tag:blogger.com,1999:blog-8152901575140311047.post8917675162869228141..comments2024-03-29T03:33:47.317-04:00Comments on Musings on Markets: Bounceback in Multiples: The 2010 storyAswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-8152901575140311047.post-19161119188401436742010-05-01T01:12:29.058-04:002010-05-01T01:12:29.058-04:00The median EV/EBITDA multiple for US companies, wh...The median EV/EBITDA multiple for US companies, which had dropped from about 9 in January 2008 to 6 in January 2009, had bounced back to 8 by January 2010.<br /><br />This is how it should be read...Gaurav Mehtahttps://www.blogger.com/profile/06728937525354512495noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-19366364390812930352010-04-30T19:46:30.043-04:002010-04-30T19:46:30.043-04:00In January 2010 you wrote the following in your ar...In January 2010 you wrote the following in your article "Bounceback in multiples":<br /><br />b. EV/EBITDA: The median EV/EBITDA multiple for US companies, which had dropped from about 9 in January 2008 to 6 in January 2008, had bounced back to 8 by January 2009.<br /><br />Could you clarify the dates as this doesn't make sense as is.<br /><br />Thanks.Anonymoushttps://www.blogger.com/profile/17899208072511275432noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-13278352565168865152010-02-03T01:53:16.963-05:002010-02-03T01:53:16.963-05:00Thanks for the clarification, just saw the reply t...Thanks for the clarification, just saw the reply today!Gaurav Mehtahttps://www.blogger.com/profile/06728937525354512495noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-48796668857452054942010-01-27T08:13:55.201-05:002010-01-27T08:13:55.201-05:00That is a good compromise and one that I have used...That is a good compromise and one that I have used for much of the last year.Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-1520056657268272142010-01-25T20:24:21.665-05:002010-01-25T20:24:21.665-05:00Wouldn't it be better to have a 5% risk premiu...Wouldn't it be better to have a 5% risk premium for the growth stage and revert back to the historical 4% in the terminal value? As such there are more chances of equity prices going down this year than going up as central governments takes roll back steps.Gaurav Mehtahttps://www.blogger.com/profile/06728937525354512495noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-38040290397039441262010-01-25T08:41:15.731-05:002010-01-25T08:41:15.731-05:00True, but your problem in this case was not that y...True, but your problem in this case was not that you bought Coca Cola but that you allocated a significant portion of your portfolio to equities. If you want to take a point of view on equity risk premiums, it should be in the asset allocation stage. If you believe that the current equity risk premium is too low, allocate less of your money to equities and more to another asset class. Then go out and analyze individual companies to see which ones you would hold with your reduced equity allocation.Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-41160475206644114442010-01-25T04:00:37.953-05:002010-01-25T04:00:37.953-05:00I agree, although I'm not sure I've convey...I agree, although I'm not sure I've conveyed my original point very well.<br /><br />Imagine that you use the prevailing implied equity risk premium of 4% to value Coca-Cola, with the resulting valuation indicating a buy decision. Now imagine that panic grips the market because Bernanke is not confirmed for a second term. Suddenly, the implied equity risk premium rises to 6%. If you use this new risk premium to value Coca-Cola, you will get a much lower DCF valuation. If we assume that the resulting valuation indicates a sell decision, and you act on that decision, you have successfully followed the market (and lost money in the process). Obviously it is nonsense to allow stock market fluctuations to inform your view of the value of Coca-Cola, but isn’t that what using an implied equity risk premium does?Jameshttps://www.blogger.com/profile/14548304056503239749noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-87819128060787744882010-01-24T08:05:12.244-05:002010-01-24T08:05:12.244-05:00When you use the implied equity risk premium to va...When you use the implied equity risk premium to value individual companies, you are just separating your market views from your views on a company.<br /><br />To see why, assume that the implied premium is 4% but that you believe it should be 6%. If you value a company using a 6% premium, you will obtain a much lower value for the company. However, the reason for your finding has little to do with what you think about the company and more to do with your view that the market is over priced.Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-9743415369398252702010-01-24T03:25:57.953-05:002010-01-24T03:25:57.953-05:00Hi Aswath,
Aren't you essentially a "mar...Hi Aswath,<br /><br />Aren't you essentially a "market follower" if you use implied equity risk premiums (or an estimate of current equity risk premiums) in your valuation? Why should you adjust the risk premium you use simply because everyone around you is panicking?<br /><br />Also, thank you for the incredible resources you have made available on your site.Jameshttps://www.blogger.com/profile/14548304056503239749noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-29405887355057301452010-01-24T03:12:49.906-05:002010-01-24T03:12:49.906-05:00It'd be great to have an article on the new pr...It'd be great to have an article on the new proposed laws for banks by The President. I personally do think they should be implemented in some for if not the current form.Gaurav Mehtahttps://www.blogger.com/profile/06728937525354512495noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-83263586224386681502010-01-21T06:13:27.660-05:002010-01-21T06:13:27.660-05:00vry right professor..agree with u!!!vry right professor..agree with u!!!Immortalhttps://www.blogger.com/profile/02889853969712537454noreply@blogger.com