tag:blogger.com,1999:blog-8152901575140311047.post8461818604228861082..comments2024-03-28T12:49:46.624-04:00Comments on Musings on Markets: Governments and Value: Part 1 - Nationalization RiskAswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger18125tag:blogger.com,1999:blog-8152901575140311047.post-15362248087620106422012-12-11T13:40:54.603-05:002012-12-11T13:40:54.603-05:00Now the risk of confiscation is a real possibility...Now the risk of confiscation is a real possibility in some developing countries. And the way these thinks work is blame the large international companies doing business in your country and blame them for all your countries Ills that way you can justify confiscation of parts of their business. And normaly theirs a chain reaction when one country begins confiscation of a companies assets than many other countries my follow suit. The risk of confiscation is much much higher than most investors ever realize. And by the time they finally do realize it's usually to late.QUALITY STOCKS UNDER FIVE DOLLARShttp://www.manta.com/c/mxcpkb3/the-manhattan-calumet-value-stock-hotlinenoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-26373872617886301722012-07-04T01:24:58.426-04:002012-07-04T01:24:58.426-04:00Profesor Damodaran:
Uno de los principales proble...Profesor Damodaran:<br /><br />Uno de los principales problemas que se encuentran luego de analizar estos casos es el ocultamiento de información relevante para que los inversores puedan valorar correctamente a la firma. Da cuenta de la dificultad de las instituciones de control (comisión nacional de valores) de transparentar la información generada por las empresas hacia el público inversor. Estas imperfecciones de mercado acentúan los problemas de agencia a la hora de asignarle el valor a una firma y refuerza más que nunca que las firmas que cotizan en mercados de valores suelen estar sobrevaluadas o subvaluadas dependiendo más a acciones de comunicación y marketing que ha circunstancias del negocio mucho más objetivas. Los mercados regulados terminan comportándose como se comportarían mercados desregulados o informales. El ocultamiento de información que perjudica el valor de la firma es un hecho que no terminó con la ley Sabarnes Oxley y otras porque siguen ocurriendo lo mismos hechos aún luego de su sanción. Es muy común ver empresas globalizarse en África, Latinoamérica, Asia o Medio Oriente sin control y regulaciones depredando todos los recursos y sin tomar los recaudos ambientales necesarios y en consecuencia generando pasivos ambientales difíciles de medir, con el consecuente riesgo de sobrevaloración para el perjudicado. Es correcto pensar que es imposible encontrar una prima psicológica que determine una posible reacción de un gobernante para agregar en el modelo de valoración a riesgo, pero es un antecedente importante a tener en cuenta, encontrar una prima de riesgo para estados débiles propensos a proteger a supuestos inversores que buscan estabilidad y seguridad jurídica o estados fuertes dispuestos a proteger su soberanía y población. La nacionalización de empresas afecta el valor de la firma sino habría que fijarse en los casos de la banca y seguros en US y Europa para no ir demasiado lejos en el tiempo que usted no comenta nada al respecto en este artículo. <br /><br />El debate pasa por la incapacidad de los organismos de regulación para que la información publicada por las firmas sea transparente, este caso no es el único de ocultamiento de hechos significativos que afecta el valor de las firmas. <br /><br />Las grandes empresas tienen un valor mayor dependiendo de, si la política del gobierno esta dispuesta a poner al Estado como prestamista de última instancia (sea por razones válidas o discutibles) y esa situación queda expresada en su valor, en ese caso el capital propio siempre es mayor que cero aun en situaciones de insolvencia financiera.<br /><br />Uno de los problemas para la valoración de empresas es el acceso a la información y esa situación se magnifica cuando más nos alejamos geográficamente del lugar donde nos sentimos cómodos, sea por cultura, idioma, historia, legalidad, moneda etc. Esa incomodidad manifiesta obliga al inversor a exigir más certidumbre, que no todos los gobiernos están dispuestos a dar por diferentes motivos. En ese momento puede tomarse la decisión de NO invertir o utilizar la fuerza sea corrupción o militarización para comprar esa certidumbre. <br /><br />Los efectos sobre el valor de la firma de los gobiernos vía nacionalización supone un mayor riesgo para empresas gestionadas irresponsablemente, ineficientes e incapaces de entender el contexto político que los rodea, pudiendo hacer un paralelismo con las empresas que se exponen a una OPA hostil, suena bastante lógico que la empresa nacionalizada busque un aprovechamiento de los recursos con otros fines no asociados con la rentabilidad sino con intenciones más estratégicas y de sustentabilidad del propio país, por ejemplo preservar fuentes de trabajo, estabilidad energética o de infraestructura etc. Que la gestión anterior fue incapaz de ver.<br /><br />La dinámica de los sucesos económicos nos obliga a replantearnos muchos aspectos de las finanzas corporativas incluidas la valoración de empresas.<br /><br />Atte<br /><br />Prof: Walter KleinWalter Klein (Argentina)noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-62828483458916560592012-04-24T09:51:19.910-04:002012-04-24T09:51:19.910-04:00I have a simple policy for companies where governa...I have a simple policy for companies where governance is suspect (i.e. public sector undertakings/GOOG/FB/BRK). Don't invest in them! But YPF's situation makes me uncomfortable well governed private sector participants like BP, RDS and several resource owners which are exposed to nationalization risks. I guess the best was to handle the risk is by diversification of country risk.Shivnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-33500810730664412282012-04-19T13:19:49.049-04:002012-04-19T13:19:49.049-04:00Dumb Money,
If you just don't invest in compa...Dumb Money,<br /><br />If you just don't invest in companies that have interests in "emerging countries", then you just don't invest in most of mining and oil companies as most of the resources are there. You just have to take into account the extra risk, the post gives a view on how to account for the extra risk.<br />Companies that have to put a lot of upfront money to receive a cash flow in the next 30 years are all at risk, and not only in "lax law" countries, a couple of rulings pop to my mind against Highways concessions or Airport concessions in the US or in the UK. This is a kind of risk very underestimated by investors.P.Neoliberaleshttp://pensamientosneoliberales.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-91595495434605974512012-04-19T12:30:56.273-04:002012-04-19T12:30:56.273-04:00Professor,
I did not expect a personal reply and ...Professor,<br /><br />I did not expect a personal reply and I'm honored!<br /><br />What you say is precisely why I think a good strategy is not invest in such companies/countries.<br /><br />Though I can also suggest another. Move beyond valuation and math, into history. History suggests natural resources companies, bank companies, and media companies, are the most likely to be nationalized. History also suggests that unless a country goes fully communist (Cuba), only large "important" companies get nationalized. Accordingly, an alternatively viable strategy is, when investing in such countries, avoid those three categories, and look for small-cap companies (these days, ones that are not RTOs).<br /><br />This is why I think Pepsi will be ok buying Wimm-Bill-Dann, and Walmart will be ok buying that South African grocer, whereas I would not dare put money in South African natural resources companies right now. I also much prefer the small cap Brazilian ETF, "BRF" to owning even large Brazilian companies. I would not even think about touching most South American natural resources companies, particularly those involved in precious metals or oil.<br /><br />All best,<br /><br />The Dumb Money<br />http://www.dumbmoney.tumblr.comThe Dumb Moneyhttps://www.blogger.com/profile/09796381033790706388noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-78159992565411195482012-04-19T12:13:05.866-04:002012-04-19T12:13:05.866-04:00Anonymous,
You are right. I mangled the numbers in...Anonymous,<br />You are right. I mangled the numbers in the valuation in the post (though the excel spreadsheet is fine) and I fixed them now. <br />The Dumb Money,<br />I don't disagree with you but this is one risk that actuaries will have a tough time with. It is easier to deal with forces of nature and even terrorist attacks than it is to judge how a fickle head of state will act. You could try to buy insurance against nationalization and reduce your cash flows by the cost...Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-44603670799831969052012-04-19T09:30:07.946-04:002012-04-19T09:30:07.946-04:00Great topic and a very relevant discussion for gro...Great topic and a very relevant discussion for growth markets as well. <br />Between, I am a little perplexed with the sample valuation ( I know its just to illustrate your point, but I never saw you making a mistake in the past and am wondering if I am missing anything here ). I thought the DCF value was 449 and not 491. Also the math doesn't add up. What am I missing?<br /><br /> A discounted cash flow valuation of the company generates a value of 449 million VEB for the operating assets. Assuming a 20% probability of nationalization and also assuming that the owners will be paid half of fair value, if nationalization occurs, here is what we obtain as the nationalization adjusted value:<br />Nationalization adjusted value = 491 (.8) + (491 *.5) (.2) = 212 million VEBAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-5324344263486918802012-04-19T07:18:04.214-04:002012-04-19T07:18:04.214-04:00I think you can effectively deal with nationalizat...I think you can effectively deal with nationalization risk in some way. Motives to Nationalize (Political or Economical). It seems that Argentina motives are economical (check Argentina economy today) and you can related the need of resources by a country to nationalization. ¿Why Repsol YPF and not other company? Repsol find oil resources, demanded today at attractive price. <br /><br />Some says that the company in Argentina was not operating efficiently. If this was the case, the market price should react accordingly, but this doesn't happened. <br /><br />Best regards to all<br /><br />However, define a line that allow to differentiate political or economical motives, is not an easy job.Mauriciohttps://www.blogger.com/profile/13868909028386705027noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-33585858882913925562012-04-19T04:18:01.804-04:002012-04-19T04:18:01.804-04:00What your theory doesn't account for, is the f...What your theory doesn't account for, is the fact that acquiring a business cheap (due to nationalisation risk as you say) increases the risk of said nationalisation happening when the government becomes convinced you swooned them out of a good assetAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-74197973206376570752012-04-18T20:03:46.959-04:002012-04-18T20:03:46.959-04:00As usual, relevant and insightful, Professor.
So...As usual, relevant and insightful, Professor. <br /><br />Something I wonder about is whether considering a high discount rate and embedding a risk premium (should we?) for the "going concern" portion of your Method C could be double-counting some of the risk. <br /><br />I wonder about that because in the first place, one of the reasons interest rates are high in those countries is exactly the markets' perception of a higher likelihood that governments will "misbehave", right?<br /><br />Hope all is well at Stern!Eduardo Moreiranoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-34929787113332068042012-04-18T14:49:02.285-04:002012-04-18T14:49:02.285-04:00Danm,
Oh I agree, but there is a significant qual...Danm,<br /><br />Oh I agree, but there is a significant qualitative difference between coming up with a discount rate or a growth rate, on the one hand, and simply "assigning a probability" of nationalization, on the other. The former at least have numerical inputs, prior growth rates, WACCs, etc. -- bases for the assumptions. The latter has nothing unless an actuarial analysis is performed. I apologize if I was not clear on that. It's one man's opinion. I'm well-aware that the entire calculation of value involves many assumptions. <br /><br />My recommendation would be not to invest in such companies/countries, and that is what I follow in my own investing. In this regard, South Africa is potentially a growing risk as well....<br /><br />Best wishes,<br /><br />The Dumb MoneyThe Dumb Moneyhttps://www.blogger.com/profile/09796381033790706388noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-42977600981895156742012-04-18T14:43:25.059-04:002012-04-18T14:43:25.059-04:00Professor Damodaran,
Thank you for your posts, as...Professor Damodaran,<br /><br />Thank you for your posts, as always. I was wondering, what about using some sort of market-driven metric to determine the liklihood of default? For example, you mention the disparity of Venezuelan and Russian PE ratios vs. their emerging market counterparts; could we use that to drive this figure? This would not be terribly useful as protection vs. unexpected actions such as with YPF, but could be useful with valuations for corporations operating in known mercurial locations.<br /><br />The Dumb Money,<br /><br />Much of what we do IS guessing - we will *never* have all the information, it's what we do with what we have that matters. There's a delicate balance of how long we wait or how much we invest in getting exact information; at some point you must make a decision or recommendation.<br /><br />Best,<br />Dan McAllisterDanmhttps://www.blogger.com/profile/11019633695842568059noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-35665988453875530062012-04-18T13:43:41.418-04:002012-04-18T13:43:41.418-04:00Nice post. Personally I think there are only two ...Nice post. Personally I think there are only two ways to account for this:<br /><br />1) Perform an honest-to-goodness insurance company-derived actuarial analysis to reduce expected cash flows (I think this is what you are beginning to get at in Option 3, Step 2, but it really needs to be a more formal actuarial analysis, analogizing nationalization to large weather events like hurricanes), or;<br /><br />2) Don't invest in companies with significant holdings/business in such countries. There are many fish in the sea.<br /><br />Side note: I like your blog and I really wish you could change the set up so that people could also log in using Disqus, Twitter, Facebook, Tumblr, etc., as well.<br /><br />I think everything else is likely just guessing.<br /><br />http://dumbmoney.tumblr.com/The Dumb Moneyhttps://www.blogger.com/profile/09796381033790706388noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-36706289313308191092012-04-18T12:14:27.673-04:002012-04-18T12:14:27.673-04:00Lucas,
I don't have a problem. Then, pay them ...Lucas,<br />I don't have a problem. Then, pay them the market price and buy them out. Don't nationalize YPF. Repsol is not the most efficient company in the world and you see its inefficiency reflected in its market value (and in the market value of YPF).Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-69658394078276319262012-04-18T09:57:34.793-04:002012-04-18T09:57:34.793-04:00Hello professor. Interesintg article, but I think ...Hello professor. Interesintg article, but I think you are missing a bit in the YPF case in Argentina. Repsol was supposed to invest a serious budget in oil research and development. They didn't. Nowadays (and since 6 or 7 years) the YPF gas stations operate at 50% of their capacity during the week, and in the weekends they run out of oil. All of them. YPF is all over the country and it is the largest and more popular refinery here. So, I think it was about time that someone stop this. You should see the infinite line of cars that are in every YPF gas station every single day. I don't think it's fair for the society, I'm pretty sure that goverments should take part when society is threatened. I'd like to hear more comments about it. Thank you very much, <br /><br />Eng. Tacconi LucasLucas Tacconihttp://www.linkedin.com/pub/lucas-tacconi/1a/975/469noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-33359942674977087732012-04-18T03:35:26.408-04:002012-04-18T03:35:26.408-04:00Interesting perspective, Professor.
I prefer bum...Interesting perspective, Professor. <br /><br />I prefer bumping up my required rate of return to reflect idiosyncratic geopolitical risk (sovereign, regulatory, nationalisation et al). As you note, there is no perfect way of accounting for this risk but a stringent hurdle rate for filtering my investment prospects typically works reasonably well.<br /><br />However, there are risks that cannot be hedged away (think the recent PNGRB ruling in India, retrospectively slashing natural gas compression and transportation tariffs drastically). I think little can be done about these unknown unknown, except perhaps not assume the risk at all. The swipe of a pen is sometimes mightier than the threat of war, in the investing world.<br /><br />Also, as a general approach, what do you think of the idea of using a hurdle rate as the discount rate in DCFs? Having used CAPMs, I have grown to trust my required rate of return as a measure of 'risk'. While I agree that some businesses have cash flow characteristics that are inherently riskier than others, the hurdle rate approach has worked well. Would really appreciate your experience here.HaLinhttp://www.haphazardlinkages.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-23584984502063906952012-04-17T17:12:01.312-04:002012-04-17T17:12:01.312-04:00Prof. Damodaran,
This a jewel for whom make a liv...Prof. Damodaran,<br /><br />This a jewel for whom make a living doing finance here in Venezuela. It is really a challenge to value or to have a company.<br /><br />Thanks for the postAnonymoushttps://www.blogger.com/profile/08152481860605705875noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-67444798906543365662012-04-17T16:02:11.105-04:002012-04-17T16:02:11.105-04:00Hope other nation do not get into this game .eager...Hope other nation do not get into this game .eagerly waiting to read your next post tooAnonymousnoreply@blogger.com