Stop treating everything investors say as gospel: Damodaran

I do not have a lot of faith in accountancy and I believe book worth has completely lost its meaning, states Professor, Stern School of Business, NYU.The planet can clearly be divided into two parts. The optimists think that a vaccine would be seen and liquidity will make sure that asset prices stay strong and we might have a surprise V-shaped retrieval as the consumer need unleashes at the first half of the next year. There are a few realists who’d again insist that breakthrough is still away. The collateral damage to this economy is very large and since the world has never undergone a lockdown even through World War, there is not any template which will tell you exactly what is coming next.I believe they are both wrong in a sense. You can’t examine this glass half empty or full. One reason I am not a market timer is to issues like this. It is sometimes better to allow the market pick because we believe that the market has this apparatus that is monolith but it is a consensus of both optimist and pessimist. In the US, the optimistic side is winning but that doesn’t mean it is over right. Four months from now or six months from now or two months from now, it may shift. What I have observed in 35 years of investing is you can disagree with markets however you have to respect them. And I admire the market. I am not a market timer. I state maybe markets are wrong and watch markets but I do not have the ammunition to inform you that they are wrong. I am a stock picker. I am going to go find stocks that I believe are investments that are great no matter what the market is. So my suggestion is do not fight the markets. In reality, one of the things I said a week for an audience has been do not project your feelings on the marketplace. What I meant by that is I was getting emails from folks saying how come the sector is so stupid and how come the marketplace is not seeing what I am seeing. The sector is seeing what you are viewing and what a thousand other people are seeing that’s your current market ’s no job. Thus don’t convince yourself you are right along with the rest of the planet is wrong because the history of individuals who do that’s not too good.You have constantly maintained that you should never get carried away with what the Fed action. But right now everybody in the financial market is obviously of the view that in the event that you have to choose between fighting the Fed or the fundamentals, do not fight the Fed and that also explains why financial markets have higher because the overall opinion is that central banks will function as a backstop.One of the issues with narratives without data is you can tell whatever story you want. I call them fairy tales but only that the story doesn’t hold out. Treasury rates in the US fell in the initial fourteen days of this catastrophe, which will be February 14 to February 28. Now the drop in treasury rates almost all happened in those two weeks. The Fed first started behaving in March. The Fed started behaving, markets marked the treasury rates down. If your disagreement is that the Fed somehow arrived and bailed the market out, I do not see that in the data because the rate drop happened prior to the Fed came in. I really do believe that the Fed has played its cards very well in this catastrophe. What I mean by that’s the power of the Fed comes out of the understanding that it’s power and it’s got to conserve that understanding. So some time in the second or first week of March, the Fed announced with many fanfare that they may offer a backstop in the corporate bond market. It is something which the Fed generally doesn’t do. It is a sector that is huge. They announced that there’ll be a backstop. Just how much cash they have spent being backstop? Nothing because it did though was generate enough faith in the system that private lenders that would like to contribute to Boeing and the airlines and what has been unique about this catastrophe is that the private risk-taking market, whether it is debt or equity, hasn’t dried up unlike 2008. I believe that the Fed playing its cards contributed to enabling funds to stream. One reason that the industry is so upbeat is one of the biggest concerns at the exact bottom of this market in the center of March was that you were afraid for not only smallish businesses but of big oil companies, airlines and Boeing and that fear has faded to the background and it is part of the reason these businesses have been able to increase capital. Singapore Airline a week and a half ago raised equity in billions of dollars and that’s not something that you should be able to perform in a catastrophe. But that I believe is one variable where the Fed could get an effect. But the Fed has to have a light touch. In case it tries to become heavy handed and this is true for almost any serious bank, the understanding will change very quickly.Your latest blog bit on what’s growth investing and what’s worth investing has a lot of folks thinking . In this new normal, your site and your job appears to be suggesting that worth investing is dead. That’s a very strong statement coming from someone who is the dean of valuations. Do you believe that average old school value investing is over?I believe this is unique in history. We closed the international economy down for numerous months and for a period between March and early April, the entire international economy was closed down and that’s never happened before. The 2008 catastrophe was mainly a developed market disaster because emerging markets were relatively unaffected. Go back in time and accept every catastrophe; you never needed a catastrophe once the entire international economy was shut down and because of that each one the numbers which you are seeing are likely to be numbers which are almost unusable. Unemployment is one issue. You look from your window and what do you watch? Everybody around you is not functioning either; how do unemployment never move up? Consumer confidence naturally is going to collapse. It is not simply consumer confidence collapsing. You are feeling people’s psyche under siege since you are stuck at home. So one of the things concerning this catastrophe which makes it distinct is that you get no signs by considering macroeconomic numbers because typically once you are aware that it is a catastrophe is when businesses begin to layoff people as they get less convinced and that didn’t happen here. Everybody had to lay off people right at the onset of the catastrophe. So I believe that this catastrophe is unique in the sense that it is a global economic shutdown and none of us know how the international economy is going to act when we initiate the engine back up again. 2020 is going to be a dreadful year and there is not any way about how it cannot be. You know retail stores are forced to shut down for an entire quarter. Your revenues aren’t likely to reflect that although the true question is what will happen after the crisis passes? Now what will happen not merely in 2021 but all of the way through 2025. I have been assessing the market off and on for the last 10 months and there are two major numbers I need to forecast to value in the market; just how much can 2020 earnings be affected and the response is not a very huge quantity. Nevertheless, the second major question is how much that loss will return in another four years and just how much of their loss will be retrieved since you are not likely to get 100% of their recovery backagain. Why? Since in the event you bypass a hair cut through these 12 months, you do not require three haircuts after you come from this catastrophe to create up. So there are some services which will permanently get rid of revenue. So there is going to be some missing revenue which is not coming backagain. It is the second question we should really be focussing on. Think about niches; not only about 2020 but what will happen in the wake and I believe that needs we take our eyes away from the catastrophe and believe about what is coming after.The stage you have raised in your blog article is within this new normal, worth investing is lifeless. You actually have some data in your blog article which appears to be indicating that when one actually examines the comeback stocks in the post-Covid planet, they are not worth or higher dividend yielding stocks. Now that’s a very strong statement or an indication coming from somebody who’s called dean of valuations?In my perspective, worth investing and growth investing has become an extremely lazy categorisation. Value traders say we buy stocks but the foundation for all time worth investing has come to be this; I am likely to buy stocks that trade at low PE ratios or low multiples and reserve worth and call it worth investing. You inquire growth investors exactly what they mean by growth investment. They point to growth and earnings; high growth in earnings, higher growth in revenues and we jump on the bandwagon. I believe that they miss the ship with that definition. Can I value a development company? Absolutely. Can I locate a growth firm to become undervalued? Why don’t. I’d held Tesla and I hold Facebook now in my own portfolio and neither of those stocks would fit a worth investors’ timeless definition but worth investors are stuck in the 20th century. They believe that something is actually meant by book worth. I do not have a lot of faith in accountancy but I believe book worth has lost its meaning. What’s the book value of a Google catch? Your main assets are away from the books. So I feel that the problem with value investing and growth investing is not the focus in increase and value but they do not really focus on either. Those are shortcuts and these metrics are focused on by them and those metrics are idle and part of the reason both types of investors have dropped out in X funds. Remember what it is you’re currently doing is mechanical. Keep in mind, machines will be at doing things much better than you are. One reason I wrote concerning value versus growth in the blog post I had on the catastrophe is worth is being losing out for the last ten years or so. What I mean by that’s the old and stocks; low PE stocks, higher dividend yield stocks have underperformed PE without a dividend paying stocks. And worth investors have advised us to wait; wait for a catastrophe and after that you will see worth investing is going to return on. You’ve got your opportunity now. It is a catastrophe. So I said okay; let me go and examine the numbers. Perhaps this is when the payoff to purchasing PE high dividend stocks is and you are likely to see the pay off. It is in the catastrophe and that which I have discovered within this catastrophe at least it is for the worse. The stocks which are being hurt the most on low PE, higher dividend yield stocks. So if you are a value investor, your very last bit of ammunition has been removed and this will be the wakeup call for value. I do not know what will be because they are stuck in ways that actually do not function anymore.When a number of those marquee investors like Buffett, Sam Zell, Howard Marks, Stanley Druckenmiller all of them are clearly suggesting and indicating that markets have run ahead of themselves; which is that markets are still listed and valuations are here also there’s a disconnect and valuations will probably not expand given the form of the economy. These are seasoned men who understand that the power of leverage, so who know that know what’s a time to take risk and how to distinguish between value and growth. Why do you believe some of the smartest Wall Street investors who’ve become successful and are masters of their craft are indicating and indicating that markets should return down.Let us consider Warren Buffett. He’s not simply a wonderful value investor. Individuals in worth investing deal with him like a God. Every word that comes from his mouth that they hang on to and I did listen to Warren Buffett talk because he provides his line Berkshire Hathaway talk, which he generally supplies at Woodstock in Omaha where folks show up. As I watched him talk, my awareness was that this really is a 90-year-old. He speaks as a 90-year-old and he resembles a 90-year-old and there’s nothing wrong. He seemed uncertain although you have to pay heed to age. He seemed unclear about who could blame him and what went on. I there was very little he said and looked at the stuff of what he had been saying. As much might not fly actually. This is the penetration I am likely to get by listening to Warren Buffett; thus , I am likely to promote airlines. I do not make that leaf. I do not see folks way that drivers will be poor investments. It may actually now create the airline company a company if a few of the airways fell off in this match. It is not that these investors are not investors. It is not that they’ve nothing of knowledge to provide to us. It is we who have start questioning and to quit treating. I educated because that’s really how you become a better investor, people in my course; do not believe anything. You have to watch out for yourself, you have to think of a means of thinking. You can’t pair with somebody. Therefore I do not care just how good a investor’s heritage has been how proficient they are. It is my job to produce my own standpoint although I would listen to them.

Article Source and Credit economictimes.indiatimes.com https://economictimes.indiatimes.com/markets/expert-view/stop-treating-everything-marquee-investors-say-as-gospel-truth-aswath-damodaran/articleshow/76094738.cms Buy Tickets for every event – Sports, Concerts, Festivals and more buytickets.com