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Damodaran's Valuation Class
This is an awesome, awesome course. It seems like it may be the best course out there on the web for people interested in finance.
Here's the link to the particular class I'll be talking about:
http://pages.stern.nyu.edu/~adamodar/Ne ... fall11.htm
Damodaran seems to be uploading his newer classes, so you can actually watch his Spring 2012 Valuation class now.
The webcasts and other class material can be found at this link:
http://pages.stern.nyu.edu/~adamodar/Ne ... quity.html
Class 1:
Link to the class: http://echo360.stern.nyu.edu:8080/ess/e ... 5f31ae4d2a
- Describes the history of the course; it was originally a "Security Analysis" course that he shifted to focus on valuation.
- Three main types of valuation: intrinsic, relative, and contingent; he'll be spending 1/3 on relative b/c he is a proponent of intrinsic
- ~min24 he says that the US analysts' tendency to use the past to predict the future is a result of the relative stability of western markets over the past 50+ years. he says that no analyst would be able to get away with that in an emerging market. it's a significant point b/c things may get crazy in the US and a lot of analysts are still pointing to the past to tell people what to do.
- min 25 - he says we may need to let go of the idea that there are "developed" and "emerging" countries (b/c all countries are now fluctuating between both categories)
- min 25 - he says we may need to let go of the idea that there are "brazilian" companies and "american" companies and "indian" companies. everything is global now.
- he spends a significant amount of time talking about the mechanics of the course (grading, groups, etc.)
- around 1 hr in he says that he thinks most people in finance, including most people who do valuation for a living, think valuation is fruitless (b/c you need to chase the market? not sure)
- min 1:07 - "The seven most deadly words in investment valuation are, 'They must know something that you don't' ".
- 1:22 - if you want to impress ignorant people, never come up with a nice round valuation: make the valuation $88.47, not $90.
Class 2:
Link to the class: http://echo360.stern.nyu.edu:8080/ess/e ... 4c7f0082d3
- First 20 mins or so he describes the mechanisms by which various groups manipulate valuations for their own benefit.
- VCs manipulate valuations via the required rate of return; they'll grant entrepreneurs lots of concessions on anticipated growth and earnings, and then get what they want via required RoR.
- people trying to reduce the valued size of a business (for tax purposes etc) do this by using discounting rules. he mentions going to a vegas convention where they spent a whole day talking about discounting for liquidity (i'm guessing that means the company is worth less b/c it isn't a liquid investment)
- at around 11min he says "transfer pricing fundamentally is about moving income from high-tax locales to low-tax locales"
- at min 14 he talks about how sell-side researchers are assigned 12 companies to follow for their entire career, and how their big advantage is found in the little moments of access they get to the company's managers. that's why they don't issue "sell" recommendations: it would cost them access in the future.
- min 16 he talks about how it got so bad w/ sell-side researchers that in the late '90s they were issuing buy recommendations and then trashing the same companies internally. elliot spitzer then got hold of some of their internal communications and went after them.
- min 18 he talks about how lots of bad M&A deals go through when it's a friendly takeover b/c both sides WANT the deal to go through, so their valuations are pushed high and they overestimate the value of merging.
- ~min 22 he talks about how if you're a buy-side analyst and see that a major holding is overvalued (eg Apple), your best course of action is to keep quiet b/c if you speak up you'll attract heat.
- min 22 he says that whenever you read a buy/sell recommendation you should first ask yourself 1) who did the valuation and 2) who paid them to do the valuation. you should do this before you look at their numbers.
- min 24-31 he talks about the second major misconception about valuation: that you can find "the right answer"; that "a good estimate of valuation provides a precise answer". he says that in the real world there are so many variables that affect valuation that there will always be a lot of uncertainty.
- min 31-43+ he talks about the third major myth of valuation: that models and quantitative approaches will be superior. he gives very interesting anecdotes of analysts plugging in random numbers to these super-complicated models that they don't understand and getting valuations that don't make much sense.
- 48:30 - "embedded in each valuation approach is an assumption about how markets make mistakes and how they correct those mistakes" - very interesting
Class 3:
Link to the class: http://echo360.stern.nyu.edu:8080/ess/e ... 2c0bde0994
- first 3 mins he talks about two kinds of DCF: one in which you use expected cash flows and discount for the risk, and one in which you use certainty equivalents and discount at the risk-free rate. Certainty equivalents is just a fancy way of saying, if you could trade the expected cash flows from this investment for a sure thing, how much would the sure thing need to be?
- next 5 mins he talks about how companies need to have positive cash flows at SOME point in order to have value, and if the company is going to have negative cash flows at the beginning it'll need a lot more cash flows later on to make up for it.
- min 7-15 he talks about equity valuation vs firm valuation