Aswath Damodaran's investment picks and returns?

[schin]

I know there has been a lot of discussion about Cramer... but, has anyone looked as Aswath Damodaran's investment returns on his posts? I've seen his valuations on Tesla and Citigroup... and it's well thought out.

 

Anyone done any analysis or tracking on his picks from his YouTube/blog postings?

 

Thanks,

Bill

[Xerxes]

I have not seen.
 

just my thoughts: The professor cannot be compared in any way to Cramer. Not even in the same zip code. 
 

I got nothing against Cramer. But he is what he is. A product of multi-decade low interest rate filled with lots of charisma and evergreen optimism. His program is no different than HGTV for those who like houses. Just a TV show to spice things up. 
 

The professor however is a real stock picker with workable framework. You can disagree on his framework but you cannot deny that there is well thought out framework somewhere in his mind. 

[schin]

14 hours ago, Xerxes said:

I have not seen.
 

just my thoughts: The professor cannot be compared in any way to Cramer. Not even in the same zip code. 
 

I got nothing against Cramer. But he is what he is. A product of multi-decade low interest rate filled with lots of charisma and evergreen optimism. His program is no different than HGTV for those who like houses. Just a TV show to spice things up. 
 

The professor however is a real stock picker with workable framework. You can disagree on his framework but you cannot deny that there is well thought out framework somewhere in his mind. 

 

@Xerxes - I agree.  I expect Aswath's returns to be better and more well thought out than Cramer's, but it's hard to evaluate performance because they do not run a hedge fund or have anything that is auditable.

 

I believe he mentioned he has a portion invested in BRK, but I am not sure if he has beaten the S&P. Or what his track record is. I just posted his thoughts on Citi (on that thread) and you can evaluate his assumptions and rationale. I think the stock will big higher than his valuation, but he put puts it all in a model.

[mattee2264]

I think the limitation of being a valuation expert is that most stocks are efficiently priced based on the general consensus as to their prospects and their track record etc.

What you will be missing is the non-consensus insights that make the difference and is where the real money is made as that requires deep industry knowledge, expert judgement, predictive powers and pattern recognition that only the special few have. 

 

For fun over the years I used to read investment pitches in Outstanding Investor Digest, Value Investor Insight, Value Investors Club and so on.

Most of them were well written and convincing and identified either deep undervaluation or obscene overvaluation. But if you were to see how things turned out in most cases these ideas would have done no better and often worse than just holding the S&P 500.

 

Also the DCF framework which is orthodoxy in modern finance while theoretically correct has some serious practical limitations and the quest for false precision which is necessary for an intellectually satisfactory valuation is going to inevitably result in mistakes.

 

To me it makes a lot more sense to just pay what looks like a fair price for a company that is fairly certain to see its earnings increase over the next 5, 10, 20 years. That doesn't really require a formal DCF and shortcuts such as PE multiples can often do just fine after adjusting earnings for any obvious distortions. Or alternatively look for situations where investors are clearly being far too pessimistic and short-sighted resulting in cheap valuations and good profit potential for a clear-minded and patient investor happy to wait for the dust to clear and sentiment to improve. It isn't textbook but it seems to be how good investors tend to do it in practice. 

 

 

 

 

Edited December 29, 2023 by mattee2264

[Luke]

5 minutes ago, mattee2264 said:

Also the DCF framework which is orthodoxy in modern finance while theoretically correct has some serious practical limitations and the quest for false precision which is necessary for an intellectually satisfactory valuation is going to inevitably result in mistakes.

Honestly, if I look at damodarans valuations I feel bad for him, he puts in SO many numbers and builds the most complex models for what? So he can see if it is a good investment or not? Isn't that obvious with some basic school math and as already said by mr.pabrai, if its not easily obvious its likely not a good investment? 

5 minutes ago, mattee2264 said:

To me it makes a lot more sense to just pay what looks like a fair price for a company that is fairly certain to see its earnings increase over the next 5, 10, 20 years. That doesn't really require a formal DCF and shortcuts such as PE multiples can often do just fine after adjusting earnings for any obvious distortions.

Exactly. Then also the whole debate about relative valuation, terminal value, perpetual growth rates etc...just think about if the business is still here in 10 years and if it is moaty enough for that, apply a low conservative multiple and if things look good still go for it...

5 minutes ago, mattee2264 said:

Or alternatively look for situations where investors are clearly being far too pessimistic and short-sighted resulting in cheap valuations and good profit potential for a clear-minded and patient investor happy to wait for the dust to clear and sentiment to improve. It isn't textbook but it seems to be how good investors tend to do it in practice

+

[Luke]

And i loved it at this year BRK meeting that some fun was made about damodaran

[Sweet]

19 minutes ago, Luca said:

Honestly, if I look at damodarans valuations I feel bad for him, he puts in SO many numbers and builds the most complex models for what? So he can see if it is a good investment or not? Isn't that obvious with some basic school math and as already said by mr.pabrai, if its not easily obvious its likely not a good investment? 

Exactly. Then also the whole debate about relative valuation, terminal value, perpetual growth rates etc...just think about if the business is still here in 10 years and if it is moaty enough for that, apply a low conservative multiple and if things look good still go for it...

+

This.  If you have to get out you calculator and run all sorts of models then it’s probably a pass.

[Luke]

16 minutes ago, Sweet said:

This.  If you have to get out you calculator and run all sorts of models then it’s probably a pass.

 

 

 

 

Is this necessary for understanding alphabet at 25x earnings? lol

 

 

Edited December 29, 2023 by Luca

[Luke]

All this probably does is justify his salary and position as a professor  

[Sweet]

Lol, yes.  He is excellent though, and his classes are much more than valuations, you learn about finance, modelling, capital and all sorts of other things.  I regularly check his blog - especially if he covers companies I own or thinking about owning.

 

Edited December 29, 2023 by Sweet

[villainx]

29 minutes ago, Luca said:

All this probably does is justify his salary and position as a professor  

once you have a model up, it’s not that much work to add companies to it, or adjust it. 
 

and it’s good for weighing various companies, looking at levers and whatnot, and to keep track of moment in time analysis (like historical track record). 
 

I agree it’s a little one dimensional but I assume it isn’t his sole basis. 

[Spekulatius]

Damodaran’s model actually isn’t that complex. He uses the same spreadsheet over and over again and actually starts with a story and the tries to put numbers behind that story. Even better, he posts his spreadsheet so you can download it and change input variables to your liking and based on what you think the story is. had also clearly keeps track of his assumptions and there is total transparency and he will tell in follow up posts where reality different from his model. I think it’s a great and transparent approach.

 

He did some good work on Tesla for example where he took apart the underlying assumption that make or break this investment. I find this very helpful. It is also not about the result (of the spreadsheet) but about the way you get there.

[james22]

2 hours ago, mattee2264 said:

But if you were to see how things turned out in most cases these ideas would have done no better and often worse than just holding the S&P 500.

 

I expect the average Boglehead probably has better returns than most professionals.

[rohitc99]

Why do his returns matter ? he is teaching and not managing money. we can learn whatever makes sense to us and discard the rest

Edited December 29, 2023 by rohitc99

[ValueArb]

1 hour ago, rohitc99 said:

Why do his returns matter ? he is teaching and not managing money. we can learn whatever makes sense to us and discard the rest

 

His returns don't matter. What I take exception to is the idea that what he's teaching is useful for investing. DCFs are great fun to play with, but tweaking inputs in a minor amount can give you massively different valuations. They aren't useful for investing, they are useful for investment banking where you need a complex model you can tweak to generate a valuation that gets clients to give you money.

 

I agree with Munger and Buffett that if you have to build a complex model to value something, that is telling you it should be a pass.

[Gregmal]

2 hours ago, rohitc99 said:

Why do his returns matter ? he is teaching and not managing money. we can learn whatever makes sense to us and discard the rest

100%. It’s entirely academic. No one is forced to use it. 
 

On a similar note, the longer my journey through the investment universe goes on, the more and more I realize how much time and effort people TOTALLY waste, worrying about all sorts of shit that they’ve been conditioned to think matters, but doesn’t. 
 

Personally, I haven’t watch financial news related TV in probably 8 years. No cnbc, no Bloomberg, nada. My dad asks for Bloomberg radio on the way to golf? Nah, z100 old man. Barrons? IBD? Those guys I realized are chumps maybe a decade ago. Pretty much everyone on X, which if you weren’t aware, was formerly known as Twitter, IS TRYING TO SELL you something! Textbooks? They teach one to memorize, not to think…garbage. 
 

So yea, pretty much everything people are told is a fallacy predicated on a system that needs you to be gullible. All one really needs in order to be a decent investor is some common sense and a reasonable ability to live in the real world. 

[rohitc99]

1 hour ago, ValueArb said:

 

His returns don't matter. What I take exception to is the idea that what he's teaching is useful for investing. DCFs are great fun to play with, but tweaking inputs in a minor amount can give you massively different valuations. They aren't useful for investing, they are useful for investment banking where you need a complex model you can tweak to generate a valuation that gets clients to give you money.

 

I agree with Munger and Buffett that if you have to build a complex model to value something, that is telling you it should be a pass.

sure, but then he is putting it out there for people to decide. And DCF especially scenario analysis can help look at assumption built into the price. one may not use it to make investment decision, but its not a bad tool for thinking especially if you are new to all this and just starting off

 

anyway to each his own

 

 

[SongDonkey.AI]

@Gregmal100% agree with you! Thanks for this post!

Where do you source financial/investment info?

[Gregmal]

5 minutes ago, SongDonkey.AI said:

@Gregmal100% agree with you! Thanks for this post!

Where do you source financial/investment info?

If it aint in an SEC filing or a basic newsfeed like TIKR or even Google search for last 24 hours its probably just nonsense. Like analyst opinions LOL

 

Otherwise, I just source things from the real world. Everyone uses certain products. Insurance is a mighty good business. We all need a roof and food. Kids love YouTube and video games, high margins are better than low margins, low maintenance is better than capital intensive, etc....we dont need some chump with a subscription service telling us this stuff do we?

 

On valuations, Ive seen enough people who think theyre mighty smart make total asshats out of themselves making valuation calls....theres one methodology and it aint Damadorians...its Buffett's "is he fat" test. If the business is "fat" IE clearly great, and not obscenely expensive, I could give two shits less whether folks wanna debate whether 18x or 26x is the appropriate multiple...Ill just own it through the cycle, no biggie.

[ValueArb]

28 minutes ago, rohitc99 said:

sure, but then he is putting it out there for people to decide. And DCF especially scenario analysis can help look at assumption built into the price. one may not use it to make investment decision, but its not a bad tool for thinking especially if you are new to all this and just starting off

 

anyway to each his own

 

 

 

To clarify, the discounted value of future cash flows is absolutely the value of any investment and he's the best at teaching it, and should be praised for doing so. I always recommend new investors always learn by running sample DCFs to see how different growth rates, growth periods and risk free rates affect valuations.

 

But that said I also think the proper DCF inputs for any specific investment are unknowable, as is it's exact valuation. As @Gregmal said, its a fat test. If its not obviously fat (like me where I look nearly not fat from some angles) then its not a great investment.  My favorite investments are where any aspects of its value that are unclear are just frosting on a cake. If I'm right on them it's a fantastic investment, but even if I'm wrong on the frosting the cake makes it clearly a very good investment.

[SongDonkey.AI]

@Gregmalgreat explanation. Thanks a lot!

[james22]

2 hours ago, Gregmal said:

Personally, I haven’t watch financial news related TV in probably 8 years. No cnbc, no Bloomberg, nada.

 

I watch and read a lot of of financial news, but mostly for entertainment.

 

Only really moved by big picture arguments though: ESG (Energy position), Reshoring (BRK position), "Second Half of the Chessboard" (Tech position, no International position), etc. None of which would I source from the real world.

 

Extending duration (MMF to ITT) back in October was probably the only tactical move I've made based on "news" in some time.

[KCLarkin]

On Invest Like the Best, he said that he would stop active investing if he wasn't getting results. That implies that he is getting results.