My guest today is Aswath Damodaran, a Professor of Finance at NYU’s Stern School of Business. Aswath is one of the clearest teachers of investing and finance in our industry and through his blog, books, and YouTube has open-sourced his wisdom for decades. This conversation is a masterclass of key investing concepts. We discuss inflation, narratives, disruption, the evolution of alpha and edge, and his thoughts on ESG. Please enjoy this great conversation with Aswath Damodaran.
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[00:02:43] - [First question] - How he thinks about inflation as a now dominant force
[00:04:33] - Why inflation is so important across the spectrum
[00:09:02] - Big lessons from other periods of historically high inflation writ large
[00:10:45] - Reasons why equities as an asset class struggle in high inflation environments
[00:15:21] - The relationship betweens goods versus services in times of high inflation
[00:16:59] - Broader economic implications especially for income inequality
[00:19:03] - The Fed taking inflation seriously now when they didn’t and thoughts on the policy response to today’s situation
[00:21:05] - How smart companies are defensively adjusting to inflation
[00:24:38] - Thoughts on returns on invested capital with emphasis on invested capital
[00:27:46] - The importance of a capital allocation skill-set for executive team members
[00:29:32] - Further historic lessons and how he’s being defensive against inflation
[00:33:09] - Lessons learned about Amazon valuing them every year since their inception
[00:37:50] - How to figure out a new company’s narrative and the story they’re telling
[00:42:25] - Whenever he sees Thanos in the Avengers he thinks of Amazon
[00:44:51] - Thoughts on Facebook, Apple and Microsoft
[00:48:26] - The evolution of edge and the search for alpha
[00:54:37] - Whether or not there’s utility in studying other investors
[00:57:16] - Skill versus luck and the most common valuation mistakes he’s made
[00:59:09] - Assuming long-term growth rates and changing company life cycles
[01:02:02] - Momentum and Value investing in today’s market
[01:07:24] - Differences between interest rates and discount rates in regards to inflation
[01:10:29] - Thoughts on equity risk premium in a market like this
[01:12:00] - How today’s market affects early stage equity investment
[01:14:36] - The growing popularity of ESG and his seemingly contrarian view on it
[01:24:03] - Nature of disruption as a force and companies that are protected from it
[01:28:24] - Assigning a disruption risk premium when valuing companies
[01:31:17] - Characteristics that will define the most successful leaders over the next decade
[01:32:52] - What he makes of Elon Musk buying Twitter
[01:34:24] - Other major topics he has a divergent view on
[01:38:37] - Narrative And Numbers; The kindest thing anyone has ever done for him
[01:38:55] - Teaching with a goal of changing mindsets