall and stocks should fall to. This means stocks and bonds should move together, but historically it has not been so.
@@alemadd Hi Alemadd,
Yeah, and seems to be the case due to substitution effects - as bond prices are higher due to lower interest rates, equities look more attractive as the upside of equiteis are much higher, and hence, do not seem as expensive as bonds relative to the cash flows you are receiving (i.e., bonds have fixed payments whilst equities tend to have either growth in their dividends, or have higher chances of increment in prices due to market fluctuations/buybacks).
But should we use this metric to time the markets?
Wish I had him for my finance modules on my MBA
Where do i find his spreadsheet so i can use it???
anyone can share an alternative link to the spreadsheet? Thank you!
Nice to hear good old fundamentals, instead of why bitcoin is going to hit 150k (bs).
Thank You Uncle
Proff, i think it's time for another Tesla valuation! 😀
Yess!
Its a bubble, it may rise even higher but its still a bubble
I doubt his value has changed because I doubt his outlook on the story has changed
Thank you!
What's a
good book for a newbie?
Can someone explain why the terminal growth rate is the same as the risk free rate? I didn’t understand what the professor meant when he said the risk free rate is a good proxy for the terminal growth rate?
Try this: aswathdamodaran.blogspot.com/2016/11/myth-52-as-g-rto-infinity-and-beyond.html
Let me simply summarize this. Return on equity assets are at a low and risk premium on it over safer asset such as bonds are also at a low because of the liquidity the fed brought to the system shooting up the prices of assets in general and also making money cheap thus tolerance for risk is also much higher thereby demanding lesser standards of return in comparison to the level of risk in that asset. It's the fed
That is why one should look at return on an adjusted basis when they are trying to compare returns in the past. We do inflation adjusted earnings so as to look at returns after factoring cost of money. We can also do FED policy rates adjusted earnings so as to look at returns to exclude effects of stimulus. Everything can look good if you have an economy pounded with life support and everything can look bad if you have an economy that is in crisis and without life support
So stonks go up?
I like your funny words, magic man
Anyone knows what the source is for the data in slide 7? Like I know its S&P but where is he getting it from? (FactSet? Bloomberg? or some other software?)
Prof, where do you get your projections from analysts from? (Do you simply find 5-10 from different sources online, and average them out based upon their accuracy on past predictions? Or is there a better way?)
In pervious videos he would say if he uses a specific analyst. Here he didn't, my best guess is he averages out all the major analysts, the more analyst predictions the more it will average out, similar to law of large numbers. Although obviously projected earning and percentage pay out iis the assumption with this type of analysis.
@@etantl1438 Yea I had trouble with this valuing my local market. Guess we could just do bear/base/bull case and go nuts if we don't know anyone and see what happens.
He does one calculation using an average of Wall Street strategist estimates and one from Ed Yardini, which is free on-line.
Sir, you are not just 'Dean'.
You are 'God'.
Price itself is risk.
I didn’t follow how companies, such as majority of tech, who don’t do buy backs or pay dividends get handled in this framework. Thx
They supply the growth in the near term and will kick in with cash flows later. Also, since this is the S&P 500, the tech companies that make it are bigger and some of them like Apple are among the biggest cash returners in the market.
Вобщем или оценка +20% или оценка -40% по индексу в зависимости от экономики и процентной ставки. Так как никто не ждет ни повышения ставки, ни сильного восстановления экономики, будет боковик с отдельными интересными отраслевыми историями, имхо.
Thanks Dean for video.
Can amy one point me to download linke for spreadsheet ?
Second
first
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