When trying to find a culprit for the bear market in stocks this year, investors often point to the surging yields on U.S. Treasury bonds. But that’s only part of the story. Today Jack is lucky to speak to Dr. Aswath Damodaran, professor of valuation and corporate finance at NYU Stern School of Business, who is a pioneer in the field of valuation. Damodaran explains how the intrinsic value of a stocks is its future cash flows discounted back to the present with a “discount rate,” which is the sum of a risk-free rate on a Treasury bond and an “equity risk premium.” Damodaran notes that, in addition to risk-free rates surging higher, equity risk premia have expanded significantly. Damodaran also shares his views on inflation, the Federal Reserve, as well as currencies and crypto. Farley aFilmed on September 9, 2022.
Data sets can be found on Aswath Damodaran’s website: https://pages.stern.nyu.edu/~adamodar/
Lectures and presentations can be found on Aswath Damodaran’s YouTube page: https://www.youtube.com/c/AswathDamodaranonValuation
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(00:00) Introduction
(00:35) The "Sleep Test"
(03:40) Inflation's Impact on Equity Valuations
(19:43) Equity Duration
(40:41) Cost of Capital for Individual Companies
(44:17) Commodity & Energy Stocks
(52:06) How Liquidity Increases Asset Values
(59:53) Crypto, Currencies, and Commodities: Why They Are Impossible To Truly Value
(1:11:29) Closing Thoughts On Overconfidence
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Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.
