Aswath Damodaran

The Dean of Valuation: Aswath Damodaran

For anybody who has taken Professor Damodaran’s classes, they know that this man despises general motors and that his class has to mention Yahoo and the stake it holds in the Alibaba group. For more than three decades Professor Damodaran has inspired thousands of students to look beyond pricing and understand what a company is actually made up of, he is very quick to differentiate between pricing and valuation as soon as somebody broaches the topic.

Damodaran went to the famous Loyola College and then did his MBA from IIM Bangalore. It was here surrounded by IITians, he had his first brush with corporate finance. He was one of the few non-engineers in his class. He followed the script for a while. His initial liking for corporate finance took him to the US for another MBA from the UCLA in the hope of landing the usual banking or consulting job.
It was during his first five minutes as an teaching assistant in an accounting class that Prof Damodaran discovered his passion. He realised that this was what he wanted to do with the rest of his life. Right after that class, he marched up to the finance department, enrolled himself for the doctoral programme and embarked on an academic life.

Damodaran today influences many.

He is a strong critic of value investing and believes that time has changed since Warren Buffett started investing and it is futile to copy buffett’s strategy today
When Professor Aswath Damodaran sets out to teach a class or give a lecture, his goal is to convert each student into a born again finance enthusiast. Damodaran’s passion for teaching finance has garnered him high marks for teaching excellence. In 1988 and 1990 he was presented with Stern’s Excellence in Teaching Award and NYU’s Distinguished Teaching Award, respectively. The impression he has left on MBA students over the years is demonstrated by his repeated rank as the leading vote-getter for Professor of the Year, an award he has received five times during his career at Stern.

Professor Damodaran’s enthusiasm stems from his research and interests in the areas of valuation, corporate finance, and investment management. He has written several key texts on these topics; texts which are highly regarded and widely used throughout academia. In 2011 he partnered with Anant Sundaram from the Tuck School of Business to create an iPad app for investors. uValue is a free valuation tool available for investors on iTunes.

He has a strong voice which influences decision making in the financial markets. Not being a consultant or an advisor allows him to voice his opinions on companies like Tesla without any cause or worry.

Time and time again, he has stressed on the importance of telling a story through valuation.

Here are a few quotes by him chosen from his books

“Growth requires reinvestment.”
― Aswath Damodaran, The Little Book of Valuation: How to Value a Company, Pick a Stock and Profit

 “Einstein was right about relativity, but even he would have had a difficult time applying relative valuation in today’s stock markets.”
― Aswath Damodaran, THE LITTLE BOOK OF VALUATION: HOW TO VALUE A COMPANY PICK A STOCK AND PROFIT

“A firm can have value only if it ultimately delivers earnings.”
― Aswath Damodaran, The Little Book of Valuation: How to Value a Company, Pick a Stock and Profit

“Avoid companies that are cavalier about issuing new options to managers”
― Aswath Damodaran, The Little Book of Valuation: How to Value a Company, Pick a Stock and Profit

“The intrinsic value of an asset is determined by the cash flows you expect that asset to generate over its life and how uncertain you feel about these cash flows.”
― Aswath Damodaran, The Little Book of Valuation: How to Value a Company, Pick a Stock and Profit

“Growth firms get more of their value from investments that they expect to make in the future and less from investments already made.”
― Aswath Damodaran, The Little Book of Valuation: How to Value a Company, Pick a Stock and Profit

“Success in investing comes not from being right but from being wrong less often than everyone else.”
― Aswath Damodaran, The Little Book of Valuation: How to Value a Company, Pick a Stock and Profit

His message to upcoming investors is that company managements are the last persons to talk to if you want to build a realistic valuation model. It is far better to talk to customers, workers, suppliers, associates.

He stresses on the need to keep feedback loops open.

He often talks about how an email from Bill Gurley, who was on Uber’s board of directors, vastly changed his story about Uber and caused him to sharply revise his valuation upwards. Basically, Gurley made the point that Damodaran was wrong in valuing Uber as a car-services company, when in fact, it was a logistics and delivery company. That small tweak led to a vast upward revision in Uber’s potential market size in the professor’s spreadsheet and upped its valuation by many billion dollars.

One thing that everybody in the markets should remember is, Don’t fall in love with your spreadsheet or story. Revise them as many times as needed based on feedback from those in the know. That’s the recipe for a perfect dish.