Professor, Thank you for your insight. I am a reddit user, and for me the answer to your end game question would be for the chance to sell at a higher price. I have knowingly chosen not to value the company as I do not believe the underlying asset has any bearing on my decision to purchase stock. I know it is not for nostalgic reasons or to help save the company as I am from the UK and had never heard of the brand before buying in. When typing the above sentence, I also consciously avoided the word investing, replacing it with buying as I am aware this is not an investment. It is gambling, and like many gamblers, my enjoyment comes from the anticipation of what may happen, with the chance to win big adding to the enjoyment, even though I will openly admit to not knowing the odds. More importantly than the above though, I would go as far as to say that the end game is only a secondary reason for buying. My primary motivation was simply to take part. I wanted to be involved with the story, involved with all of the hype and tracking every move, every news story and the chance to say I was there. It has become a source of repeated endorphin, which in honesty I would rather did not end. I believe the chance to sell for a higher price is my end game reasoning, as if you were to tell me with certainty that I would lose money buying, then I would not have joined in, yet equally, I am not overly concerned about the end game. Now I have bought my ticket to the show, I am here to watch it play out and am mostly just hoping that it doesn’t get called off early.
Thanks for your insight professor. I have been a member of the subreddit for about a year now, and from what I've seen in that short period of time, these redditors can have really good, timely analyses, both technical and fundamentals. Sure they love to joke around, and there are some bad actors, but I think it's reasonable to assume that in any group of 2M + (now 6M+) individuals you're bound to get all kinds of people, both good and bad. For the endgame of GME, I think it's safe to say that many redditors on WSB are holding until the short squeeze, where hedge funds will be scrambling to cover their shorts and by which time the price would be whatever your ask is. I went into the trade at $39 after watching it climb from 4, to 12, to 20; after I was sure that the short squeeze thesis set by DFV (the original poster who entered into a "YOLO" position in 2019 for 50k; he's still holding, and his portfolio is now valued at over $40 million) had substance to it. Up until when I entered my position, people were mostly excited about a VW-like short squeeze and the quick bucks. Sure we hate the hedgefunds that always seem to get bailed out whenever their incredibly risky, levered plays don't pan out with taxpayer money, and Andrew Left is an idiot, but I'd say that the sentiment was more towards excitement about making life-changing money. Yesterday, however, when Robinhood and other brokers banned the buying of new GME stocks and options, while letting people still sell the position, things took a turn. We saw the hedgefunds continue with their scare tactics in the media, halt trading for GME continuously (Citadel who bailed out Melvin Capital, the "main villain" and short sellers, is a market maker), and commence short ladder attacks. Recently a whistleblower who works at Robinhood posted saying that the short sellers had added to their short positions before calling Robinhood to restrict retail investors from buying GME (over half of the Robinhood account holders own GME). Things got emotional very quickly, and now more people want to see the hedge funds bleed. To borrow youtuber Louis Rossman's words, this is now about whether there is justice in America; will the market manipulators get a slap on the wrist as they always have and get a "fine" that they consider cost of doing business, or will they be justly prosecuted? I guess time will tell but I could see this event playing out as a significant factor that would affect retail sentiment for years to come.
I agree and that is what I was trying to say at the end, when I talked about treating entire groups of people as a monolith, whether it be those on the WSB forum or on Wall Street. I agree that trading should not have been stopped yesterday, because no matter what the motivation, it seemed like the regulators were putting their thumbs down on the scale. I understand the anger, but it is my experience that when you let investing get personal and/or political, your portfolio pays a price.
@@AswathDamodaranonValuation Thanks for the reply professor! I have a question about what you said in the video-- you said that buying targeted companies to induce a short squeeze might not be the best way to damage the hedge funds, and even if you are successful at bringing down a hedge fund, another would simply fill the void. What do you think would be an effective way to level the playing fields? I am cautiously optimistic after seeing politicians tweet about the event and calling for legal proceedings, but do you think anything will/can come out of this (such as making naked short selling ACTUALLY illegal).
Draw more attention to their incompetence and poor returns. In fact, I think WSB does hedge funds a favor by making it sound like they are making money and beating the market (when in fact, they are not). @@JaewooKang
@@AswathDamodaranonValuation ah you said it right in the video and I couldn't even think that far. Appreciate your reply professor, just wanted to add that your valuation videos are awesome! Thank you!
I agree with quite a lot of this but there are also some things that I disagree with so if you could elaborate that would be great. 1. It's possible that the short squeeze continues, but it's definitely already going on, it's the main catalyst of the price reaching so high. The reason the short % is staying largely the same is because more shorts are being opened at a higher price. Also I think it's fairly premature to label the brokerages as villains (not that you did, but in general) because we don't understand the full context of why they did what they did and it's also emotional for a lot of people, particularly those that are long on GME. Robinhood was on the latter half of brokerages restricting/banning the trading of these securities yet they're being singled out, presumably because of their connection with Melvin Capital but because their actions weren't distinguishable from many other brokerages, I don't personally see strong enough evidence to assume guilt yet. Market manipulation is a really loose and very unenforceable term, people are saying that Robinhood manipulated the market because after the ban, mostly because there was a noticeable drop in the stock price decrease that was obviously tied to their action, but was Elon's tweet about gamestop, which irrefutably increased the price also manipulation? Where is the line drawn? Hedge funds, short sellers, people with large twitter followings, brokerages, companies, and even WSB have all manipulated the stock whether intentional or not. Where does it become corrupt? Finally, hedge funds are playing both sides- there were many financial institutions, hedge funds, and other companies that played the upside to this squeeze just as others are playing the downside, so in my opinion I think the narrative of small money vs big money is largely for entertainment. Not trying to start an argument, but I've had trouble getting the other side to a lot of my claims so I was curious if you could explain some more.
@@RafitoMembroza I am guessing for POTUS 2024. Sorry guys, Damodaran was born in my nation of India. Or did you think such a smart person could have been born and educated in the US?
Thank you for this session. It is upsetting how much people are jumping on a trend without even trying to understand what the company they hold does as a business or even what kind of returns they had in prior years. A very short analysis just says to stay away from this company as an investor. There are a lot of great companies out there to choose from other than apple, tesla ,and GME...
Am I exaggerating if I say that this is his best video? It’s super “multidisciplinary” covers a lot of group psychology/sociology on top of the simple yet difficult art of valuation. I’m so stoked with this one ❤️
Loved to see an unbiased opinion.. after reading stories of greed, fear, excitement, anticipations, conspiracies and what not...this feels like I’m out of a meditation session..so thank you..
Profesor como siempre excelente disertación No he podido acceder a la hoja de Excel para revisar la valoración. Quisiera saber donde puedo bajarla? Muchas Gracias
Great unbiased view; thanks prof ! Also reg. your endgame question, would like to quote DFV who's the poster child of this trade on r/WSB - 'What's an exit strategy ?' I guess that sums it much pretty much!😅
Having watched so many of your videos, I’ve been picking up on your philosophical side in the videos as well. “Let’s disagree without being disagreeable” so much to learn from you dear professor! Thank you * 1 mn
Thank you for the lesson professor, definitely the biggest threat to hedge funds is their own performance and not redditors who are putting their savings on the line
Whilst I agree that new hedge funds may take their place if others fail, the example which can be made of GameStop possibly shocks some hedge funds from their complacency and greed shorting a stock in such excess. The hedge fund industry may survive but possibly with greater fear that they may get burned if they go so short in the future
Even if the finance is ignored........the clarity of thought and skills of articulation.......my gawd!! he's amazing. Its a masterclass in it's own right
19:45 Why Gamestop does not take an advantage of this high price? Could they issue more shares, because there is demand for those at very high valuations?
I'm curious if you are aware Keith Gill, the guy who brought the GME thesis to WSB in June 2020, references you as one of his primary inspirations for learning fundamental analysis that led him to recommend GME. So in a way, you are the reason this is happening. 🤪
If someone listens to Aswath D lessons and from that he thinks the next stock to buy is GameStop he should seriously rewatch the lessons because he didn’t learn anything he was supposed to. Valuations are all about future cash flows discounted to the present. Clearly the dude wasn’t doing value investing. Nice try though.
I get it he made money but you are trying to call it value investing. You need to understand what value investing is. You can make money all of different ways this one wasn’t value investing.
@@eminhawa you say that, but Keith's original thesis exactly aligns with everything Damodaran said in this video, and Keith credits him as the main inspiration for his analysis. Also, you keep saying 'you' as if I made the valuation call. Keith Gill made the analysis, the investment, and credited Damodaran, who agreed 100% with his valuation call in this video... not sure what else to tell you. Keith predicted on his analysis that GME should be $20 when it was $2. He turned out more than right on his call.
It is unusual but not impossible. This Motley Fool article does a pretty good job of explaining why: www.fool.com/investing/2021/01/28/yes-a-stock-can-have-short-interest-over-100-heres/
@@AswathDamodaranonValuation It's basically like banks creating money by making loans, isn't it? But in this case, the hedge funds are printing shares by shorting. By shorting 100% of the float, they've essentially doubled the supply of shares available to be traded (or tripled, since half the float isn't even tradeable due to being held as part of indexes or insiders).
Thanks for the insights into this issue dear Professor! One thing that is above my head is how can short interest be >100% of float? No checks and balances in this area? The brokers are able to borrow more than what is there in the market?
I'd say it's to make some quick cash off a short squeeze and show hedge funds that they aren't invincible monoliths; in addition to just for the fun of it.
WSBer here, been into GME since $9. The long's wish for GME is for Ryan Cohen & team to reinvigorate the Gamestop brand to make the company both a strong e-commerce platform and a physical gaming/technology hub rather than simply a store. A mascot for the gaming world. Could happen, as there is no single company that covers all of the gaming world. Gaming heaven. No other company can do that, not Microsoft, not Sony, not Nintendo, not Steam. They'd all have to partner with Gamestop. Far fetched? Sure, but that would enable the ideal end game, which is that the company becomes deserving of a three or four digit stock price. And all the people who are going in now won't have to sell at a loss, because investors are still buying at high four digits. This probably won't happen, but THAT's the DREAM. The reason why I haven't gotten out yet is the SS. If I can double what I have now, I'm gonna sell quite a bit. But that's the end game for THIS chapter, while the future of Gamestop will hopefully be a different matter. And of course, a company doesn't deserve a price based on potential, but result.
The short squeeze amongst big money players was immortalised in the James Clavell book (and tv mini-series) Noble House. It's a fun read/ watch though you may have to dig up VHS tapes of it.
Moodys estimates default rates for bonds in different ratings categories, over the long term. The probability of default for Ba1 rated bonds over a 10 year period was 11.78%. I rounded up to 12%.
Thanks for your insight professor! As a retail investor and a small potato working in finance, my 2cents: GME alongside other heavily shorted stocks will eventually crash back to its fundamental levels if history of Dryship, Tilray, and stocks in the 2000.com was of any indication. Bigger picture, I'd say the motivation behind the frenzy is 2 folds: 1) $ and 2) Fighting against the system (or the high table if you are a fan of John Wick). For the 1) money part, there's still money to be made and frankly I expect this mania to drag on for a while; that said, it's a shark tank, and investors are advised to get in/out quick and make sure your body parts remain intact before considering next move. For the 2) fighting against the big boys, Robinhood did make it personal for many retail investors as it appeared to side with the wall street; though I'd say the platform probably encountered operation mismanagement and potentially ran into liquidity issues, thus leading to the stock trading restriction. Imagine if they didn't do that and the platform eventually goes insolvent, the repercussion is probably more significant for everyone trading on that platform and the financial markets. The root cause is the country is divided I'd say. Lastly, where we are headed: The longer this drags on and the more political forces are involved will have a direct and negative impact on investors' confidence (both retail and institutional) and Wednesday/Friday's pullback will not be the last selloff we will witness. As someone who is a firm believer of fundamental analysis, I am rather concerned about the implications of this mania as some stocks departed from earth based on "morale speeches" and "hold the line" crowd mechanism - this never ends well. Personally, I would go to cash until the dust settles.
Little bit of the topic but i will ask anyway, what's behind valuation for 10 years as i saw in most of your valuations except S&P 500. Which i understand i think because as you mentioned median growth period for a high grow company is about 3 to 5 years. Thank you in advance Aswath.
Are retail traders really moving the price of GME this much? According to Yahoo Finance, top institutional holders of GME stock include FMR, LLC with 9,534,090 shares and Blackrock Inc. with 8,600,507 shares as of Sep 29, 2020. Am I missing something here? Thank you.
Interesting thought, but it's more likely that Fidelity, Vanguard and Blackrock held these through their weighted index fund offerrings or managed portfolios. Which might mean that they are not actively participating in the trading activity and have held these shares for a while. It would be an interesting thing to see if some of those index funds will be forced to sell gamestock now to rebalance their portfolios or managed portfolios sell their holdings to rake in the profits.
Thank you for crisp and easy to understand video on the Gamestop saga. Really insightful. I have a question which I am trying to understand. Let's assume, I have enough money, the maximum number of shares I can buy of a company is 100% (or all shares outstanding in the market). But the graph you showed on Slide 9 showed the short interest higher than 100% in recent months. How can more than 100% shares be shorted when they dont exist?
Nice video, but you didn't really touch on the short interest, except to say that the hedge funds "said" they exited. I don't think they did, because as you mentioned the volume that skyrocketed the price was largely the retail crowd. So for your list of why buy at $300, isn't knowing that there's a $XB player on the other side part of the equation?
@@AswathDamodaranonValuation I highly appreciate your consideration to your audiences in doing these technical investments. As well as your constant generosity in sharing your thoughts.
what is going to be the exit strategy ? eventually the stock is going to come to its fundemental value. when the price comes down someone has to loose money. any experts ?
The end game is primarily your 2nd and 3rd points. Now whether any particular end game makes sense or not is up to every individual retail investor to decide.
Great video from such an experienced teacher. Thank you. I appreciate it. What is to be said about future brand/marketing value that may come from GameStop? The meme culture can also come with free publicity, marketing etc. I am not experienced. I am learning and would love to know your view. Also- any input on R.C (chewy founder) and the value in that?
It seems we see crowdsourcing as a model of sourcing wealth and information rather opinions. We had Quantopian shutdown last month while sites like Kickstarter, IndieGoGo, LendingCrowd and Seedr are doing just fine. Thanks for making this video
Great video. As an observer (but not participant) of the activities conducted by the Wall Street Bets community & others, they seem to be purporting the idea of 'diamond hands' (not selling) due to the hope that there'll be a short squeeze (which is based on their obsession with the high short interest and their hope that shorts will cover, creating a squeeze) and for this reason I don't think they are focussed too much on the business fundamentals and future outlook. I would like to hear your views on aggressive naked short selling (such as in $GME with 140% short float at one point) and your personal views if the HFs (who were already up 100%+ when $GME was at $3) got what they deserved, which is a particular opinion I am hearing much more of.
Excellent video professor. Can't these surges in the stock prices of gamestop and other companies actually be good for them in a ways, if the companies are able to sell equity at these prices, and raise cash? This could help ameliorate their debt and balance sheets and give them a better chance at surviving the crisis. Tesla was able to take advantage of its high price and issue a lot of stock.
Last semester you had a student in your undergraduate class who did a valuation on Gamestop. You mentioned in your lecture you would invest into the company the student valued, only if they invested money too. Did you ever follow up with that student?
"New York University professor Edward Wolff tracks wealth in America. He finds that even though almost half of all households owned shares either directly or indirectly, the richest 10 percent of households controlled 84 percent of the total value of these stocks in 2016" - I believe this is a wealth inequality story and the wsb comments seem to confirm this.
I would like to ask if you believe that such patterns of crowd investing undermine principles of traditional finances where investors are assumed to behave as rational economic individuals who are risk-averse and maximize their personal wealth. It also challenges CAPM assumptions where investors are treated as price takers who can not influence prices. In my opinion that also creates additional complications for valuation purposes.
I think the only thing that I would have added is that companies at inflated valuations could issue more stock to take advantage of that price and thereby use the money to pay down debt, or grow the company. I do agree that GME, AMC and others would need to change the overall structure of the company to survive in the long run.
I am a long-time reader of r/wallstreetbets and can answer some of the questions about the community. I don't gamble or ever trade options (YOLOing on options is mostly what the active users of r/wsb do 99% of the time), but follow the developments, recent DDs, etc. Thing is, Gamestop craze really started by discussing the company. People were optimistic about the new CEO, and there was one guy who bought 50k worth of GME calls expiring Apr 2021. Later on, the DDs focused on the short squeeze indeed. That said, the day before GME really took off, BB was being discussed as an amazing company that is severly undervalued - it has transformed its business and its numbers command a higher valuation, or so did the DDs say. BB originally had nothing to do with GME or the discussion on short interest. On their endgame: they believe that there will be a gamma squeeze on monday and tuesday and that this could trigger the short squeeze. Even if it does not, they are arguing that the shorts will have to eventually cover and there are not enough shares traded on the market to do so. Anyway, subreddit's size grew by 300% since thie craze begun so much of what's written there now is very different from the /r/wsb 1 month ago. That said, it's really weird that Melvin Capital went around announcing that they have covered (which does not benefit them if they're hedging) and the subreddit started getting botted by new accounts that spam the same post 10 times an hour calling to cash out and go squeeze AMC. In other words, someone paid to have people or bots write things contradictory to the /r/wsb community consensus to try and force them away from buying and holding GME. These new accounts also used language that came off as if they were grandpas trying to look cool in front of "dem kids". These suspicious developments made the community adopt a more radical and almost political attitude.
Sir, shall I invest in mutual funds or index funds? And never tried any of them other than direct equity at fair value by following some of your thoughts..
Great analysis! I'm just a physicist playing analyst, but we can work backwards and solve for the required growth in revenue and operating margin to "rationalize" any price. At 250 the op margin and revenue would need to be about 15% and 20B by 2031. Then we ask if that's reasonable? Consider the relative size of gaming v pet stuff, the room for digital growth, and the example of chewy (44b). If we assume a semi rational price of 250, what would a reasonable "premium" be during a temporary short squeeze? Looks like 2x! I'd love to hear what you get working the problem backwards.
Professor, since the stock is so overvalued, shouldn't management logical move be to issue a lot of shares and raise a lot of cheap capital? This will diffuse the game of the short and might allow them to build a more sustainable company.
The game was afoot two years ago when the methodology was set in motion. Those that caused what happened over the past week did it a week ago. They will have the first and highest gains and every cent of it was a direct and even exchange of wealth. Those that would be buying at Tuesday's price and send the squeeze into a 70 billion dollar kill were the institutional laggards. What has been on the posts for the past three days is just the lurkers basking in the success of their heroes.
Thank you for such an informative video. I was just wondering if there isn't any upper circuit on these stocks? Why doesn't trading halt when any stock receives so much volatility? Isn't it unethical for brokerage firms to stop trading on these stocks? It should be the regulators who should be taking decisions on this not brokerage houses. Don't you agree?
This will damage the hedge funds, they still need money, the rich won't put money into them out of fear of losing a lot of money. As for the reason, they (hedge funds) borrowed from a pool of 30-50% of lent shares and resold them over from 3-5 times the available shares. That would mean, they sold shares, then reborrowed them and sold over and over until they forced it down to $4. They threatened 14,000 jobs, and made it nigh impossible for Gamestop to a line of credit. Banks get scared of lending, when they see such things. Some vulture would've swept in and picked up Gamestop for cents. The hedge funds were caught with their pants down as were options brokers. Anyway, the market did what it does, transferred wealth from one group to another.
Overall, thank you for an insightful video, professor. I have a question. /r/wsb believes that hedge funds have tried twice to crash the price and create a stampede by artificially decreasing the price by employing an illegal "tactic" known as laddering. /r/wsb people believe that this was exactly what happened when the price gone from ~400 to ~100 in a matter of
Hi Aswath, You mention that the higher price may hurt GME and AMC, however because of the insane stock price shouldn't it help them because they can raise equity at an incredibly cheap price due to their inflated stock price. This should then allow them to pay down their debts and leases easily. Also, you didn't address this in your DCF so I'm curious why? Am I missing something here?
I respect you so much Aswath but i think you forgot one specific reason to buy this stock (I'm commenting this at 22:37 without watching the rest maybe i shouldn't comment) I'm an long term value investor, but I bought Nokia and Blackberry ... just for the memes that is my reason why. Gonna watch the rest of the video now :p
Hi Aswath. I've been investing for a while now, but I struggle with the math, accounting, and financial side of numbers. I'm great with story, research, and digging, but I'd love to work on the numerical, spreadsheet part. Do you have any sort of reading material and recommended classes (currently watching valuation and investment philosophies)? I've also been reading The Intelligent Investor and I've been meaning on picking up Security Analysis...
You can either read his book or just download one of his excel sheets that he releases with the valuation videos and play around. You dont even have to calculate anything. He has provided all the tools there.
Refreshing to hear an unbiased analysis of this!
Professor, Thank you for your insight.
I am a reddit user, and for me the answer to your end game question would be for the chance to sell at a higher price. I have knowingly chosen not to value the company as I do not believe the underlying asset has any bearing on my decision to purchase stock. I know it is not for nostalgic reasons or to help save the company as I am from the UK and had never heard of the brand before buying in.
When typing the above sentence, I also consciously avoided the word investing, replacing it with buying as I am aware this is not an investment. It is gambling, and like many gamblers, my enjoyment comes from the anticipation of what may happen, with the chance to win big adding to the enjoyment, even though I will openly admit to not knowing the odds.
More importantly than the above though, I would go as far as to say that the end game is only a secondary reason for buying. My primary motivation was simply to take part. I wanted to be involved with the story, involved with all of the hype and tracking every move, every news story and the chance to say I was there. It has become a source of repeated endorphin, which in honesty I would rather did not end.
I believe the chance to sell for a higher price is my end game reasoning, as if you were to tell me with certainty that I would lose money buying, then I would not have joined in, yet equally, I am not overly concerned about the end game. Now I have bought my ticket to the show, I am here to watch it play out and am mostly just hoping that it doesn’t get called off early.
lol..same here for the exact reason.
Thanks for your insight professor. I have been a member of the subreddit for about a year now, and from what I've seen in that short period of time, these redditors can have really good, timely analyses, both technical and fundamentals. Sure they love to joke around, and there are some bad actors, but I think it's reasonable to assume that in any group of 2M + (now 6M+) individuals you're bound to get all kinds of people, both good and bad.
For the endgame of GME, I think it's safe to say that many redditors on WSB are holding until the short squeeze, where hedge funds will be scrambling to cover their shorts and by which time the price would be whatever your ask is. I went into the trade at $39 after watching it climb from 4, to 12, to 20; after I was sure that the short squeeze thesis set by DFV (the original poster who entered into a "YOLO" position in 2019 for 50k; he's still holding, and his portfolio is now valued at over $40 million) had substance to it. Up until when I entered my position, people were mostly excited about a VW-like short squeeze and the quick bucks. Sure we hate the hedgefunds that always seem to get bailed out whenever their incredibly risky, levered plays don't pan out with taxpayer money, and Andrew Left is an idiot, but I'd say that the sentiment was more towards excitement about making life-changing money.
Yesterday, however, when Robinhood and other brokers banned the buying of new GME stocks and options, while letting people still sell the position, things took a turn. We saw the hedgefunds continue with their scare tactics in the media, halt trading for GME continuously (Citadel who bailed out Melvin Capital, the "main villain" and short sellers, is a market maker), and commence short ladder attacks. Recently a whistleblower who works at Robinhood posted saying that the short sellers had added to their short positions before calling Robinhood to restrict retail investors from buying GME (over half of the Robinhood account holders own GME). Things got emotional very quickly, and now more people want to see the hedge funds bleed. To borrow youtuber Louis Rossman's words, this is now about whether there is justice in America; will the market manipulators get a slap on the wrist as they always have and get a "fine" that they consider cost of doing business, or will they be justly prosecuted? I guess time will tell but I could see this event playing out as a significant factor that would affect retail sentiment for years to come.
I agree and that is what I was trying to say at the end, when I talked about treating entire groups of people as a monolith, whether it be those on the WSB forum or on Wall Street. I agree that trading should not have been stopped yesterday, because no matter what the motivation, it seemed like the regulators were putting their thumbs down on the scale. I understand the anger, but it is my experience that when you let investing get personal and/or political, your portfolio pays a price.
@@AswathDamodaranonValuation Thanks for the reply professor! I have a question about what you said in the video-- you said that buying targeted companies to induce a short squeeze might not be the best way to damage the hedge funds, and even if you are successful at bringing down a hedge fund, another would simply fill the void. What do you think would be an effective way to level the playing fields? I am cautiously optimistic after seeing politicians tweet about the event and calling for legal proceedings, but do you think anything will/can come out of this (such as making naked short selling ACTUALLY illegal).
Draw more attention to their incompetence and poor returns. In fact, I think WSB does hedge funds a favor by making it sound like they are making money and beating the market (when in fact, they are not). @@JaewooKang
@@AswathDamodaranonValuation ah you said it right in the video and I couldn't even think that far. Appreciate your reply professor, just wanted to add that your valuation videos are awesome! Thank you!
I agree with quite a lot of this but there are also some things that I disagree with so if you could elaborate that would be great.
1. It's possible that the short squeeze continues, but it's definitely already going on, it's the main catalyst of the price reaching so high. The reason the short % is staying largely the same is because more shorts are being opened at a higher price. Also I think it's fairly premature to label the brokerages as villains (not that you did, but in general) because we don't understand the full context of why they did what they did and it's also emotional for a lot of people, particularly those that are long on GME. Robinhood was on the latter half of brokerages restricting/banning the trading of these securities yet they're being singled out, presumably because of their connection with Melvin Capital but because their actions weren't distinguishable from many other brokerages, I don't personally see strong enough evidence to assume guilt yet. Market manipulation is a really loose and very unenforceable term, people are saying that Robinhood manipulated the market because after the ban, mostly because there was a noticeable drop in the stock price decrease that was obviously tied to their action, but was Elon's tweet about gamestop, which irrefutably increased the price also manipulation? Where is the line drawn? Hedge funds, short sellers, people with large twitter followings, brokerages, companies, and even WSB have all manipulated the stock whether intentional or not. Where does it become corrupt? Finally, hedge funds are playing both sides- there were many financial institutions, hedge funds, and other companies that played the upside to this squeeze just as others are playing the downside, so in my opinion I think the narrative of small money vs big money is largely for entertainment. Not trying to start an argument, but I've had trouble getting the other side to a lot of my claims so I was curious if you could explain some more.
DAMODARAN 2024
And 2028
Wat. Explain this
@@RafitoMembroza I am guessing for POTUS 2024.
Sorry guys, Damodaran was born in my nation of India.
Or did you think such a smart person could have been born and educated in the US?
@@caniblmolstr4503 US is plenty of intelligent people. Just go see how many nobel prizes has US.
Now you might think so what
"let's disagree without being disagreeable" love it man.
great, great note. Thank you, Aswath. excellent content as per usual. loved the sentiment towards the end, too. hats off to you, kind sir.
Thank you for this session. It is upsetting how much people are jumping on a trend without even trying to understand what the company they hold does as a business or even what kind of returns they had in prior years. A very short analysis just says to stay away from this company as an investor. There are a lot of great companies out there to choose from other than apple, tesla ,and GME...
You were recommended to me from a comment I made on a Roaring Kitty video. Kind of poetic. Currently reading Narrative and Numbers. Thank you!
Am I exaggerating if I say that this is his best video? It’s super “multidisciplinary” covers a lot of group psychology/sociology on top of the simple yet difficult art of valuation. I’m so stoked with this one ❤️
Loved to see an unbiased opinion.. after reading stories of greed, fear, excitement, anticipations, conspiracies and what not...this feels like I’m out of a meditation session..so thank you..
Get here by reccomedation from Sven Carlin, I like the way you explain your thoughts on the market. You got yourself a sub.
Profesor como siempre excelente disertación
No he podido acceder a la hoja de Excel para revisar la valoración.
Quisiera saber donde puedo bajarla? Muchas Gracias
Thank you for your insight around this professor!
As a bystander, thank you for the succinct and exceptionally clear commentary.
"Maybe I should be on Tiktok" 😂
The most balanced and thoughtful video i have seen on the subject so far. Thanks for your valuable input.
Thank you for the video Professor. You put forth rationale arguments for the end game but we know that crowds are beyond rationality.
Great unbiased view; thanks prof ! Also reg. your endgame question, would like to quote DFV who's the poster child of this trade on r/WSB - 'What's an exit strategy ?'
I guess that sums it much pretty much!😅
Having watched so many of your videos, I’ve been picking up on your philosophical side in the videos as well. “Let’s disagree without being disagreeable” so much to learn from you dear professor! Thank you * 1 mn
Thank you for the lesson professor, definitely the biggest threat to hedge funds is their own performance and not redditors who are putting their savings on the line
Thank you for this professor. We are lucky to hear your insight and perspective please never stop.
very curious of your thoughts on Roaring Kitty's (aka u/DeepF*******Value) valuation of GME which started the Reddit movement.
I suppose Very good. He did his own dcf and he came up with an optimistic price point of ~40$
Was waiting for your view on it.Thanks Professor.
I found you through the Pivot podcast. I find your ideas well thought out and communicated. Cheers
Whilst I agree that new hedge funds may take their place if others fail, the example which can be made of GameStop possibly shocks some hedge funds from their complacency and greed shorting a stock in such excess. The hedge fund industry may survive but possibly with greater fear that they may get burned if they go so short in the future
Even if the finance is ignored........the clarity of thought and skills of articulation.......my gawd!! he's amazing. Its a masterclass in it's own right
Great video thank you. I especially like your last part. Civility goes a long way
19:45 Why Gamestop does not take an advantage of this high price? Could they issue more shares, because there is demand for those at very high valuations?
I'm curious if you are aware Keith Gill, the guy who brought the GME thesis to WSB in June 2020, references you as one of his primary inspirations for learning fundamental analysis that led him to recommend GME. So in a way, you are the reason this is happening. 🤪
That's a good point! I wasn't aware of this link/connection but thanks for pointing it out. Funny how these things happen.
If someone listens to Aswath D lessons and from that he thinks the next stock to buy is GameStop he should seriously rewatch the lessons because he didn’t learn anything he was supposed to. Valuations are all about future cash flows discounted to the present. Clearly the dude wasn’t doing value investing. Nice try though.
@@eminhawa well, he made more than $100 million on the trade to date, so maybe he knows something you missed?
I get it he made money but you are trying to call it value investing. You need to understand what value investing is. You can make money all of different ways this one wasn’t value investing.
@@eminhawa you say that, but Keith's original thesis exactly aligns with everything Damodaran said in this video, and Keith credits him as the main inspiration for his analysis. Also, you keep saying 'you' as if I made the valuation call. Keith Gill made the analysis, the investment, and credited Damodaran, who agreed 100% with his valuation call in this video... not sure what else to tell you. Keith predicted on his analysis that GME should be $20 when it was $2. He turned out more than right on his call.
I'd love to hear you comment on the idea of a short squeeze, the possibility of one happening, and short interest being higher then 100%
It is unusual but not impossible. This Motley Fool article does a pretty good job of explaining why: www.fool.com/investing/2021/01/28/yes-a-stock-can-have-short-interest-over-100-heres/
@@AswathDamodaranonValuation isn't it illegal to be short more than can be covered?
@@AswathDamodaranonValuation It's basically like banks creating money by making loans, isn't it? But in this case, the hedge funds are printing shares by shorting. By shorting 100% of the float, they've essentially doubled the supply of shares available to be traded (or tripled, since half the float isn't even tradeable due to being held as part of indexes or insiders).
@@Qadain Please read the article
@@evenaicantfigurethisout Please read the article
Thank you sir, this was like a sermon. Much needed.
Thanks for the insights into this issue dear Professor! One thing that is above my head is how can short interest be >100% of float? No checks and balances in this area? The brokers are able to borrow more than what is there in the market?
Great Explanation professor. Irrational exuberance proved again
I'd say it's to make some quick cash off a short squeeze and show hedge funds that they aren't invincible monoliths; in addition to just for the fun of it.
because hedge funds thought they were invincible
Don’t doubt they also made money in the squeeze. Not every hf shorted gme
WSBer here, been into GME since $9. The long's wish for GME is for Ryan Cohen & team to reinvigorate the Gamestop brand to make the company both a strong e-commerce platform and a physical gaming/technology hub rather than simply a store. A mascot for the gaming world. Could happen, as there is no single company that covers all of the gaming world. Gaming heaven. No other company can do that, not Microsoft, not Sony, not Nintendo, not Steam. They'd all have to partner with Gamestop.
Far fetched? Sure, but that would enable the ideal end game, which is that the company becomes deserving of a three or four digit stock price. And all the people who are going in now won't have to sell at a loss, because investors are still buying at high four digits. This probably won't happen, but THAT's the DREAM.
The reason why I haven't gotten out yet is the SS. If I can double what I have now, I'm gonna sell quite a bit. But that's the end game for THIS chapter, while the future of Gamestop will hopefully be a different matter. And of course, a company doesn't deserve a price based on potential, but result.
Thanks for a great video. The summary in the end about the riskpremium is golden and food for thought.
Thank you professor, stay safe and healthy
Thanks for your analysis! What went wrong and right w.r.t Robin-hood and what should have RH done and what’s the further of robinhood.
Prof AD - I just needed to hear this.
The short squeeze amongst big money players was immortalised in the James Clavell book (and tv mini-series) Noble House. It's a fun read/ watch though you may have to dig up VHS tapes of it.
I’ve been loving the torrent of recent content! Thank you so very much for your thoughtful analysis of the quagmire afflicting the market.
Professor, how did you get the 12% probability of failure from the Moody's rating?
Moodys estimates default rates for bonds in different ratings categories, over the long term. The probability of default for Ba1 rated bonds over a 10 year period was 11.78%. I rounded up to 12%.
@@AswathDamodaranonValuation Thank you.
Thanks for your insight professor! As a retail investor and a small potato working in finance, my 2cents: GME alongside other heavily shorted stocks will eventually crash back to its fundamental levels if history of Dryship, Tilray, and stocks in the 2000.com was of any indication.
Bigger picture, I'd say the motivation behind the frenzy is 2 folds: 1) $ and 2) Fighting against the system (or the high table if you are a fan of John Wick). For the 1) money part, there's still money to be made and frankly I expect this mania to drag on for a while; that said, it's a shark tank, and investors are advised to get in/out quick and make sure your body parts remain intact before considering next move. For the 2) fighting against the big boys, Robinhood did make it personal for many retail investors as it appeared to side with the wall street; though I'd say the platform probably encountered operation mismanagement and potentially ran into liquidity issues, thus leading to the stock trading restriction. Imagine if they didn't do that and the platform eventually goes insolvent, the repercussion is probably more significant for everyone trading on that platform and the financial markets. The root cause is the country is divided I'd say.
Lastly, where we are headed: The longer this drags on and the more political forces are involved will have a direct and negative impact on investors' confidence (both retail and institutional) and Wednesday/Friday's pullback will not be the last selloff we will witness. As someone who is a firm believer of fundamental analysis, I am rather concerned about the implications of this mania as some stocks departed from earth based on "morale speeches" and "hold the line" crowd mechanism - this never ends well. Personally, I would go to cash until the dust settles.
Little bit of the topic but i will ask anyway, what's behind valuation for 10 years as i saw in most of your valuations except S&P 500. Which i understand i think because as you mentioned median growth period for a high grow company is about 3 to 5 years. Thank you in advance Aswath.
Are retail traders really moving the price of GME this much? According to Yahoo Finance, top institutional holders of GME stock include FMR, LLC with 9,534,090 shares and Blackrock Inc. with 8,600,507 shares as of Sep 29, 2020. Am I missing something here? Thank you.
Interesting thought, but it's more likely that Fidelity, Vanguard and Blackrock held these through their weighted index fund offerrings or managed portfolios. Which might mean that they are not actively participating in the trading activity and have held these shares for a while. It would be an interesting thing to see if some of those index funds will be forced to sell gamestock now to rebalance their portfolios or managed portfolios sell their holdings to rake in the profits.
Thank you for emphasizing the message of valuations. What are your suggestions on the investment opportunities you see if S&P is overvalued?
Thank you for crisp and easy to understand video on the Gamestop saga. Really insightful. I have a question which I am trying to understand. Let's assume, I have enough money, the maximum number of shares I can buy of a company is 100% (or all shares outstanding in the market). But the graph you showed on Slide 9 showed the short interest higher than 100% in recent months. How can more than 100% shares be shorted when they dont exist?
5:23 I think the professor meant the more it goes up, the higher it costs to buy it back. The amount of shares short sellers need to cover is fixed.
I caught the same thing too. I think the professor misspoke. I thought I was going crazy. ☺️
Nice video, but you didn't really touch on the short interest, except to say that the hedge funds "said" they exited. I don't think they did, because as you mentioned the volume that skyrocketed the price was largely the retail crowd. So for your list of why buy at $300, isn't knowing that there's a $XB player on the other side part of the equation?
Love the new mic. Sounds awesome
Thank you. Switched to a Rode lavplus from my Blue Yeti... My home office is starting to look like a sound studio.
@@AswathDamodaranonValuation I highly appreciate your consideration to your audiences in doing these technical investments. As well as your constant generosity in sharing your thoughts.
@@AswathDamodaranonValuation sounds like smooth filter coffee
@@danielheckel2755 I'll second that. Prof Damodaran's filming/ sound quality is often better than videos released by big institutions like the LSE.
Thank you. I started to love your content. God bless you and your family
Thank you teacher. Always good to listen to your thoughts.
Thank you Professor for sharing your opinion!
what is going to be the exit strategy ? eventually the stock is going to come to its fundemental value. when the price comes down someone has to loose money. any experts ?
The shorts have not been covered right? There has not been enough volume to cover 120%
Thank you for your insights! Always great to hear your thesis on the market.
The end game is primarily your 2nd and 3rd points. Now whether any particular end game makes sense or not is up to every individual retail investor to decide.
Professor, I got to say you are literally the best.
Was waiting for this post since Sunday. Thank you
Very informative video. Thank you for sharing your wisdom with us!
Great video from such an experienced teacher. Thank you. I appreciate it. What is to be said about future brand/marketing value that may come from GameStop? The meme culture can also come with free publicity, marketing etc. I am not experienced. I am learning and would love to know your view. Also- any input on R.C (chewy founder) and the value in that?
Thanks to share the datas and fundamentals of your view.
It seems we see crowdsourcing as a model of sourcing wealth and information rather opinions. We had Quantopian shutdown last month while sites like Kickstarter, IndieGoGo, LendingCrowd and Seedr are doing just fine. Thanks for making this video
Thank you professor for very crystal clear information.
Great video. As an observer (but not participant) of the activities conducted by the Wall Street Bets community & others, they seem to be purporting the idea of 'diamond hands' (not selling) due to the hope that there'll be a short squeeze (which is based on their obsession with the high short interest and their hope that shorts will cover, creating a squeeze) and for this reason I don't think they are focussed too much on the business fundamentals and future outlook.
I would like to hear your views on aggressive naked short selling (such as in $GME with 140% short float at one point) and your personal views if the HFs (who were already up 100%+ when $GME was at $3) got what they deserved, which is a particular opinion I am hearing much more of.
Excellent video professor. Can't these surges in the stock prices of gamestop and other companies actually be good for them in a ways, if the companies are able to sell equity at these prices, and raise cash? This could help ameliorate their debt and balance sheets and give them a better chance at surviving the crisis. Tesla was able to take advantage of its high price and issue a lot of stock.
Last semester you had a student in your undergraduate class who did a valuation on Gamestop. You mentioned in your lecture you would invest into the company the student valued, only if they invested money too. Did you ever follow up with that student?
"New York University professor Edward Wolff tracks wealth in America. He finds that even though almost half of all households owned shares either directly or indirectly, the richest 10 percent of households controlled 84 percent of the total value of these stocks in 2016" - I believe this is a wealth inequality story and the wsb comments seem to confirm this.
thanks for your wisdom professor.
Aswath is elite. Thanks again for the lesson.
Thank youfor the analisys professor.
I would like to ask if you believe that such patterns of crowd investing undermine principles of traditional finances where investors are assumed to behave as rational economic individuals who are risk-averse and maximize their personal wealth. It also challenges CAPM assumptions where investors are treated as price takers who can not influence prices. In my opinion that also creates additional complications for valuation purposes.
Sir what's your view on current scenario on Indian banking system?
Professor, when are you posting your next Corporate Finance class on iTunes U ?
Does anyone know how he gets these charts? Does he generate them himself or through sites like YCharts?
Wish he commented about short float being 100%+
Wasnt it 180%?
He didn't say it but he showed it on the chart around 11:00 min mark.
I have been trying to figure out how that happens. Is it naked shorting or something?
@@tylerhutson4687 Same share is shorted more than once.
I think the only thing that I would have added is that companies at inflated valuations could issue more stock to take advantage of that price and thereby use the money to pay down debt, or grow the company. I do agree that GME, AMC and others would need to change the overall structure of the company to survive in the long run.
I'm new to your channel, but I like your style within the first minute. :)
I am a long-time reader of r/wallstreetbets and can answer some of the questions about the community. I don't gamble or ever trade options (YOLOing on options is mostly what the active users of r/wsb do 99% of the time), but follow the developments, recent DDs, etc.
Thing is, Gamestop craze really started by discussing the company. People were optimistic about the new CEO, and there was one guy who bought 50k worth of GME calls expiring Apr 2021. Later on, the DDs focused on the short squeeze indeed.
That said, the day before GME really took off, BB was being discussed as an amazing company that is severly undervalued - it has transformed its business and its numbers command a higher valuation, or so did the DDs say. BB originally had nothing to do with GME or the discussion on short interest.
On their endgame: they believe that there will be a gamma squeeze on monday and tuesday and that this could trigger the short squeeze. Even if it does not, they are arguing that the shorts will have to eventually cover and there are not enough shares traded on the market to do so.
Anyway, subreddit's size grew by 300% since thie craze begun so much of what's written there now is very different from the /r/wsb 1 month ago.
That said, it's really weird that Melvin Capital went around announcing that they have covered (which does not benefit them if they're hedging) and the subreddit started getting botted by new accounts that spam the same post 10 times an hour calling to cash out and go squeeze AMC. In other words, someone paid to have people or bots write things contradictory to the /r/wsb community consensus to try and force them away from buying and holding GME. These new accounts also used language that came off as if they were grandpas trying to look cool in front of "dem kids". These suspicious developments made the community adopt a more radical and almost political attitude.
Thank you for this video prof
Sir, shall I invest in mutual funds or index funds? And never tried any of them other than direct equity at fair value by following some of your thoughts..
Was waiting for this, thank you.
Gamestop is the most top of mind gaming brand after this event. This is huge potential for the company with a good board
Thank you Professor! Was waiting for your opinion.
Thank you for your voice of reason.
Great insight. Thank you!
Very insightful,thank you Prof.
Thank you professor for explaining the situation! Good luck to you in upcoming! year and going forward!
Great analysis! I'm just a physicist playing analyst, but we can work backwards and solve for the required growth in revenue and operating margin to "rationalize" any price.
At 250 the op margin and revenue would need to be about 15% and 20B by 2031.
Then we ask if that's reasonable?
Consider the relative size of gaming v pet stuff, the room for digital growth, and the example of chewy (44b).
If we assume a semi rational price of 250, what would a reasonable "premium" be during a temporary short squeeze? Looks like 2x!
I'd love to hear what you get working the problem backwards.
*Big fan of your online classes! I've been taking them at home for years!
Professor, since the stock is so overvalued, shouldn't management logical move be to issue a lot of shares and raise a lot of cheap capital? This will diffuse the game of the short and might allow them to build a more sustainable company.
The game was afoot two years ago when the methodology was set in motion. Those that caused what happened over the past week did it a week ago. They will have the first and highest gains and every cent of it was a direct and even exchange of wealth. Those that would be buying at Tuesday's price and send the squeeze into a 70 billion dollar kill were the institutional laggards. What has been on the posts for the past three days is just the lurkers basking in the success of their heroes.
Thank you for such an informative video. I was just wondering if there isn't any upper circuit on these stocks? Why doesn't trading halt when any stock receives so much volatility? Isn't it unethical for brokerage firms to stop trading on these stocks? It should be the regulators who should be taking decisions on this not brokerage houses. Don't you agree?
It is not unethical nor illegal. In fact, it is normal to have stops when volatility is high.
Damn homie, i read your book back in uni for a finance subject, didnt know u a youtuber 🙀
This will damage the hedge funds, they still need money, the rich won't put money into them out of fear of losing a lot of money.
As for the reason, they (hedge funds) borrowed from a pool of 30-50% of lent shares and resold them over from 3-5 times the available shares. That would mean, they sold shares, then reborrowed them and sold over and over until they forced it down to $4. They threatened 14,000 jobs, and made it nigh impossible for Gamestop to a line of credit. Banks get scared of lending, when they see such things. Some vulture would've swept in and picked up Gamestop for cents. The hedge funds were caught with their pants down as were options brokers.
Anyway, the market did what it does, transferred wealth from one group to another.
Awesome lecture, thank you professor!
Overall, thank you for an insightful video, professor. I have a question.
/r/wsb believes that hedge funds have tried twice to crash the price and create a stampede by artificially decreasing the price by employing an illegal "tactic" known as laddering. /r/wsb people believe that this was exactly what happened when the price gone from ~400 to ~100 in a matter of
Hi Aswath, You mention that the higher price may hurt GME and AMC, however because of the insane stock price shouldn't it help them because they can raise equity at an incredibly cheap price due to their inflated stock price.
This should then allow them to pay down their debts and leases easily.
Also, you didn't address this in your DCF so I'm curious why?
Am I missing something here?
I just want WSB to win for the jokes & fun. This whole thing is hilarious. GME to the moon🚀🚀🚀
I respect you so much Aswath but i think you forgot one specific reason to buy this stock (I'm commenting this at 22:37 without watching the rest maybe i shouldn't comment)
I'm an long term value investor, but I bought Nokia and Blackberry ... just for the memes that is my reason why.
Gonna watch the rest of the video now :p
Hi Aswath. I've been investing for a while now, but I struggle with the math, accounting, and financial side of numbers. I'm great with story, research, and digging, but I'd love to work on the numerical, spreadsheet part. Do you have any sort of reading material and recommended classes (currently watching valuation and investment philosophies)? I've also been reading The Intelligent Investor and I've been meaning on picking up Security Analysis...
You can either read his book or just download one of his excel sheets that he releases with the valuation videos and play around. You dont even have to calculate anything. He has provided all the tools there.