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Masters in Business

At the Money: Valuation Is an Exercise in Faith

Oct 9, 2024
Aswath Damodaran, a renowned Professor at NYU Stern School of Business, specializes in valuation and finance. He dives into the critical distinction between price and intrinsic value in the stock market. Damodaran discusses how faith plays a pivotal role in investing, especially regarding the mean reversion of assets. He also emphasizes the importance of fundamental analysis over mere market metrics and shares a personal valuation case study of Nvidia. Additionally, he touches on the psychological aspects of finance and how therapy can bolster emotional balance for investors.
13:37

Episode guests

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Quick takeaways

  • Understanding the difference between price and intrinsic value is crucial for informed long-term investment decisions.
  • Investing requires faith that intrinsic values will eventually be reflected in market prices despite short-term deviations and uncertainties.

Deep dives

The Importance of Understanding Valuation

Valuations play a critical role in investing, particularly for those focused on long-term gains. Unlike traders who primarily focus on price fluctuations, investors need to buy assets below their intrinsic value to generate profits. This fundamental difference highlights that assessing the true worth of an investment is essential for making informed decisions. Understanding cash flows, growth, and associated risks is central to determining this intrinsic value.

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