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Aswath Damodaran - Lessons from Covid-19:
Experts say, tech is in bubble zone, smart money is better, value is outperforming.
But what markets have shown -
1. Asset light > asset heavy
2. Passive > active
3. Growth > value
Pick markets over experts, any day.
No correlation between economy and market historically. Markets are predictors, not reflectors. Positive correlation is strong 3-4 quarters ahead.
Currently, markets saying economy will bounce back swiftly. Second wave might not happen. But, markets could be wrong too. Let's see
We're all stupid relative to what market does. Don't over reach; respect the market. Worst is when you double down when you try to over reach. We all need to be humble relative to what the market can do to us.
Amazon succeeded not because of the dot-com boom but the dot-com bust. When a company takes threats and turns them into opportunities, it's when they come out as winners. This crisis will do the same. We will know 10 yrs from now who emerged as winners.
With a startup, it's almost all stories and less numbers. As companies mature, numbers are going to play a bigger role in valuation.
Never invest more than 10% of your portfolio in any single co. Be humble. Don't expect your conviction to give you returns, it's just that odds can get in your favour.
Three biggest investment mistakes -
1. Investing in a commodity company looking at commodity price.
2. Failed to factor networking benefit in Facebook.
3. Never buying Google.
Passive investing has become very big. Blackrock and Vanguard are the biggest investors in the world. Passive investing has made momentum strong. It also means that when momentum goes, it can be dramatic.
What this crisis has made us understand that maybe the 20th century model is passé. Hope this crisis also brings out the dangers of binging on debt. Less capital intensive and less debt models are the way to go.
Tobacco companies are more like a bond than a stock. ITC has a cash machine in the tobacco business. Tobacco companies have become less of a capital appreciation business. If you need cash flows to sleep well, go with the tobacco cos.
Good companies spin their own narratives. A good CEO's job is to establish a good narrative. A great CEO is that act consistent with their narrative. Bezos has said the same story since 1991, and acted consistently on it. Finding a great CEO is rare.
Value drivers comprise Damodaran's checklist. Look for what can drive value going forward.
Look for a bank that is -
- well capitalised
- has less exposure to sectors prone to default
- not priced accordingly, just because it is categorized as a bank
Residential real estate is going to be less affected than commercial real estate. WFH, retailers defaulting cited as reasons.
Online is winning in this crisis.
4 buckets:
1. Oil companies (bought ExxonMobil)
2. Options - distressed companies, if they come back you can make a huge upside (airlines)
3. Safe at a reasonable price
4. Trend shift (online education?)
Spread your bets across these buckets.
One Indian stock that he would invest in?
Would rather have a US tech company than an Indian tech company. But don't have many cash flow companies.
Hence, will go with ITC at around Rs.150 (woohoo ITC fans).
Bullish on India in the long term.
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