The Value of Everything in an Unstable Environment

Aswath Damodaran

Overview

In this session from the 73rd Annual Virtual Conference, Aswath Damodaran considers valuation principles in light of the COVID-19 crisis:

  • Valuation-first principles have not changed just because of the crisis, but investors have to be willing not only to make estimates about the damage that the crisis will cause to corporate earnings but also to think about what a company will look like in the post-coronavirus economy.
  • If you are tempted to use multiples and pricing because you don’t want to make assumptions in the face of uncertainty, you will find uncertainty affecting you in different ways, with trailing numbers moving dramatically and multiples becoming either not meaningful or not usable.
  • Difficult times require dynamic models, where forecasts of the past are not anchored in past numbers. In other words, mechanical models (which is what many DCF models have become in practice) will yield strange-looking numbers.
  • Ultimately, crises are crucibles that test investor faith and philosophies, and this crisis will be the acid test for active investing, in general, and value investing, in particular.

Categories: Investing 101

Daniel L. Bishop CFP© CEPA©

Daniel L. Bishop is a Advice-Only Comprehensive Financial Planner that has experience in education funding from cradle to career: His deep expertise is in optimizing Late Stage College Funding into a Master Financial Plan for people with complicated situations, like business owners who are nearing retirement and need to prepare for a business exit on their own terms. He founded Black Swan Advisors LLC in 2016, so that he could pursue his passion of real, honest, financial planning advice for families. He loves working virtually with clients across the Heartland of America. Daniel and his wife modernized a century-old, lakefront farm house in southern Illinois. After work, you can often find tpaying with their 2 kids, preferably in the water.