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Valemail

 


The emails for this class will be collected on this page, arranged chronologically. Since I send quite a few, you can target it on a specific month by going here:

Have fun with them!

Date
Email content
1/11/19
I am sure that you are finding that break is passing by way too fast, but the semester is almost upon us and I want to welcome you to the Valuation class. One of the best things about teaching this class is that valuation is always timely (and always fun...) Just as examples: Is it time to buy or sell Twitter? Is Uber worth $120 billion? Is there a market bubble? What is the value added or destroyed by the Kardashians? Are the Dallas Cowboys really worth more than the New York Yankees? Is there a Trump effect on markets and if so what is it? If you have not visited my blog, I put my thoughts down on these issues (though I am still working on the Kardashian valuation): 
http://aswathdamodaran.blogspot.com/ 

1. Preclass work: I  know that some of you are worried about the class but relax! If you can add, subtract, divide and multiply, you are pretty much home free... If you want to get a jump on the class, you can go to the class web page:
http://www.stern.nyu.edu/~adamodar/New_Home_Page/equityUG.html 

2. Syllabus & Calendar: The syllabus for the class is available on the website for the class and there is a google calendar for the class that you can get to by clicking on

https://bit.ly/2DrzZFl    

 For those of you already setting up your calendars, it lists when the quizzes will be held and when projects come due. 

3. Lecture notes: The first set of lecture notes for the class should be available in the bookstore by the start of next week. If you want to save some money, they can also be printed off online (if you want to save some paper, you can print two slides per page and double sided). To get to the lecture notes, you can try
http://www.stern.nyu.edu/~adamodar/New_Home_Page/webcasteqUGspr19.htm
Please download and print only the first packet on discounted cashflow valuation. If you want to save paper, you can download the pdf file on you iPad, Android or Kindle and follow along... 

4. Delivery choices: I hope to see you all in class for every session, but there are two supporting delivery mechanisms that I would like you to take advantage of:
a. iTunes U: I will also be posting the material for the class on iTunes U. If you have never used iTunes U, you need an Apple device (iPad or iPhone) and have to download the iTunes U app (free). Then use the enroll code: FAC-LTX-JJH
Alternatively,  type in or click on the link for the class.
I really like the set up and I think you may enjoy it too. If you have an android, it is a little more involved, but try downloading Tunesviewer, an Android app that lets you use iTunes U.
b. YouTube Channel: There is a final option, if your broadband connection is not that great and you are watching on a Tablet/smartphone. There is a YouTube playlist for this class, where all class sessions will be loaded.
When you get a chance, check it out.

5. Books for the class: The best book for the class is the Investment Valuation book - the third edition. (If you already have the second edition, don't waste your money. It should work...) You can get it at Amazon or wait and get it at the book store... If you are the law-abiding type, you can buy "Damodaran on Valuation" - make sure that you are getting the second edition. If you can get the Asian edition, even better. It is exactly the same book and costs about a third. Or, as a third choice, you can try The Dark Side of Valuation, again the second edition, if you are interested in hard to value companies.. Or if you are budget and time constrained, try "The Little Book of Valuation". Finally, if you really want to take a leap, try my newest book, Narrative and Numbers at 
https://www.amazon.com/Narrative-Numbers-Business-Columbia-Publishing/dp/0231180489 
You will find the webpages for all of the books at http://www.stern.nyu.edu/~adamodar/New_Home_Page/public.htm. If you want a comparison of the books, try this link: http://people.stern.nyu.edu/adamodar/New_Home_Page/valbookcomp.html 

6. Valuation apps: One final note. I worked with Anant Sundaram (at Dartmouth) isn developing a valuation app for the iPad or iPhone that you can download on the iTunes store: http://itunes.apple.com/us/app/uvalue/id440046276?mt=8 
It comes with a money back guarantee...  Sorry, no Android version yet…  
I am looking forward to seeing you in a couple of weeks. Until next time!
1/21/19
One of the themes of this class will be that while your valuation looks like a collection of numbers, the story that holds these numbers together is the glue. Consequently, to get a handle on valuation, you have to learn to navigate that space between stories and numbers and your skills have to be broad. I know that you are still on break and that the last thing you want to do is reading, but if you do get a chance, please read this post that I have on my blog:
http://aswathdamodaran.blogspot.com/2016/08/investing-and-valuation-lessons-from.html 
The post was triggered by the awe I felt, looking up at Brunelleschi’s Duomo in Firenze this summer, but the thoughts are all investing/valuation thoughts. In fact, I jwrote a book on connecting stories to numbers and here is the post introducing the book (which became available about a year and a half ago).
http://aswathdamodaran.blogspot.in/2017/01/narrative-and-numbers-how-number.html 

If you did get a chance to read my long email last week (and I would not blame you if you skipped it), you probably noticed that the link that I had for the page with the lecture notes and class webcast did not work. Here is the right link:
http://www.stern.nyu.edu/~adamodar/New_Home_Page/webcasteqUGspr19.htm

Also, if you missed the first email, the email chronicles will record them for posterity and you can find them by going to this link:
http://www.stern.nyu.edu/~adamodar/New_Home_Page/eqUGemail.html 

I also want to end this email on a personal note, because it will have an effect on you, at least over the first two weeks. My wife will be going in for her surgery on January 29, which as you can see is right between the first two sessions of this class. Since the surgery will be in San Diego, I will not be physically able to get to New York for the classes on January 28 & 30 (and perhaps even February 4), but I will still teach them, through the miracles of modern technology. So, for the moment, please come to class next Monday and I will be there, or at least my online presence will.  In 34 years of teaching, I have never missed a class, and I am truly sorry to miss my first sessions with you. I will make it up with added enthusiasm in the remaining sessions. Until next time!
1/28/19 Hi folks,
The first session of the class is fast approaching and I hope to see you in Paulson at 3.30 pm today.  As I mentioned in my last email, I will be teaching this session virtually from California, but thank God for technology! Aditya Hemrajani is the TF for the class and he will be bringing down three handouts to pick up: the syllabus for the class, a project description and the slides for sessions 2-3. They will be placed on the desk in front of the room. Please pick up copies. If you prefer digital versions of the handouts, they are below:
  1. Syllabus: http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/eqUGsyllspr19.pdf 
  2. Project Description: http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/eqprojspr19.pdf 
  3. Introduction to Valuation (Sessions 1-2): 

The lecture notes past session 3 are available in three packets and you have two choices on these packets. You can download the lecture note packets by going to this link:
http://people.stern.nyu.edu/adamodar/New_Home_Page/webcasteqUGspr19.htm
While you are on this page, if you scan down, you will notice that the webcasts for the class will go up on this page, just in case…

You can either print off the slides or save the rain forests and keep them on your device and bring them to class. For those of you who prefer to make the bookstore rich, the first lecture note packet should be available at the bookstore, though given how slowly the process runs, they may not have it until Wednesday. Finally, this is the third email that I have sent out to the class, and if you have no idea what was in the first two, try this link:
http://people.stern.nyu.edu/adamodar/New_Home_Page/eqUGemail.html 
I will talk to you soon! Until next time!
1/28/19
We are officially rolling. If you enrolled in the class in the last couple of days, you did miss the first three emails but they are already in the email chronicle, in case you are interested:
Email chronicles: http://people.stern.nyu.edu/adamodar/New_Home_Page/eqUGemail.html
This chronicle will be updated at the end of each week to include all emails sent up until then. There were three handouts in class today and you can find the links in the email I sent out earlier today. One quick correction to the syllabus is that the final exam is scheduled for May 17 from 3-4.50 pm (not May 15).

 A quick note about today's class. First, it was a virtual class, since I am physically not in New York. During the session, I told you that that this was a class about valuation in all of its many forms – different approaches (intrinsic, relative & contingent claim), different forums (for acquisitions, value enhancement, investing) and across different types of businesses (private & public, small and large, developed & emerging market). After spending some time laying out the script for the class (quizzes, exams, weekly tortures), I suggested that you start thinking about forming a group and picking companies. To get the process rolling, here is what I have done
  1. Group: Please do find a group to nurture your valuation creativity, and a company to value soon. 
  2. Company Choice: Once you pick a company, collect information on the company. I would start off on the company's own website and download the annual report for the most recent year (probably 2017) and then visit the SEC website (http://www.sec.gov) (for US listings) and download 10Q filings. (You can pick any publicly traded company anywhere in the world to value. The non-US company that you value can have ADRs (but does not have to have ADRs) listed in the US but you still have to value it in the local currency and local market. You can even analyze a private company, if you can take responsibility for collecting the information.)
  3. Webcast of today’s class: The web cast for the first class are up and running (or at least the streaming version). You can access it by going to: http://people.stern.nyu.edu/adamodar/New_Home_Page/webcasteqUGspr19.htm. The links to iTunes U and YouTube will also be up shortly.
  4. Lecture Note Packets: You can wait for the bookstore to get its act together and get the packets ready or you can get a jump by downloading the lecture note packet online. It is available at the top of the webcast page (see link above) in either pdf or ppt format. 
  5. Post class test: To review what we did in class today, I prepared a very simple post-class test. I have attached it, with the solution. Give it your best shot.
Until next time!

Attachments: Post-class test and solution.

1/29/19 Hi,
1. Valuation of the week: If you are going to do a valuation of Star Wars, I think it makes complete sense to start with Yoda talk.  So, for your first valuation of the week, let’s have some fun. I have always been a Star Wars fan, and like other fans, I was a little worried when Disney bought Lucas Films (and with it the rights to the Star Wars franchise) for $4 billion a few years ago. Disney was explicit about its plans at the time, and said that it planned to produce three major Star Wars movies, continuing the story, and three side stories (like Rogue One) filling in history. I went to see Force One in December 2015 and wrote this post on my blog about what I thought the value of Star Wars was at the time;
I assigned a value of almost $10 billion to the franchise, with a big chunk coming from the side products (toys, software, apps) coming from the franchise. You can download the spreadsheet that contains the valuation here:
When I wrote the post, Force Awakens had been out in theaters only a few days and I estimated box office revenue of $2 billion for the movie. Rogue One, of course, had not been released yet and I estimated revenues of $1 billion. Force Awakens is now one for the history books, with global revenues of just over $2 billion and Rogue One just crossed the $1 billion threshold.
Updated box office for Force Awakens: http://www.boxofficemojo.com/movies/?id=starwars7.htm 
In addition, the eighth Star Wars movie has come and gone, with the Last Jedi, as has the next add on movie on Hans Solo:
Armed with this additional information, here is what I would like you to do. Go into the spreadsheet and reestimate the value of the Star Wars franchise. It may be only tweaks but give it your best shot. Once you have a value, go into this shared Google spreadsheet:
Enter your numbers and lets see how the distribution of values evolves over time. And since this is a Star Wars post, might as well end with some good advice:

Have fun, you must!

2. Calendar and Syllabus: I have been told by Aditya that some of you have landed on the wrong calendar and launching page for the class and ended up confused about dates. To clarify, I am teaching two valuation classes, one to the MBAs and one to you, and I have different entry points and calendars. Here are the ones that matter for you:

3. Start of the class and class-end rituals: We will start every session with a start of the class test, previewing the material for the session but with no grades/pressure and we will end every class with a post-class test, with a solution, against not graded. You saw the first of the latter yesterday, in the email I sent after the class. You will see the first of the start of the class tests tomorrow and just to give you a heads-up, I have attached it to this email as well. You don’t need to understand valuation to answer this. Just use common sense!

Attachment: Start of the class test for session 2

1/30/19 First, on the personal front, my wife’s surgery went well yesterday and we are relieved. That said, two and a half hours of surgery can do a number on you and she is still woozy and in pain, and I don’t think that I will leave her side today. That said, I prepared for this, and I recorded the whole class ahead of time. I will send you the links to the video in a  few hours, but you don’t have to come to Paulson to watch it. I know that you will miss the cozy charm and ambience of that room (I am just kidding!) but you can watch this session at home, in your pajamas, instead of watching The Good Life on ABC or Dr. Pimple Popper on TLC (two of my favorite shows). By Monday, I hope to be in New York and no more virtual classes! Until next time!
1/30/19
I hope that you got my email this morning about not coming to class, especially since it is really cold, and I am truly sorry again, if you feel that you are not getting your money’s worth by not having a physical class. You can find today’s session on the webcast page for the class, but the direct link to the YouTube video is here. 
https://youtu.be/m4IUH0Nd4No 
It is a gripping, bone-chilling, seventy two minutes of non-stop excitement. (Hey, someone has to talk it up… ) Seriously, though, please drink a couple of coffees and watch it when you get a chance.

As always, the video will also be on the iTunes U version of the class in a couple of hours, and I will try to get in onto NYU Classes by later today. This class, which is built around the slides titled Introduction to valuation ( http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/Valintrospr19.pdf)  started with a test on whether you can detect the direction bias will take, based on who or why a valuation is done. The solutions are posted online on the webcast page for the class. We then moved on to talk about the three basic approaches to valuation: discounted cash flow valuation, where you estimate the intrinsic value of an asset, relative valuation, where you value an asset based on the pricing of similar assets and option pricing valuation, where you apply option pricing to value businesses. With each approach, we talked about the types of assets that are best priced with that approach and what you need to bring as an analyst/investor to the table. For instance, in our discussion of DCF valuation and how to make it work for you, I suggested that there were two requirements:  a long time horizon and the capacity to act as the catalyst for market correction. We will be starting on the first lecture note packet on Monday. So, please print off the packet ( http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/valpacket1spr19.pdf)  or buy it at the bookstore (if it is available) and bring it to class with you.

Attachments: Post-class test and solution.
1/31/19
I hope that you have had a chance to watch yesterday’s class. I notice that while more than 1100 people have watched the video, the average watching time is only 11 minutes, which though high by YouTube standards, is about an hour short of the entire session. I know that you can speed up the audio to make it faster, but if you make it too fast, I will sound like Alvin and the Chipmunks. Just in case you have no idea what I am talking about, here is the YouTube video link:
https://youtu.be/m4IUH0Nd4No

On a different note, this is the first project-related email that you will be getting. Remember that every Thursday is project email day, and in this one, I want to make sure that you
  1. Find a group: The groups are yours to create and you should try to have at least 4 people in a group and not more than 8 (that limit is for your own projection).  If you are being ostracized and no one wants you, I would suggest some therapist time in the near future, but for the moment, you can add your name to what I will call the orphan list for the class: https://docs.google.com/spreadsheets/d/1gjlvbVj7YgzAqOZY5SODBnUNVLx88k5BVrWyFUCQbn8/edit?usp=sharing 
  2. Pick a company: This will require some coordination across the group to make sure that you meet the minimum criteria (at least one money loser, high growth, emerging market, service company). In making this choice, remember that you can value any business you want, public or private, small or large, listed in any market. There are at least a couple of entrepreneurs in the class who are valuing their own businesses and  quite a few valuing privately owned family businesses. 
  3. Annual Report: Find the most recent annual report for your company. If you are valuing a private business, just ask for income statements and balance sheets for as long as you can get them (I will assume that you know the owner or better still, you are the owner).
  4. Public filings: If your company has quarterly reports or filings pull them up as well. 
In doing all of this, you will need data and Stern subscribes to one of the two industry standards: S&P Capital IQ (the other is Factset). It is truly a remarkable dataset with hundreds of items on tens of thousands of public companies listed globally, including corporate governance measures. I am working on getting you okayed to use this dataset and I will let you know when it is accessible. Until next time!
2/1/19
Three quick notes. 
1. Valuation Tools Webcast #1: The first is that I did put up the first valuation tools webcast on the basics of data collection. I know that many of you still pondering your company choices and group dynamics, but if and when you pick a company, the first step is to get the raw material you need for your valuation. These include data on the company (annual reports, regulatory filings like the 10K/10Q), sector wide data (numbers for other companies in your sector) and macro economic data. I know that many of you already know exactly how to do this. However, if you feel uncertain, you can try this webcast out.
It is about 15 minutes long & not very professionally produced. So, ignore the bad light and bobbing head and focus on the content!

2.The TA for the class is Aditya Hemrajani and his email is agh312@stern.nyu.edu. Please don’t inundate him with questions, since many of them are better directed at me. My office is always open, if I am in. So, use the fair game principle to your advantage. I will be New York from Monday through Wednesdays only this month, since I am needed back at home (in California). Even when I am away, though, I can always be reached on email and I am pretty good about responding quickly. 

3. As should have been obvious, this is a big class with close to 330 people in it. That makes it a great venue for announcements that you may want to make about club activities or events. I will open each class session by allowing one announcement. If you want to make an announcement, please sign up for it as well in the Google shared sheet below:
Until next time!
2/2/19

I hope that you are enjoying your first weekend back at school. I will intrude with a few notes. First, my wife is doing better and it looks like I should be in class on Monday. I can’t wait!  Second, the first newsletter for the class is attached. As I said, there is usually not much news in these newsletters. Think of it more as a GPS for the class, telling you where we went last week and laying out our plans for the week ahead. If you get a chance, take a look at it. Third, we will be starting with the first lecture note packet in class on Monday. Please have it with you for class. Have a great weekend! Until next time!

Attachments: Issue 1 (February 2)

2/4/19
Today's class started with a look at a major investment banking valuation of a target company in an acquisition and why having a big name on a valuation does not always mean that a valuation follows first principles. We began our intrinsic value discussion by talking about the weapons of mass distraction. If you want to read the blog post I have on the topic, try this link:
http://aswathdamodaran.blogspot.com/2014/03/if-it-is-strategic-growth-investment-in.html
After setting the table for the key inputs that drive value - cash flows, growth, risk, we looked at the process for estimating the cost of equity in a valuation. In particular, we broke down risks into different types and argued that only some of these risks belong in discount rates, if investors are diversified. Next session, we will start with a discussion of risk free rate, a foundational number that will drive the rest of our calculations. I have attached a post class test for today, with the solution, but I think that four of the questions relate to risk free rates, which we have not covered yet. So, if you want to wait until Wednesday’s class, you might have an easier time. Until next time!

Attachments: Post-class test and solution.
2/5/19
It is Tuesday, and it is time for the valuation of the week. I decided to revisit one of my favorite companies, Apple, and value it. Since it is a company I have valued before and my most recent valuation was only in September, the best place to start is with two blog posts that I wrote about my valuation of Apple (with Amazon thrown in for good measure):
Post 1 (from September 2018): http://aswathdamodaran.blogspot.com/2018/09/apple-and-amazon-at-trillion-looking.html 
Post 2 (from September 2018): http://aswathdamodaran.blogspot.com/2018/09/amazon-and-apple-at-trillion-follow-up.html 
I got incredibly lucky in terms of timing, since my value was about $200 and the stock was at $230. The stock dropped as low $145 early this year, right after a China surprise, and it came out with both an annual and a quarterly report after my 2018 valuation:
10 K from November 2018: https://d18rn0p25nwr6d.cloudfront.net/CIK-0000320193/68027c6d-356d-46a4-a524-65d8ec05a1da.pdf
10Q from February 2019: https://d18rn0p25nwr6d.cloudfront.net/CIK-0000320193/8f91c57f-9dbf-48c4-889c-792e2acc05d4.pdf 
I revisited my valuation, with updated inputs not just for Apple but for risk free rates and risk premiums. My valuation of Apple in February 2019 is at this link:

My value for Apple is $183, and the stock is trading at $ 174. I am not trying to sell you on my conclusions. What I would like you to do is to take my valuation (and story) and make it yours, by entering the spreadsheet and changing the numbers. To keep you focused, here are the four numbers that drive the value:
  1. Revenue growth: My assumption is that the China shock notwithstanding, the expected growth rate in revenues will be about 3% a year, with services picking up some of the lag. You might disagree).
  2. Operating margin: Apple’s operating margin is about 28.6%, down from 30% a couple of years ago. I think it will continue to drift down as the smart phone business continues to become more competitive and my target margin is 25%, reached in 5 years. Again, you might disagree.
  3. Sales to Capital: I know that this sounds mysterious but I use it to determine how much Apple will have to reinvest to get its growth. It is not a big deal since I am not assuming much growth. I am using the US industry average for electronics companies of 1.81 to estimate reinvestment. If you think that I am reinvesting too much, raise this number. If you think I am reinvesting too little, lower this number.
  4. Cost of capital My cost of capital for Apple is 9.45% and if you go into the cost of capital worksheet in the valuation, you will see what I am assuming. This is higher than the median cost of capital for a US or global company, and puts them in about the 65% percentile in terms of risk. You are welcome to disagree.
Once you have made your changes and come up with a value, please enter your inputs and resulting value into a Google shared spreadsheet. Please don’t wreak havoc by deleting other peoples’ inputs.
https://docs.google.com/spreadsheets/d/1OqAwmOmF4L9BU2g7rNhM07pA6dJ1enwJ6Vc2w9_nxaA/edit?usp=sharing
I will keep a running tab of what you are finding. Have fun! Until next time!
2/6/19
We started the class with a discussion of risk free rates, exploring why risk free rates vary across currencies and what to do about really low or negative risk free rates. The blog post below captures my thoughts on negative risk free rates:
http://aswathdamodaran.blogspot.com/2016/03/negative-interest-rates-unreal.html 
If you want to see my updated perspective on risk free rates, try my data post on the issue from earlier this year:
https://aswathdamodaran.blogspot.com/2019/01/january-2019-data-update-2-message-from.html 

We just started on the discussion of equity risk premiums but the contours of the discussion should be clear.
a. Historical equity risk premiums are not only backward looking but are noisy (have high standard errors). You can the historical return data for the US on my website by going to
http://www.stern.nyu.edu/~adamodar/New_Home_Page/data.html
Click on current data, and look to the top of the table of downloadable data items.
b. Country risk premium: The last few months should be a reminder of why country risk is not diversifiable. As you see markets are volatile around the world, I think you have a rationale for a country risk premium. You can get default spreads for country bonds on my site under updated data. If you are interested in assessing and measuring country risk, to get from default spreads to equity risk premiums, you need two more numbers. The first is the standard deviation for the equity market in the country that you are trying to estimate the premium for. Try the Bloomberg terminal. Find the equity index for the country in question (Bovespa for Brazil, Merval for Argentina etc.) and type in HVT. This should give you the annualized standard deviation in the index - change the default to weekly and use the 100-week standard deviation. Do the same for the country bond in question. The two standard deviations should yield the relative volatility. If you have trouble finding either number, just multiply the default spread by 1.4 to get a rough measure of the country risk premium.  If you want my estimates of country risk premiums, check under updated data on my website. The direct link is below:
Finally, The post class test and solution are attached. Until next time!

Attachments: Post-class test and solution.

2/7/19

In class on Monday, we started with the claimholder consistency principle, arguing that there are two ways to value equity: discount cash flows to equity at the cost of equity or discount cash flows to the firm at the cost of capital and then subtracting out debt. Done right, I argued that you should get the same answer. I hope that you will have a chance to try the first weekly challenge. It starts simple but it will test you on your implicit assumptions about valuation. It does not have to be turned in to me and it will not be graded. I will post the solution on Sunday and you can check your answer out. Just another prod on the project. Please pick a company and find a group soon. If you are on the orphan list and are still having trouble finding a group, let me know. Until next time!

Attachment: Weekly challenge #1

2/8/19
Just two quick notes. The first is that I did put up an in-practice webcast today. It is a very basic webcast on how to read a 10K, using P&G as my example. The links are below:
Downloadable video:  http://www.stern.nyu.edu/~adamodar/podcasts/Webcasts/Reading10Knew.mp4 
YouTube Video:   https://youtu.be/UzUJzdn7c2w?list=PLUkh9m2BorqmRAGzJb5OIvTAKZZu9HWF- 
P&G 10K: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/PG/Reading10KPG.pdf
P&G Valuation (excel spreadsheet): http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/PG/P&Gvaluationfixed.xls
I had mentioned that S&P Cap IQ was a great resource to use for data, but It turns out that you have to go to self-register to be able to access it. Until next time!
2/9/19
The second newsletter is attached. As you browse through it, remember the weekly challenge that I sent out and see if you can give your best shot. The solution will come tomorrow.

Attachment: Issue 2 (February 9)
2/10/19
In the week to come, we will continue our discussion of discount rates, with equity risk premiums taking up much of the discussion time tomorrow and spieling into Wednesday. We will start tomorrow’s class with the attached test on risk premiums. So, if you get a chance, give it your best shot. Also I was checking out the Google shared spreadsheet on my first valuation of the week. Well done! I see 85 of you have tried to value the franchise. You can still do it, if you have not done it already. If you have already forgotten about it, you can find the details on the webcast page for the class.
http://www.stern.nyu.edu/~adamodar/New_Home_Page/webcasteqUGspr19.htm

Until next time!

Attachment: Risk Premiums: A test

2/11/19

In the session today, we started by doing a brief test on risk premiums. After a brief foray into lambda, a more composite way of measuring country risk, we spent the rest of the session talking about the dynamics of implied equity risk premiums and what makes them go up, down or stay unchanged. We then moved to cross market comparisons, first by comparing the ERP to bond default spreads, then bringing in real estate risk premiums and then extending the concept to comparing ERPs across countries. Finally, I made the argument that you should not stray too far from the current implied premium, when valuing individual companies, because doing so will make your end valuation a function of what you think about the market and the company. If you have strong views on the market being over valued or under valued, it is best to separate it from your company valuation. I am attaching the excel spreadsheet that I used to compute the implied ERP at the start of February 2019. Play with it when you get a chance. Post class test and solution attached.

Attachments: Post class test and solution

2/12/19
You did such a good job with the Apple valuation that I decided to stay with another high profile company for this week’s valuation and it is the other company that I wrote about tin my Apple blog post, Amazon. I have not been obsessed with Amazon since its early days, but everything I do, when valuing young companies, I learned the hard way, trying to value Amazon in 1998. I have valued the company every year since. I have bought it four times during its lifetime and sold it four times. After my September 2018 post (http://aswathdamodaran.blogspot.com/2018/09/amazon-and-apple-at-trillion-follow-up.html ), I sold short on the stock for the first time in my life. I was terrified, but I got lucky, and my short sale closed out at $1312. A few days ago, Amazon came out with its most recent 10K (annual report).
Most recent 10K: https://ir.aboutamazon.com/sec-filings/sec-filing/10-k/0001018724-19-000004 
The stock is back up to $1626 today and my most recent valuation is at the link below:
Amazon valuation in February: http://www.stern.nyu.edu/~adamodar/pc/blog/AmazonFeb2019.xlsx
As with the Apple valuation, I have created a shared Google spreadsheet and the link is below:
https://docs.google.com/spreadsheets/d/1mLahSy0oB9O_9Qwojny7XNZj-mdRwsXYWJ1rn8CEr-k/edit?usp=sharing 
As a side note, I am an Amazon Prime member and I have been fascinated by how Amazon has used Prime to create an army that it can send out disrupt any business. In fact, I used my user-valuation platform to value a Prime member and the entire service in 2017. It is dated, but you can update the numbers yourself and see what Prime is worth to Amazon:
http://aswathdamodaran.blogspot.com/2017/10/loss-leader-or-value-creator.html
Until next time!
2/13/19 about bottom up betas, but may have still not convinced you or left you hazy about some of the details. If so, I thought it might be simpler to just send you a document that I put together on the top ten questions that you may have or get asked about bottom up betas. I think it covers pretty much all of the mechanics of the estimation process, but I am sure that I have missed a few things.
We then started on the cost of debt, starting with a definition of the cost of debt as a long term, current cost of borrowing and laying out a procedure for estimating this cost. Next session, we will complete the cost of capital discussion and move on to cash flows. I am attaching the post class test and solution for today's class. 

For this week’s weekly challenge, you will be looking at equity risk premiums. There is a lot of mythology about equity risk premiums and the best way to separate the truth from fiction is to look at the data. That is what we do in this week’s challenge. The attached dataset contains my estimates of implied ERP each year, with the T.Bond rate, the T.Bill and the Baa bond default spread each year. Your mission, if you accept it, is to play Moneyball with the data and to try and answer a few questions:
1. What, if any, relationship is there between the ERP and interest rates (T.Bond and T.Bill)?
2. What, if any, relationship is there between the ERP and bond default spreads?
3. Given interest rates today and the default spread today, what would you expect the ERP to be today?
4. Given the actual ERP, what does this tell you about stocks being cheap or expensive?
Have fun with the numbers. Pull out your statistical tools, rusty though they might be, and use them.

As I was sending this weekly challenge out, I realized that I never sent you the solution to the first weekly challenge. I have added the link to the webcast page for the class, but the link where you can find it is below:

Until next time!

Attachments: Post class test and solution, Implied premium challenge, data

2/14/19
I want to check to see where you are on the project. Assuming that you have picked a company, joined a group and downloaded the financials, I hope that you have estimated a risk free rate in the currency of your choice. Once you have that, please try the following:
  1. Get a geographical breakdown of the countries/regions of the world that your company operates in. It should be in your annual report or financial disclosure forms somewhere. If you cannot, them's the breaks...
  2. Get the total equity risk premium and country risk premium for the countries/regions: If you want to do this yourself, the weekly challenge will give you a template. If you want to take a short cut and use my estimates of country risk premiums, that is fine too.
  3. Get a weighted average of the country risk premiums: You can use revenue weights of the country/region to compute the weighted average.
I will be posting two valuation tools webcasts tomorrow, one on the risk free rate and one on estimating equity risk premiums that you may (or may not) find useful. 

Speaking of valuation (and that is always all I am speaking about), I don’t know whether you have had a chance to see the valuation of the week yet, but if you have not, please take a look. The subject is Amazon, a shape shifting superstar (either Thanos or Superman, depending on how you view it)
2/15/19 First things first. I hope that you have had a chance to register for S&P Capital IQ. Second, there are two tools webcasts are up this week. The first one is on risk free rates and the second on implied equity risk premiums.
Risk free Rates
Additional material:
Implied Equity Risk Premiums
The webcast uses the February 2013 spreadsheet, but I have tweaked the spreadsheet a little bit and the cell numbers have changed in the updated version, but the process remain the same. I hope that you get a chance to watch one or both!
2/16/19

The weeks are starting to build and class is well on its way. If you have been away, mentally or physically, please read the newsletter to see where we are and where we are going.

Attachment: Issue 3 (February 16)

2/18/19
I hope that your weekend went well. I also hope that you got a chance to try out the weekly challenge that I sent you. If you did, you got to test out your rusty excel statistics tools or perhaps Minitab. I am attaching both the weekly challenge and the solution, with the data updated through 2018. Give it a look, when you get a chance.

This week, we will continue our DCF discussion by putting to rest discount rates tomorrow and then moving on to earnings and cash flows. If you want to start applying what we talk about in class quickly to your company, I would suggest printing off your company’s most recent income statement and looking at the footnotes to see if the company has operating lease commitments. In tomorrow’s class, I will argue that accounting makes a hash of both operating leases and R&D and how and why we have to fix the accounting mistake before we do valuation. On Wednesday, we will keep going on cash flows, bringing in questions about accounting fraud and how to estimate free cash flows to equity. 

Attachment: Weekly Challenge #2a Solution

2/19/19
In my last two valuations of the week, I looked at two of the most valuable firms in the world, coming off a decade of success in their businesses. In this one, I am going to look at a company that is approaching the end of a long and illustrious life, GE. Valuing GE has always been a nightmarish exercise, because of its multiple businesses and the presence of a bank (GE Capital) in its midst. It is now facing the downsides of Jack Welch’s expansion of its financial services arm, and you may want to start with this blog post that I had on GE in November 2018:
http://aswathdamodaran.blogspot.com/2018/11/the-ge-end-game-bataan-death-march-or.html
I apologize for those of you who may be offended by my use of the Bataan Death March (I heard from a lot of people who claimed to be…) , but my point is that this is not a story that is likely to have a happy ending.

Since I did that valuation, GE has had one earnings call and you can find the link to that call here;
https://www.ge.com/investor-relations/sites/default/files/ge_webcast_presentation_01312019.pdf 
However, they have not filed their 10K (in contrast to Apple and Amazon that had full filings with the SEC almost immediately after their earnings calls.) There was information in the earnings call on selected items and I am attaching the S&P Capital IQ reports with 2018 preliminary numbers.
http://www.stern.nyu.edu/~adamodar/pc/blog/GEFinancialsFeb19.xlsx 
Finally, I used the GE analysis to draw a contrast between valuing a company and pricing it, and you can read about the contrast in the blog post. My updated value per share for GE is now down to $9.54, with much of the collapse coming from the imposing in the power division’s revenues/earnings. My updated pricing, though, is now at $15.76. You can find these numbers at the link below:
http://www.stern.nyu.edu/~adamodar/pc/blog/GEinFeb2019.xlsx
The stock was trading today at $10.13, higher than the value and lower than the price. Since I bought GE shares right after my blog post in November at about $8.00/share, I was faced with an existential question (at least at the investment level). Am I an investor (driven by value) or a trader (looking at pricing)? I had to do what is consistent with my philosophy, which is to sell. Your valuation, pricing and decision may be different. So, if you are up for it, try it out and enter your numbers in the Google shared spreadsheet:
https://docs.google.com/spreadsheets/d/1kurYuizs-PV2oBYv8mPnyjO2eapqnZ5gg9JSxgyQ984/edit?usp=sharing