We Study Billionaires - The Investor’s Podcast Network TIP725: First Principles of Valuation w/ Tim Koller
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May 30, 2025 
Tim Koller, lead author of the best-selling guide on business valuation and a partner at McKinsey & Company, discusses the nuanced world of corporate valuation. He unpacks the fundamental principles of creating shareholder value beyond short-term earnings, advocating for a focus on long-term growth and return on invested capital (ROIC). Koller reveals common misconceptions in management strategies and highlights differences in market performance across regions like the US and Europe. His insights help illuminate the complex dynamics of value creation in today's economy.
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Core of Value Creation
- Companies create value by investing capital at returns exceeding their cost of capital.
- Real value creation focuses on cash flow growth, not accounting gimmicks or short-term stock moves.
Focus on Long-Term Investors
- Focus on long-term intrinsic investors, not short-term market noise.
- Avoid artificial actions just to meet quarterly earnings; they hurt long-term value.
Tech Benefits Mostly Pass to Consumers
- Digital and AI rarely create unique value unless they improve customer retention or operational efficiency.
- Competitive adoption means benefits often pass to consumers, not shareholders.
