The emails for this class will be collected in this file. Have fun with them!

Date |
Message |

8/23/11 |
Hi! 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 site 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 The best book for the class is the Investment Valuation book - the second edition. (The first edition won't be as useful... Sorry!) You can get it at Amazon or wait and get it at the book store... In the interests of full disclosure, I have to tell you that the third edition of this book is coming out in about 6 months, too late for this class but early enough that some of you will be pissed off about having bought the second edition. My publisher will kill me for doing this, but the heck with that! I am putting the pdf version of the second edition online for you to download.. One final note. Over the last few months, I worked with Anant Sundaram (at Dartmouth) isn developing a valuation app for the iPad that you can download on the iTunes store: I am looking forward to seeing you in a few days (The first day of class is September 7, 10.30-12 in KMEC 2-60).. I think we are going to have a lot of fun (at least, I am... ). Until next time... Aswath Damodaran |

9/1/11 | Hi! Aswath Damodaran |

9/7/11 | Hi! 1. Please do find a group to nurture your valuation creativity, and a company to value soon. If you are ostracized, please let me know... 2. 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 2010) and then visit the SEC website (http:www.sec.gov) (for US listings) and download 10Q filings... If you can, also try to get to a Bloomberg terminal (find one, if you have never used one before) and print off the following pages for your company- BETA, DES (first 10 pages) and FA (income statement, cash flow and balance sheet numbers). If you have never used a Bloomberg, try the write-up I have on my site on using a Bloomberg: 3. The web cast for the first class is up. You can get to it by going to 4. We have to make sure that these social media companies get off the ground, so that their valuations can be justified. I will be doing my part. In addition to the Facebook page for this class that many of you have joined, please do visit the coursekit page that I mentioned in my last email and add your name to that list as well: If you did not get the syllabus, project description and the valuation intro in class this morning, they are all available to print off from this site. Aswath Damodaran P.S: The book that cannot be named is available at http://www.stern.nyu.edu/~adamodar/pdfiles/valn2ed/wholeenchilada.zip |

9/8/11 | Hi! I know that some of you are having trouble finding groups. Before I step in and try to find you a home, you should try posting your request for a group on the Facebook or Coursekit page for the class. The weblinks are listed below: One final note. I mentioned my iPad valuation app in class this morning. If you do have an iPad, you can get the app by going to Until next time! Aswath Damodaran |

9/9/11 | Hi, I had promised you in class on Wednesday that I would let you know when your final exam date was, as soon as I found out. Well I did find out, and without further fanfare here it is: December 16, 11.30-1.30. I know that it is a long ways off but I also know how much of a pain it is to make travel reservations close to Christmas.... On a different note, please do get your hands on lecture note packet #1 (you can either print it or download it to your kindle/ipad) before class on Monday. We will get to it towards the very end of the session. Finally, the shenanigans at Yahoo! provide for interesting theater: a dysfunctional board gets rid of an ineffective CEO that they hired, put their company up for sale and face the wrath of activist investors. For anyone who has not picked a company yet, there is a good choice. Aswath Damodaran |

9/11/11 | Hi! Aswath Damodaran Attachment: biastests.ppt |

9/12/11 | Hi! Today's classes are up and running online. If you were unable to come to class today, please do check them out. I have also added my answers to the bias tests on the same page. If you notice, we did start on lecture packet 1 at the end of the class. So, if you have not printed it off yet, please do. 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. Since I mentioned Carl Icahn as an example, I thought you might find his current list of targeted companies interesting: http://www.istockanalyst.com/finance/story/5384391/how-carl-icahn-is-handling-the-current-market-volatility I am not suggesting that he is right about all of these companies being under valued, but he is certainly putting pressure on these companies to change. May be worth looking at one of these companies for your project. Finally, I am attaching the link to the New York Times piece on decision fatigue. It is a fun and interesting read. Please take a look at it, when you get a chance: http://www.nytimes.com/2011/08/21/magazine/do-you-suffer-from-decision-fatigue.html?pagewanted=all Until next time! Aswath Damodaran adamodar@stern.nyu.edu |

9/13/11 | Hi! Give it your best shot before you come to class. (If you have no idea where to start, look at how First Boston estimated cash flows for Carborandum - are they to equity or the the entire business? Which discount rate makes the most sense, given how the cash flows were estimated?) Until next time! Aswath Damodaran Attachment: kennecott.ppt |

9/14/11 | Hi! Since this is your first weekly challenge, I want to make sure that I don't freak you out: Attachment: wkch1.htm |

9/14/11 | Hi! Attachment: Sovereign CDS spreads (9/14/11) |

9/15/11 | Hi! 1. Pick a company (in case you have not already). 2. Determine a currency that you will value the company in. Once you have decided on the currency, find a riskfree rate in that currency. If your company is a US or European company, you just got lucky. Either take the easy way out and use the US T.Bond rate as the dollar riskfree rate and the German 10-year bond rate as the Euro riskfree rate, or adjust them for the default risk you see in each sovereign. Aswath Damodaran Attachment: Country Default Spreads |

9/16/11 | Hi! I also hope that you have had a chance to look at the first weekly challenge that I sent out on Wednesday. If you have not, you can find the weekly challenge by clicking below: Until next time! Aswath Damodaran Attachment: Newsletter # 1 |

9/18/11 | Hi! Aswath Damodaran Attachment: Solution to weekly challenge # 1 |

9/19/11 | Hi! 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 1.5 to get a rough measure of the country risk premium. c. Company risk exposure to country risk: My concept of lambdas for countries is a work in progress. I have a paper on the topic that you can read, if you are so inclined: d. Implied equity risk premiums: I am attaching the excel spreadsheet that will allow you to compute implied equity risk premiums. I am using the numbers that I used at the start of September to come up with an equity risk premium of 6.39%. Please try to update the implied premium, using today's numbers for the S&P 500 (easy), 10-year T.Bond rate (easy), growth rate in earnings for next five years (Try to find a number on Yahoo! Finance.. If you cannot, leave it at 6.95% ) and just leave the updated dividends and buybacks from the spreadsheet (since these were updated a month ago). Follow the instructions to get the updated equity risk premium. We will start with that concept in class on Wednesday. Attachment: ERPAug11.xls |

9/21/11 | Hi! Hi!
Attachment: wkch2data.xls |

9/21/11 | Hi! Aswath Damodaran |

9/22/11 | Hi! Until next time! Aswath Damodaran Attachment: ERPmidSept11.xls |

9/23/11 | Hi! Aswath Damodaran |

9/25/11 | Hi! Aswath Damodaran Attachment: wkch2sol.xls |

9/26/11 | Hi! 2. Cost of debt: The cost of debt is the rate at which you can borrow money at today. If your company has a bond rating, you should be able to find it online or on Bloomberg. If your company has no bond rating, you can use my synthetic rating spreadsheet, which I have attached to it. 3. Estimating market value weights: The market value of equity for publicly traded firms should be simple to compute. Just remember to count all shares outstanding of all types to get to market cap. To convert book value of debt to market value, treat it like a bond and value it. I hope you get a chance to get started on your company this week. It will be a very good way to get prepared for the quiz next Monday. That quiz will cover the basics of DCF, the elements that go into discount rates (riskfree rates, betas, equity risk premiums, lambdas, country risk premiums) and cash flows that we will be covering in the next session. If you are reading the book that cannot be named, it is chapters 8-10.... Aswath Damodaran Attachment: ratings.xls |

9/27/11 | Hi! Aswath Damodaran |

9/28/11 | Hi! If you still have time on your hands, here is some reading relating to today's class. I have a paper on the valuation effects of capitalizing leases: Until next time! |

9/30/11 | Hi! Aswath Damodaran |

10/1/11 | Hi! Aswath Damodaran |

10/4/11 | Hi! On the quiz itself, you can get the solution by going to this link: So, do pick up your quizzes when you get a chance. And remember that I do screw up. So, if I have made a mistake on the grading, bring the quiz in and I will fix it.... Until next time! Aswath Damodaran |

10/5/11 | Hi! Aswath Damodaran |

10/7/11 | Hi! Aswath Damodaran Attachment: Newsletter # 4 |

10/9/11 | Hi! Aswath Damodaran Attachment: younggrowth.pdf |

10/10/11 | Hi! 2. Terminal value and excess returns: The key point I wanted to emphasize and I may or may not have succeeded in this is that the key assumption in your terminal value computation is the excess return assumption (return on capital versus cost of capital). If you assume that the return on capital = cost of capital, then the growth rate ceases to affect value. In fact, I am sending a bonus weekly challenge (yippee...) so that you can see the effect: 3. Be ready for diversionary arguments: Those who do not like to do DCF valuations (and they are legion) use the terminal value to discredit it. In fact, here are the arguments that they use (and the counter arguments): So what? When you buy common stock, think of when you make money. You don't make it while you hold the stock (dividends are paltry) but when you sell the stock (in price appreciation). That is precisely what the terminal value reflects. In fact, if you buy a growth company, you may make all of your money from the price appreciation and the terminal value will be a higher proportion of overall value for a growth company. Only if you keep the cash flows fixed. See my earlier note on excess returns. If your reinvestment changes as your growth rate changes, terminal values will be bounded. True. But once you get past 30 or 40 years, your value converges quickly on a perpetual growth value. In other words, assuming that your firm will grow 2% a year for 40 years gives you a value very close to the value that you get if you assume that your firm will grow 2% a year forever. So, be forearmed... Until next time! Aswath Damodaran |

10/11/11 | Hi! If you want to try your hand out at using the dilution-adjusted option pricing model, you can get the model by going to: Finally, the weekly challenge for this week is on management options. Until next time! Aswath Damodaran |

10/14/11 | Hi! Let me clarify, though, what I would like to get from you when you turn it in: Aswath Damodaran |

10/16/11 | Hi! Bottom line: When companies grant equity based compensation to managers/employees/others, you and I as common stockholders pay for them... So, watch out.. Until next time! Aswath Damodaran |

10/17/11 | Hi! Aswath Damodaran |

10/19/11 | Hi! Aswath Damodaran |

10/19/11 | Hi! On a different note, the latest weekly challenge is up and tests the proposition that you can use your estimated value of equity as the equity weight in the cost of capital... You can find it at Until next time! Aswath Damodaran |

10/20/11 | Hi! Aswath Damodaran Attachment: toyotapage.pdf |

10/21/11 | Hi! Aswath Damodaran Attachment: Newsletter # 6 |

10/23/11 | Hi! Aswath Damodaran Attachement: Daimler with iterations |

10/24/11 | Hi! 2. Confidence: I don't know whether you had a chance to read this article in the Sunday Magazine for the New York Times. It is by Kahnemann (a psychologist by training who is largely responsible, with his colleague Amos Tversky, in laying the foundations for what he calls behavioral finance. The topic he covers is confidence, with an assessment on how human beings become confident (often abandoning facts for narrative) and the consequences (not always good). 3. R&D investments: I did beat the drum about how not all R&D is created equal and that it is not the amount that you spend on R&D per se that determines you value, it is the quality of the R&D. This article makes the point more generally. 4. Quiz 2: Quiz 2 is day after tomorrow. It will cover only DCF valuation. So, you can skip any problem related to multiples on the quizzes. Aswath Damodaran P.S: Any of you who have a possible conflict with the quiz because of Diwali on Wednesday, please email me. |

10/25/11 | Hi! Aswath Damodaran |

10/27/11 | Hi! Aswath Damodaran |

10/28/11 | Hi! Aswath Damodaran Attachment: Newsletter # 7 |

10/31/11 | Hi, Model choice Input page checks Output page checks: - If you are forecasting operating income, cap ex, depreciation and working capital as individual line items, back out your imputed return on capital: b. Terminal value One common error to watch out for is estimates of terminal value that use the cash flow in the final year, grow it out at the stable growth rate. That locks in your reinvestment rate from your last high growth year forever. c. Cost of capital d. Final value of equity Try it out with your own DCF valuation and then offer to do it for a friend... Then, take your toolkit on the road. Pick up a valuation done by an investment bank or equity research analyst and see if you can diagnose any problems in them. You are well on your way to being a valuation guru. Attachment: Valuation Post mortem |

11/1/11 | Hi! Incidentally, the use of screens to find cheap stocks goes back a long time. Ben Graham's book on security analysis has a list of 10 screens that he suggests will deliver cheap stocks. More recently, Joel Greenblatt wrote a book using a couple of well established screens that became a best seller: We also talked about PEG ratios towards the end of class yesterday. If you want to see a typical use of PEG ratios, try this link: Until next time! Aswath Damodaran |

11/2/11 | Hi! Aswath Damodaran |

11/4/11 | Hi! I also have the latest newsletter online. Please take a look at it, when you get a chance. Aswath Damodaran |

11/5/11 | Hi! Aswath Damodaran |

11/9/11 | Hi! Aswath Damodaran |

11/11/11 | Hi! Aswath Damodaran |

11/12/11 | Hi! Aswath Damodaran |

11/16/11 | Hi! Aswath Damodaran |

11/18/11 | Hi! Looking over the mystery project, here are some of the overall impressions I have: 2. Regressions: Almost everyone followed the script and ran the regressions... One thing I did notice is that some of you chose to stick with all of the variables in the regression, even when there was no statistical significance. Sometimes, taking a variable out rather than leave it is the better choice. About 20% of the groups reported regressions with dummy variables for emerging markets, but the statistical significance of that variable was marginal. The reason may lie in the types of firms that are in this sample. These are the largest market cap firms and most of them are multinationals. The fact that they are incorporated in emerging markets may therefore not matter very much. Five groups ran the regressions by sector or used sector dummies. While this makes sense, you have to be careful to make sure that you have enough data within each sector to sustain the regression. (The simple rule of thumb is that you can have one independent variable for every 15 observations. Thus, if your sample size is 35, you can have at the most 2 independent variables. 3. Recommendations: When picking under and over valued companies, what matters is the percentage and not the absolute difference. In other words, a company that trades at a PE of 10 with a predicted PE of 15, is more undervalued that a company that trades at a PE of 40 with a predicted PE of 50. Here is the list of companies that came through as most under valued: Note the Lukoil is on the list. Perhaps, a Putin dummy would have made sense. For most overvalued, here is the list of the top few: 4. LBO candidate: A good target for a leveraged buyout will be under valued, under levered, easy to takeover and badly managed. Almost all of you focused on finding an under valued company (which is good), an under levered company (makes sense) and a company easy to takeover (low takeover defenses), but the search on the fourth dimension (bad management) was all over the place. Some of you were looking for companies with high margins and others with stable cash flows. Hewlett Packard (5) was the most widely picked target. As a general rule, control requires inputs that you can change and that indicates a firm with below-average margins. There was almost no overlap between the groups with no company being picked more that twice. I have a paper on LBOs that fleshes out what you may want to look for in a LBO candidate. f you get a chance, please browse through it. Aswath Damodaran |

11/25/11 | Hi! Aswath Damodaran Attachment: Newsletter # 10 |

11/29/11 | Hi! Aswath Damodaran |

11/30/11 | Hi! http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/acqanontests.doc Until next time! Aswath Damodaran |

11/30/11 | Hi! Good news. I am done grading the quizzes. Bad news. I am at Gate C133 in Newark Airport, waiting for a flight. If you can make it here in the next 15 minutes, you can pick up your quiz. If not, I am sorry but Monday is it. The solution is posted online on the webcast page for the class. See you on Monday! Aswath Damodaran |

12/3/11 | Hi! If you do get a chance to look at it, you will notice that you are approach deadline day for the project: a week from Monday. Just to help line up what you need to get done for the project, here is a to-do list: 1. DCF Valuation 2. Relative valuation 3. Option valuation
4. Bringing it all together 5. Numbers to me!!!! 6. Final Project write up And no.. you don't have to do everything that these groups did (So, don't spend the next five days converting your DCF valuations into pictures). I just like the fact that the valuations were organized, presented in much the same format and were to the point. Of course, content matters. 7. Celebrate, but remember that your final exam is a few days later. Aswath Damodaran Attachments: equity.xls, summary.xls |

12/5/11 | Hi! Aswath Damodaran Attachments: Solution to Quiz, Distribution, Acquisition tests |

12/5/11 | Hi! Aswath Damodaran |

12/7/11 | Hi! 2. Market regressions: The updated market regressions from the start of 2011 are on my website under updated data. Look to the bottom of the page (and at the first link in the first column, not the archives). Here is the direct link 3. Option valuation Aswath Damodaran |

12/9/11 | Hi! 2. Final project format: There are a few formatting constraints. The submission should be electronic and get to me by 5 pm on Monday. It can be in either Acrobat format or Word. I would prefer Acrobat, if you can do it. When you do submit the project, enter the following in the subject of the email: The Torture ends. Not only will this be descriptive of how you feel but it will help my system recognize that you are submitting. 3. Final newsletter: The last newsletter for the class is in the link. Take a look at it when you get a chance. It has the entire final exam for this semester in a secret spot. (You have to read every word of the newsletter to find it...) Until next time! Aswath Damodaran |

12/11/11 | Hi! Aswath Damodaran |

12/12/11 | Hi! Aswath Damodaran |