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Aswath Damodaran - Valuation

Lesson 1 - Intro to Valuation

Problems in valuation: 1. Bias 2. Uncertainty

Compares investing to lemmings jumping of a cliff.

Valuation is like a life west. It doesn’t mean you won’t make mistakes, it will just make them slower and hurt less. Gives your rational side a chance to speak.

In models the numbers are estimates and therefore can’t be counted on being fully objective.

Less is more. If you can value a company with 3 parameters , don’t go looking for five.

There are three approaches to valuation

  • Intrinsic Valuation (fundamentals, it’s all about the business) Basically present value of all expected cash flows

  • Relative Valuation (looking at prices for similar companies)

  • Option pricing models based on contingent cash flows. Essentially cash flows that are dependent on a certain event (fda approval, oil price going up, etc)

Lesson 2 - Intronsic Valuation - Foundation

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