tag:blogger.com,1999:blog-8152901575140311047.post4666735503186545922..comments2024-03-28T12:49:46.624-04:00Comments on Musings on Markets: The Search for Investment Serenity: The Look Back Test!Aswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger24125tag:blogger.com,1999:blog-8152901575140311047.post-56834418250216403002015-06-27T06:44:55.894-04:002015-06-27T06:44:55.894-04:00Dear Professor,
Shouldn't you substract the t...Dear Professor,<br /><br />Shouldn't you substract the total amount of liabilities from your value of operating assets? (USD 59k instead of USD 29253) For instance "other non current liabilities" and "pensions" have a claim before equity holders.<br /><br />Thanks and best regards,<br />Matthias<br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-81674140967856819752015-05-15T09:18:50.869-04:002015-05-15T09:18:50.869-04:00Hello Professor,
From US's standpoint, is the ...Hello Professor,<br />From US's standpoint, is the below inference correct?<br />Cheaper oil---increased consumption----higher growth----higher inflation----higher interest rates? I mean, is the savings through cheaper oil big enough to achieve higher growth and higher interest rates? pls advise.<br />Thanks<br />GaneshAnonymoushttps://www.blogger.com/profile/12189873161298185715noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-3737228874142995942015-05-04T22:10:13.835-04:002015-05-04T22:10:13.835-04:00In a few news report from China, the biggest consu...In a few news report from China, the biggest consumer of iron ore, almost 90% of Chinese iron ore miners have cost structure of iron ore per ton above $60. And the civil war of Australia miners also shows the current level of iron ore price makes miners other than the big 3 unable to survive. I think it's only a matter of time for high-cost miners to surrender and leave. In this scenario, prediction of iron ore price is not necessary in valuing VALE. We as investors should focus on how long and how well can VALE perform under current iron ore price. jrmyhttps://www.blogger.com/profile/16299829963781849723noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-52692460962696458652015-04-28T07:03:01.417-04:002015-04-28T07:03:01.417-04:00Thanks for the update Professor.
In the November ...Thanks for the update Professor.<br /><br />In the November valuation of VALE you took the conservative approach of assuming the last 12 months as base year for the return on capital (lowest value of the variable in the time series but higher than the cost of capital at the time). In the sensitivity analysis back then you considered a worst case scenario with a ROIC equal to cost of capital.<br />Now that the ROIC, 2014 value, is lower than the cost of capital, your approach of assuming a higher base value (equal to cost of capital) strikes me as being less conservative.<br />Could you please provide an explanation for the different approach.Anonymoushttps://www.blogger.com/profile/06346991869786244490noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-6049476328977015422015-04-26T07:39:01.580-04:002015-04-26T07:39:01.580-04:00Great article! Remark: When I look at the details ...Great article! Remark: When I look at the details of the normalization for Lukoil, the numbers for debt don't match the balance sheet and it seems that the cash balances were flipped between 2013 and 2014Ericohttp://www.gosinclair.netnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-77425423128487217302015-04-23T20:09:38.461-04:002015-04-23T20:09:38.461-04:00Treasury shares are still shares outstanding. They...Treasury shares are still shares outstanding. They are just held by the company. In contrast, in a stock buyback, the number of shares actually drops by the shares bought back, since they are taken out of circulation.Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-13855818567868868252015-04-23T14:10:00.917-04:002015-04-23T14:10:00.917-04:00Professor -
How should political factors be incor...Professor -<br /><br />How should political factors be incorporated into valuation or risk modeling (e.g. corruption, elections, nationalization, subsidy policies, etc.)?<br /><br />ThanksderMenschnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-78786919274914881652015-04-23T09:25:38.013-04:002015-04-23T09:25:38.013-04:00Professor
I could check you used the number of ou...Professor<br /><br />I could check you used the number of outstanding shares of 850,563 (as reported in the financial statatements). 95,697 shares are held as treasury stock, which accounts for the difference found in Capital IQ (754,866 shares) under the MICEX:LKOH ticker.<br /><br />Is there a reason for the treasury stocks to be considered on the share price calculation? <br />Carlos Douatnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-11373950319405729902015-04-22T20:09:07.665-04:002015-04-22T20:09:07.665-04:00What liquidation value? Do you mean the reserves? ...What liquidation value? Do you mean the reserves? They are worth money but definitely not even close to the $135 billion they owe in debt. If you mean that they are trading at less than book value, book value measures nothing at this point.Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-36454371835130198742015-04-22T15:06:00.725-04:002015-04-22T15:06:00.725-04:00Isnt this trading well below liquidation value? Th...Isnt this trading well below liquidation value? Then again they are a major so who would buy individual parts.rajiv130https://www.blogger.com/profile/06433524385208974510noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-69909780627958480302015-04-22T07:49:48.100-04:002015-04-22T07:49:48.100-04:00Hello Mr. Damodaran,
your analysis about Vale and...Hello Mr. Damodaran,<br /><br />your analysis about Vale and Lukoil are very interesting.<br />Could you please update (maybe in the summer time) yur analysis about these commodity-Companies?<br /><br />What do you think about the ratings of Vale? SP holds on investment grade. Do you think the company could be downgraded?<br />Is the dividend sustainable or does it make sense?<br /><br />Thank you!<br />BradAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-62892855574535072682015-04-22T04:26:37.307-04:002015-04-22T04:26:37.307-04:00Hello Professor!
thank you for your analysis. I b...Hello Professor!<br /><br />thank you for your analysis. I bought Vale S.A. (preferred) for a price higer than 12 USD and my portfolio contains a great share of Vale-Shares. Also a lot of idiosyncratic risk. I would not do it again but now i have to wait. I hope it will be a happy end. Under current circumstances I am inclined to hold the stock. I think it is a great company (cash-generator) in an interesting environment. I think it is a oligopoly and the entrance barrier for new competitors are very high (through scaling-effects). <br />I hope the supply/demand situation will clarify in the next 2-3 years (see Worldbank-Prediction).<br /><br />The USD 10,70-value is it more a best/worst case scenario? What do you thin? Can it become more worse for Vale? <br /><br />Thank you in advance!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-14740986036319091722015-04-22T04:02:57.664-04:002015-04-22T04:02:57.664-04:00Dear Professer,
as always, a great article!
What...Dear Professer,<br /><br />as always, a great article!<br /><br />What is your long term view (5 years) about Vale S.A.? The current preferred stock price at USD 4,94 looks very depressed. The big mining companies (Rio, BHP, Vale) further increase their supply (Vale big project S11D will start 2018) and therefore the cash cost for iron will decrease further and in the same time the Fe-content of iron ore Vale will increase. 2017/2018 will therefore decrease the Vale-capex. At the current iron ore cost USD 50 there should be in my opinion a adjustment at high cost suppliers?!<br /><br />Ok, the Ebit for 2015/2016 will be depressed, but dont you think vale can not increase the ebit to over 10 Bill. USD?<br /><br />Your valuation is on all 5 bill.stocks. What about the premium/discount for the preferred shares?<br />You mentioned the dividend-policy. Do you think it is not sustaining policy?!<br /><br />For me looks Vale (preferred) still very cheap. But i am only a amateuer...<br /><br />SteveAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-63822630145513950502015-04-21T20:29:08.284-04:002015-04-21T20:29:08.284-04:00Thank you Prof Damodaran for the clarification abo...Thank you Prof Damodaran for the clarification about Lukoil and sorry for pestering for a update valuation for lukoil and vale over the past few months. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-84956555340454831202015-04-21T12:45:51.403-04:002015-04-21T12:45:51.403-04:00in your vale valuation, the D/E ratio changes sign...in your vale valuation, the D/E ratio changes significantly between the two valuation spreadsheets. simply due to the price drop in vale stock. Since that's mostly due to the drop in iron ore prices (diversifiable risk). Wouldn't a long run historical beta be a better bet especially with a moving average. Or a bottom up beta using a historic average debt to equity ratio?UniverseofRisksnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-31191680690228920932015-04-21T10:19:06.352-04:002015-04-21T10:19:06.352-04:00Given the dividend policies are pretty much the sa...Given the dividend policies are pretty much the same between the VALE common and preferred, and taking into consideration you get a bit more of a voting right with the common, I wonder if the preferred may be the better option. The common seems to trade at a premium; it seems undeserved.<br /><br />The price you used from 4/15 appears to be from the common.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-85938410303713472272015-04-21T09:34:03.077-04:002015-04-21T09:34:03.077-04:00Thank you profesSor!
Interesting analysis on comp...Thank you profesSor!<br /><br />Interesting analysis on company valuation, but focusing on Vale and Petrobras scandal, i was wondering if such valuation today should not reflect in some way how corruption shall afect capital markets. On one hand, equity markets such the US will apply restrictions for a company that broke compliance regulations, and debt markets shall as well apply aditional risk premiums.<br /><br />One prove of this is how China developmet bank came to rescue Petrobras and its liquidity problems, as financial market is quite closed to them.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-50871093170682507932015-04-21T08:13:51.746-04:002015-04-21T08:13:51.746-04:00Anonymous,
You are right. My holding on to Lukoil ...Anonymous,<br />You are right. My holding on to Lukoil may be more an indication of my biases than a rational decision. That bias, though, will show up as a higher estimate of value than i should get. If my estimate is reasonable (and I concede it might not), I would rather hold Lukoil than a commodity fund or index, because the entire oil sector seems to be priced on the assumption that oil prices will recover to about $70/$75 a barrel. For the moment, at least, I do need oil company exposure in my portfolio and Lukoil looks like my cheapest-priced option.Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-76205140007732632692015-04-21T08:10:58.746-04:002015-04-21T08:10:58.746-04:00DerMensch,
If I follow your reasoning, you should ...DerMensch,<br />If I follow your reasoning, you should invest in commodity companies only if you can do a deep dive into what drives commodity prices. If I had any evidence that those who do this deep research into commodity markets are better at forecasting commodity prices than the rest of us, I would go along with this, but there is no evidence that commodity experts are any better than the rest of us. So, forecasting commodity prices is not for me. I will leave it to others to do.Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-76951523436813092142015-04-20T22:24:06.713-04:002015-04-20T22:24:06.713-04:00In respect to valuation of pure commodity firms ,...In respect to valuation of pure commodity firms , there are two risk . How big is leverage ( financial and operating ) and second how is it cost structure changing vis a vis competition . If cost structure is uncompetitive and leverage is high the firm can go to bankruptcy, whereas if cost structure is competitive and even if leverage is high it can survive the cycle . Pure normailised may not work like it may for consumer companiesShailesh Naikhttps://www.blogger.com/profile/01310675711209666006noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-35880712844152074682015-04-20T20:13:56.645-04:002015-04-20T20:13:56.645-04:00Thank you Professor for the updated valuation for ...Thank you Professor for the updated valuation for vale and lukoil. Just curious about your criteria for selling a stock? For example how much of a premium does Lukoil have to "trade on" to intiate a sell order. <br /><br />Thanks <br />TimAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-17307389535022189992015-04-20T15:25:04.101-04:002015-04-20T15:25:04.101-04:00How about the opportunity cost, lost when you hold...How about the opportunity cost, lost when you hold on to an investment that nowadays you would not buy again?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-43472489531274104052015-04-20T14:36:45.523-04:002015-04-20T14:36:45.523-04:00Dear Professor,
"If I were making a decision...Dear Professor,<br /><br />"If I were making a decision on whether to buy the stock today, I would be not buy the stock, but since I have it in my portfolio already, I am inclined to hold on to it, since it is close to fairly valued." Some might say that, since it's fairly valued, it doesn't make much sense to hold on to this investment, as you might be better of then holding onto an index and hence avoid idiosyncratic risk. Some other might also point that holding onto this stock is an example of endowment cognitive bias, which in the end caters for subpar portfolio returns. I wonder if you could comment on that. Thank you<br />KrystianAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-7483124656928885732015-04-20T14:32:38.510-04:002015-04-20T14:32:38.510-04:00I think it is dangerous to value Vale without deta...I think it is dangerous to value Vale without detailed forecasting of Iron Ore prices and factors. Since ~50% of iron ore is consumed by China even a slight decline in consumption in that one country will have major feedback into Ore prices. China iron ore consumption appears to be falling off a cliff and with real estate developers (biggest steel consumers) starting to default on debt I just don't see how Iron Ore will recover in the near future. There also appears to be a minor civil war happening between AU miners that are actually increasing production from over investments during the Iron Ore boom to squeeze out more producers. Net-net Iron Ore prices could take years perhaps decades to work out.derMenschnoreply@blogger.com