tag:blogger.com,1999:blog-8152901575140311047.post6234270945455319149..comments2024-03-19T05:19:06.448-04:00Comments on Musings on Markets: Behavioral Economics: Thoughts on Value and PriceAswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-8152901575140311047.post-20794817412722853962011-04-06T06:33:19.977-04:002011-04-06T06:33:19.977-04:00Hi prof, i have question (perhaps not related to t...Hi prof, i have question (perhaps not related to this article) with regards to mergers and acquisitions: Is there a way (out there) to determine both stand-alone and with synergy value of a target company through multiples? Many thanks, Jay.JS Shikalepohttps://www.blogger.com/profile/08108220449492800851noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-69110391826905623462011-03-20T08:07:59.507-04:002011-03-20T08:07:59.507-04:00Warren Buffett is an investor. Given his long-term...Warren Buffett is an investor. Given his long-term results he can, obviously, be considered the best investor in the last 50 years. Not bad, considering that there are around more than 50.000.000 investors trying to beat him.<br /><br />Corollary: to beat consistently all the other investors, he has to either be more intelligent than any other else or to have better models than any other else.<br /><br />I personally prefer to think he has better models, as he and Charlie Munger have systematically explained to us.<br /><br />You, Professor. Do you have any long term performance in the investing world (either you personally or through any person you have helped) better than Warren Buffett?.<br /><br />If the answer is not: please improve your models.<br /><br />If the answer is yes: I would very happy to listen from you the specific models you have used in beating Warren BuffettUnknownhttps://www.blogger.com/profile/13536719587426453354noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-52856767460148213742011-03-12T13:32:12.390-05:002011-03-12T13:32:12.390-05:00Paul,
The gain in value is coming from the tax law...Paul,<br />The gain in value is coming from the tax laws which are tilted in favor of debt over equity. While bankruptcy cost may eventually override the tax benefits, at least up to moderate amounts of debt, the government in effect subsidizes you... Should it? That is a different question and well worth examining...Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-22639823710642839562011-03-11T17:13:07.559-05:002011-03-11T17:13:07.559-05:00On share buy backs: I an easily see how share buy...On share buy backs: I an easily see how share buy backs put money back in to shareholder hands when companies can not find viable investments. But using debt to fund the buy back to repurchase shares seem like destruction of value to equity holder- I am looking at your Applied Corp. Fin. (2011) pp. 411-414 Equity value in your example drops from 45,1 to 38,8. How does buy backs really create value in $. terms? - even as your share price goes from 24.34 to 25.50. ? Having a difficulty reconciling this . Thanks - Paulpflood77https://www.blogger.com/profile/10615933316763520945noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-36359324493156368892011-03-08T15:23:59.397-05:002011-03-08T15:23:59.397-05:00Another great treatise on behavioral finance that ...Another great treatise on behavioral finance that one could read would be the classic "Manias, Panics, and Crashes" by the late Charles Kindleberger. I think behavioral economics is especially useful in detecting signs of bubbles, which can save investors who find them in time a ton of capital. <br /><br />http://www.amazon.com/Manias-Panics-Crashes-Financial-Investment/dp/0471467146Unknownhttps://www.blogger.com/profile/08077010324628803394noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-104421359452685272011-03-08T15:22:56.608-05:002011-03-08T15:22:56.608-05:00This comment has been removed by the author.Unknownhttps://www.blogger.com/profile/08077010324628803394noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-92211445951496523772011-03-02T18:41:38.247-05:002011-03-02T18:41:38.247-05:00Hi Professor,
Do you see any behavioral thingie i...Hi Professor,<br /><br />Do you see any behavioral thingie in the recent 'Facebook valuation' by Goldman Sachs? What was in play when GS estimated the cashflow and discount rate?Mikehttps://www.blogger.com/profile/07355513525615592382noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-32957553994144746732011-03-02T10:10:12.484-05:002011-03-02T10:10:12.484-05:00Tom,
You are right. The way we form expectations a...Tom,<br />You are right. The way we form expectations and adjust for risk can be skewed by behavioral components. However, there is a underlying truth that will ultimately come out. So, the key to doing valuations is first being aware of your own behavioral impulses, how they play out when you do valuation and how to counteract them.Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-27390435060250641522011-03-02T09:04:56.526-05:002011-03-02T09:04:56.526-05:00"The expected cash flows are still the expect..."The expected cash flows are still the expected cash flows and the required return still has to reflect the perceived risk in the investment."<br /><br />I think you're missing some key behavioral influences here. The assessment of future cash flows is definitely a behavioral exercise, subject to all sorts of traps. And the decision on the required return to use, unless done in a mechanistic fashion (which brings in a host of other errors), also is subject to behavioral errors.<br /><br />The process of valuation is rife with behavioral issues. That doesn't make it not worth doing, it just means that it has to be approached in a different manner than many practitioners do.tom brakkehttps://www.blogger.com/profile/08523068322465360033noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-62319698777680931972011-03-02T07:06:56.997-05:002011-03-02T07:06:56.997-05:00I feel this is coming on the right path, but at th...I feel this is coming on the right path, but at the limit would be that the for a given complex "thing" e.g. a company, the valuation (value, not price) will be different for each and every of us, because we have perceived the world with different experiences which will influence the assumptions underlying the models.<br /><br />But if that so, would the valuations really help in pricing? And the answer has to be yes, as most often the valuations are not a number, rather an interval, where most of the valuations from different people are expected to be.<br /><br />The major point that behavioral science brings is that of the mistake, so that any one analysis can be wrong, but many independent analysis showing largely similar valuations should be not. One question arising from this - are generally the analysis really independent?MihaiPhttps://www.blogger.com/profile/07265258615685113157noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-7991150985299891902011-03-01T21:47:07.370-05:002011-03-01T21:47:07.370-05:00Prof, interesting article. I will try to get the ...Prof, interesting article. I will try to get the book.<br /> <br />In my opinion, the following traits describe the Wall Street behavior: <br /><br /><i>Greed, Deception, the Greater Fool theory, </i> and not to forget <i>Washington, Wallstreet collusion </i>.Mikehttps://www.blogger.com/profile/07355513525615592382noreply@blogger.com