tag:blogger.com,1999:blog-8152901575140311047.post8615272230081728201..comments2024-03-19T05:19:06.448-04:00Comments on Musings on Markets: Growth (Part 1): The Limits of GrowthAswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-8152901575140311047.post-30305339827267917622013-03-24T14:49:27.331-04:002013-03-24T14:49:27.331-04:00Hi Prof. Damodaran,
I have a question about the mi...Hi Prof. Damodaran,<br />I have a question about the micro adding up to the macro and I hope you can still read this comment even if I put it at a so old post...<br /><br />Is there any empirical research done on these grounds? For instance, looking if the micro forecasts are adding up to the macro ones? If so, could you maybe send me one reference?<br /><br />All the best,<br />ThiagoThiagohttp://www.portfolioresearch.orgnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-70294599224533475402011-10-30T12:48:37.757-04:002011-10-30T12:48:37.757-04:00JR,
Comparing it to Folger's may be unfair to ...JR,<br />Comparing it to Folger's may be unfair to Green Mountain. Perhaps, it is reinventing this business. But what will this reinvention generate as revenues? That is the open question. As an intellectual exercise, ask yourself the following question. What if everyone who drinks coffee in the US drinks Green Mountain Coffee? What revenues would they have?Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-84256125408702616332011-10-29T14:50:58.407-04:002011-10-29T14:50:58.407-04:00...you are also saying that sectors composed on yo...<i>...you are also saying that sectors composed on young, growth companies are collectively over valued. So, if you can bet against the entire sector (sell short on all of the companies or sell an ETF), you would make money, right?</i><br /><br />Though personally I am a long-only, buy-to-hold-longterm investor, I would say it may be possible to make money by shorting such ETFs (assuming that those ETFs truly represent the entire sector). Using the dotcom bubble example, if we use Nasdaq as a proxy, probably a investor shorting an Nasdaq ETF would have made money in 2000-01. However, few caveats -<br /><br />1. In young, growing sectors, the accuracy of sector projections are likely to be less than that in case of mature sectors such as consumer staples. So, shorting based on such erroneous estimates can prove to be risky.<br /><br />2. Shorting is partially a bet on timing. Especially, in case of young, in-the-news sectors; the market can value irrationally longer than investors can stay solvent. (a recent such example is Whitney Tilson's public short of Netflix and than subsequent rewind of the short with a loss because the stock price kept going up and up... though now his short thesis played out, he lost money in his investment based on that thesis)Gopalhttps://www.blogger.com/profile/14509814066572881345noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-3304072379089227812011-10-29T14:42:26.136-04:002011-10-29T14:42:26.136-04:00Hi Professor - I would argue that comparing Green ...Hi Professor - I would argue that comparing Green Mountain's revenue potential by using Folgers revenues is not an apples to apples comparison.<br /><br />Green Mountain is very much a convenience-driven product where a consumer pops a coffee packet into the machine and can brew a single serving quickly, no muss, no fuss. Folger's is used typically for brewing multiple cups and the coffee has to be measured into the brewer, the used coffee grounds have to be dealt with, etc. etc. <br /><br />It's a little bit like saying McDonald's hamburger market size potential should be measured against the sales of ground beef purchased in the grocery store. <br /><br />Thank you for doing this blog series - it's really great.JRhttps://www.blogger.com/profile/15711392311010761602noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-66056666496646589042011-10-29T13:40:51.022-04:002011-10-29T13:40:51.022-04:00Gopal,
That may behaviorally explain what is going...Gopal,<br />That may behaviorally explain what is going on but if the valuations are based on individual company forecasts, you are also saying that sectors composed on young, growth companies are collectively over valued. So, if you can bet against the entire sector (sell short on all of the companies or sell an ETF), you would make money, right?Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-33625898695727108322011-10-29T13:20:07.214-04:002011-10-29T13:20:07.214-04:00Prof.Damodaran said -- ...In other words, your col...Prof.Damodaran said -- <i>...In other words, your collective market share across companies will be well in excess of 100%.... </i><br /><br />It is important to keep in mind that there are different set of investors betting on different companies in the same sector. So, unless you are planning to invest in the entire sector via an ETF etc, it is not necessary to tally up sum of future revenues to the sector revenue projection. When someone invests in early stage growth companies, inherently they are betting that their horse is going to win and many others in the sector will go out of business/will not grow as projected. <br /><br />So, the framework is different, more like venture style investing than traditional mature sectors (e.g., staples -- P&G, CP) where sum of the future revenues should add up to the projected revenue of the sector.Gopalhttps://www.blogger.com/profile/14509814066572881345noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-41537883210349733542011-10-27T12:26:13.344-04:002011-10-27T12:26:13.344-04:00Question - Somewhere shouldn't we also price i...Question - Somewhere shouldn't we also price in promoter/management capability to actually execute the plans? If so, how should one do that?Nishant Kashyaphttps://www.blogger.com/profile/09392178210801797645noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-81171527779770493362011-10-26T12:58:54.922-04:002011-10-26T12:58:54.922-04:00Aswath, this is one of the best posts you've d...Aswath, this is one of the best posts you've done in a long time. Thank you!Paciolihttps://www.blogger.com/profile/04487218263075092228noreply@blogger.com