"It is time for a reset!" – A conversation with Aswath Damodaran

The asset pricing models are a complete dead end.  I don't care about them. I've never cared about

them. I might use a CAPM or a multifactor  model to get a cost of equity, but that's

the extent of my inclusion. 99% of my time in

valuation spent on things that matter and asset

pricing. And that's the problem in academia. If  you ask them where's the research and valuation,

they point to the theory models on asset  pricing, which are almost all not about pricing,

but about building up discount rates. So who

cares? No. Who cares about these asset pricing

models other than the people who write papers that

40 other people read, but don't alter the way we

think about value? You know what I worry about is

if something breaks, my great great grandchildren

will not even know it's broken because they won't

even know what questions to ask if it's broken.

I'm very happy and honored to be joined today by  Professor Aswath Damodaran. Professor Damodaran's

accomplishments are impressive and I'll share a  small part with you. He is the Kerschner family

chair in finance education and professor of  finance at NYU Stern School of Business. His

contribution to the field of finance have been  recognized many times over. Widely regarded as

one of the world's foremost authorities  on valuation, the "Dean of Valuation",

his research and publications have become a  central reference point for both non-contentious

and contentious valuations. Professor Danodaran  is very clear that he does not serve as an expert

witness in disputes. Having said that, his  work is referenced constantly by those who do,

and I'm not sure he's fully aware of the extent  of his influence in this particular field,

but Professor Deodarren's research and data are  used and cited with remarkable frequency in expert

reports, likely more than those of any other  finance academic. Professor Damodaran has taught

valuation at NYU Stern since 1986. This is his  40th year on the job. We want to look at the past,

the state-of-the-art, and the future of valuation.  Professor Damodaran, welcome to the podcast. Thank

you for having me. You've had a 40-year teaching  career, and I'd like to start by asking you to

reflect on how the field of valuation has  changed over that time. In broad terms,

how is what you are teaching today different from  what you taught 40 years ago? Or if a student took

your valuation class in 1986 and then sat in  your class today, what might surprise the most?

I think the biggest change is not in what I teach  but what you have access to to practice what I

preach. I'll give you an example. I did my first  evaluation the early 1980s and my 1986 this was

still the state of the process. I actually wrote  to a company to get an annual report. Actually

physically wrote with a fountain pen please to  the investment relations office saying can you

send me an annual report? And to give the company  credit, I got an annual report back in a couple

of weeks. And then I sat down to value company  and here's what in front of me. I had a ledger

sheet. A ledger sheet, for those of you who've  never seen one, it's just a blank sheet of paper

with lines already pre-drawn through it. And to my  left, I had a calculator. It wasn't a slide rule.

I'm not that ancient, but it was a very primitive  calculator. There were no present value buttons

on it. And my on my right, I had a pencil and an  eraser. was cr I learned very early early on in

this process never to use a pen because you have  to cross out things and redo them. I valued my

first company with that annual report a pencil  and a paper and a calculator. And I asked people

if you're doing that by hand how many line items  do you think there will be in your valuation? The

answer is as few as you can get away with because  every single cell has to be hand computed. So when

you add a line item, it's not a copy and paste

or a macro. It's you filling in the cells. So

in the early 80s, valuation was data constrained.  We had limited tools and was parsimmonious. The

three went together. Take a valuation in 2026. You

know, couple of weeks ago, I valued Marcado Libre,

the Latin American, you know, online retail  c

ompany. I have access to Capital IQ, you know,

which is a data set of all financial information,

all publicly traded companies. I downloaded the

financial filings, every single financial filing

that Marcado Libre has done in its lifetime and

downloaded them all into an Excel spreadsheet  in two minutes. And then while I was there,

I downloaded the historical data for every single

Latin American retail company. Five minutes in,

I had more data than I could ever have even

thought of in 1981. Immense amounts of data.

I have, you know, I'm not a high-tech Excel user.  I've never written a macro in my life, but I have