Aswath Damodaran: Valuation in the Face of Uncertainty
New York University professor Aswath Damodaran has been teaching corporate finance and valuation for decades. His message is simple: When valuing a publicly traded stock, the ubiquitous discounted cash flow model is a trustworthy framework. However, he admonishes financial analysts to challenge conventional wisdom and biases (i.e., no shortcuts) that create internal inconsistencies and questionable results.
At the 2013 CFA Institute Annual Conference in Singapore, the legendary Stern School of Business professor delivered his message in a talk titled “Valuation in the Face of Uncertainty.” Damodaran confessed that he’s been doing this talk for so long that he has to find new ways to repackage his message. In fact, he delivered a similar talk in late 2012 at the CFA Institute Equity Research and Valuation Conference that my colleague Dave Larrabee, CFA, nicely summarized on our Enterprising Investor blog.
The core of Damodaran’s argument is for analysts to apply a common-sense, mathematical approach to challenge general “rules of thumb” of valuation while still using accepted methodologies, such as the discounted cash flow model. During his conference double session, Damodaran walked the audience through the valuation of four companies at different points in time to illustrate several of his techniques.
