TIP654: Investing Across the Life Cycle w/ Aswath Damodaran
We Study Billionaires - The Investor’s Podcast Network
Investing in Optionality and Margin of Safety
Investing requires considering optionality alongside traditional metrics like the margin of safety. For instance, investing in Tesla at a low price might not seem safe, but believing in leadership and innovation can justify the risk. This perspective shifts the focus from estimating option values as zero to acknowledging their potential upside. A strong illustration is buying Facebook during the stock price drop due to the metaverse pivot, where the core business's cash flows alone justified the investment. This approach parallels Warren Buffett's investment in American Express, where he assessed the cash flows needed to cover his investment, treating any additional value as bonus potential.
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