Ashwath Damodaran on the S&P 500

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markgardner
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Ashwath Damodaran on the S&P 500

Post by markgardner »

https://youtu.be/XJnr8qHqoLQ?si=3YeAyZfzcoCFkJQd is worth watching about Prof. Damodaran's take on the recent performance of the S&P 500. He shares some very interesting statistics on why indexing is so important and what market timers would have most likely missed. He also discusses the recent tracking errors with portfolios that are invested in small cap indices.

Show notes has links to the blog and slides.
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nedsaid
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Re: Ashwath Damodaran on the S&P 500

Post by nedsaid »

Just watched the video and enjoyed it. A good discussion of the Magnificent Seven, valuation of these seven companies, and the issue of the broad indexes always being top heavy with the most successful companies.
A fool and his money are good for business.
yolointopants
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Re: Ashwath Damodaran on the S&P 500

Post by yolointopants »

I really thought I would hate this. No, quite contrary. This was an exceptionally well done video. Because I'm hopelessly smitten with partly tilting towards small, value, and smid international, I still cringe when I see the bulk of my core holdings as Apple, Microsoft, Amazon, Google, and TSMC when looking at the totality of one's portfolio in terms of constituents. But alas, nothing is forever.
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Riprap
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Re: Ashwath Damodaran on the S&P 500

Post by Riprap »

I enjoy the video too. Thanks for posting.

Also fun (and instructive) to sift through intrinsic value spreadsheets he link to in the video. Warren Buffet always talks about intrinsic value. I wonder if the framework Professor Damodaran uses is similar to Buffet's method?
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SimpleGift
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Re: Ashwath Damodaran on the S&P 500

Post by SimpleGift »

As a long-time S&P 500 index investor, it’s been hard to not to subconsciously feel that perhaps the 7 companies with the largest market cap today are crazily overvalued and heading for a correction. However, in this 30-minute video Damodaran shares some of his analytical work on the valuations of these companies, and he arrives at the conclusion that 5 of them (Alphabet, Amazon, Apple, Meta and Tesla) are only mildly overvalued (1% to 8%), all well within range of reasonable values.

Due to the current hype surrounding AI and its future prospects, his analysis indicates Microsoft is perhaps more significantly overvalued (13%), with Nvidia being the only one that is crazily overvalued (55%) at current prices. But he allows that since no one knows the future potential of AI at this point, his overvaluation estimates could simply be due to his lack of imagination about AI’s future impact on these companies’ earnings.

In the end, he advises buy-and-hold investors in these 7 companies to just keep carrying on, nothing much to see here that is historicially out of the ordinary. This video carried a reassuring message for this index investor.
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Re: Ashwath Damodaran on the S&P 500

Post by Gaston »

I thought it interesting that according to the data Dr. Damodaran presented, the return on “all other” stocks in 2023, excluding the Magnificent Seven, was over 12%. Not a bad year by most standards.
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renter
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Re: Ashwath Damodaran on the S&P 500

Post by renter »

Nobody knows nothin'. (But I enjoyed hearing his presentation.) I have confidence that my stock index funds will capture the next magnificent companies in the coming years.
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arcticpineapplecorp.
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Re: Ashwath Damodaran on the S&P 500

Post by arcticpineapplecorp. »

Riprap wrote: Sat Feb 10, 2024 2:38 pm I enjoy the video too. Thanks for posting.

Also fun (and instructive) to sift through intrinsic value spreadsheets he link to in the video. Warren Buffet always talks about intrinsic value. I wonder if the framework Professor Damodaran uses is similar to Buffet's method?
good talk with Barry Ritholtz here: https://omny.fm/shows/masters-in-busine ... odaran-int
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Nathan Drake
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Re: Ashwath Damodaran on the S&P 500

Post by Nathan Drake »

SimpleGift wrote: Sat Feb 10, 2024 3:19 pm As a long-time S&P 500 index investor, it’s been hard to not to subconsciously feel that perhaps the 7 companies with the largest market cap today are crazily overvalued and heading for a correction. However, in this 30-minute video Damodaran shares some of his analytical work on the valuations of these companies, and he arrives at the conclusion that 5 of them (Alphabet, Amazon, Apple, Meta and Tesla) are only mildly overvalued (1% to 8%), all well within range of reasonable values.

Due to the current hype surrounding AI and its future prospects, his analysis indicates Microsoft is perhaps more significantly overvalued (13%), with Nvidia being the only one that is crazily overvalued (55%) at current prices. But he allows that since no one knows the future potential of AI at this point, his overvaluation estimates could simply be due to his lack of imagination about AI’s future impact on these companies’ earnings.

In the end, he advises buy-and-hold investors in these 7 companies to just keep carrying on, nothing much to see here that is historicially out of the ordinary. This video carried a reassuring message for this index investor.
This is assuming current earnings growth assumptions hold, however. If margins contract significantly, this all goes out the window. And that's the *real* risk
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nedsaid
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Re: Ashwath Damodaran on the S&P 500

Post by nedsaid »

Professor Damodaran is one of the best financial experts out there, his presentations are clear and understandable. His Youtube channel puts on many of his lectures. It is like attending college without paying the tuition. Larry Swedroe was the one who made me aware of Damodaran.
A fool and his money are good for business.
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TimeIsYourFriend
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Re: Ashwath Damodaran on the S&P 500

Post by TimeIsYourFriend »

Good video overall except there’s no such thing as “fair value” except in the eyes of someone who’s actively trading stocks. That valuation doesn’t represent any kind of truth that an index investor can take to feel more comfortable with their level of portfolio concentration.
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DaufuskieNate
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Re: Ashwath Damodaran on the S&P 500

Post by DaufuskieNate »

Gaston wrote: Sat Feb 10, 2024 9:38 pm I thought it interesting that according to the data Dr. Damodaran presented, the return on “all other” stocks in 2023, excluding the Magnificent Seven, was over 12%. Not a bad year by most standards.
Yes, not bad at all. It's also interesting to note that AVLV (large cap value) and AVUV (small cap value) returned over 17% and 22% respectively. Not bad considering that "value is dead." By that standard, anything other than the Magnificent Seven is "dead."
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djmbob
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Re: Ashwath Damodaran on the S&P 500

Post by djmbob »

Thank you so much for posting these... very informative. I've subscribed to hos channel.
Cheers,
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Yesterdaysnews
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Re: Ashwath Damodaran on the S&P 500

Post by Yesterdaysnews »

Very interesting video. Based on his method of intrinsic valuation, TSLA seemed the best "fair value" buy.

Funny how at the end he says he owns all 7 of these stocks. He seems to enjoy playing in the market.
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Nathan Drake
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Re: Ashwath Damodaran on the S&P 500

Post by Nathan Drake »

Yesterdaysnews wrote: Sun Feb 11, 2024 1:17 pm Very interesting video. Based on his method of intrinsic valuation, TSLA seemed the best "fair value" buy.

Funny how at the end he says he owns all 7 of these stocks. He seems to enjoy playing in the market.
"Fair value" based upon pixie dust forecasts. That's the problem. Anyone can justify anything as fair value when you make up forecasts.
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SimpleGift
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Re: Ashwath Damodaran on the S&P 500

Post by SimpleGift »

Interesting to hear Damodaran’s take on some of the persistent and shared financial factors that have driven (and are driving) the remarkable earnings growth and profit margins of these 7 companies:
  • 1. Pricing Power. Their ability to raise prices (except for Tesla), and at the same time increase growth.

    2. Resilience of Product Demand. Their ability to reduce employees, and increase revenues/earnings.

    3. Negative Net Debt Levels. Nearly all have more cash on hand than their debt levels.

    4. Dominating Market Share. Ability to thrive in the post-industrial, "winner-take-all (or most)" economy.
Of course, these beneficial factors can and will change eventually, as the global economy evolves. But at this point in time, it seems hard to bet against these companies. As broad-market index investors, we’re just along for the ride.
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