Aswath Damodaran's Valuation Online Class

This is a course of 25 short webcasts (about 12-20 minutes apiece), designed both to capture what I do in my regular semester-long valuation class and to supplement my books on valuation. With each session, you can download slides for that session and a post-class test to go with it (and solutions). If you have my book, the relevant sections of the book are highlighted. The first part are the webcast related to the class and the second part are tools webcasts, designed to help you apply the concepts to real companies. The class webcasts are on YouTube and you will need to be online, to watch them. The in-practice webcasts are downloadable to your computer or device and can be watched at your convenience. I have also created a version of this class on iTunes U, and you can get to that class by clicking here.

Class Webcasts

	Session Webcast	Short Description	Supplementary Material	Inv Valuation (3rd Edition)
1	Introduction to valuation	Lays out the rationale for doing valuation as well as the issues of bias, complexity and uncertainty that bedevil it.	1.     Slides 2.     Post-class test & solution	Preface, Chapter 1
2	Intrinsic Value- Foundations	Sets up the foundations of intrinsic valuation, with a contrast between valuing a business and valuing the equity in that business.	1.     Slides 2.     Post-class test & solution	Chapter 2
3	The Risk Free Rate	Sets up the requirements for a rate to be risk free and the estimation challenges in estimating that rate in different currencies.	1.     Slides 2.     Post-class test & solution	Chapter 7
4	The Equity Risk Premium	Contrasts different approaches for estimating equity risk premiums in mature markets and extends these approaches to emerging markets and then to individual companies.	1.     Slides 2.     Post-class test & solution	Chapter 7
5	Betas - Relative Risk Measures	Describes what a beta tries to measure and after critiquing the standard regression approach to beta estimation, I develop an approach for estimating betas for individual companies.	1.     Slides 2.     Post-class test & solution	Chapter 8
6	Costs of Debt & Capital	Defines debt and cost of debt and then uses those measures to arrive at the cost of capital for a company.	1.     Slides 2.     Post-class test & solution	Chapter 8
7	Estimating Cash Flows	Goes through the steps in estimating cash flows, from measuring earnings to computing reinvestment and then on to cash flows (to both the firm and to equity).	1.     Slides 2.     Post-class test & solution	Chapter 9,10
8	Estimating Growth	Looks at alternative approaches to estimating expected growth, including past growth and analyst estimates, as well as fundamental growth.	1.     Slides 2.     Post-class test & solution	Chapter 11
9	Terminal Value	It is the biggest number in any discounted cash flow valuation, and we look at simple rules that keep it in check.	1.     Slides 2.     Post-class test & solution	Chapter 12
10	Value Enhancement	Looks at the drivers of value and how management actions can alter the value of a firm, for better or worse.	1.     Slides 2.     Post-class test & solution	Chapter 31
11	Loose Ends in Valuation	To get from operating asset value to equity value, we have to deal with cash, cross holdings and other assets first, then net out debt.	1.     Slides 2.     Post-class test & solution	Chapter 16
12	Acquisition Ornaments: Synergy, Control & Complexity	Look at the value of control and synergy, oft used reasons for acquisitions, as well as the consequences of complexity for value.	1.     Slides 2.     Post-class test & solution	Chapter 25
13	Loose Ends in Valuation: Distress, Dilution & Illiquidity	Look at how best to incorporate the effects of distress, dilution and ill liquidity into the value per share for a company	1.     Slides 2.     Post-class test & solution	Chapter 22, 23
14	Relative Valuation - First Principles	Develop a four-step process for deconstructing, understanding and using multiples.	1.     Slides 2.     Post-class test & solution	Chapter 17
15	PE Ratios	Look at the determinants of PE ratios and how to use them in comparisons across time, markets and companies.	1.     Slides 2.     Post-class test & solution	Chapter 18
16	Other Earnings Multiples	Extend the discussion to look at operating earnings and EBITDA multiples and their determinants.	1.     Slides 2.     Post-class test & solution	Chapter 18
17	Book Value Multiples	Look at the variables that cause book value multiples (price to book and EV to Investment Capital) to vary across companies and time.	1.     Slides 2.     Post-class test & solution	Chapter 19
18	Revenue Multiples	Examine why companies trade at different multiples of revenues in different businesses and the determinants of these values.	1.     Slides 2.     Post-class test & solution	Chapter 20
19	Asset Based Valuation	Look at valuation approaches (accounting book value, sum of the parts) that value the assets of a business and aggregate up to value.	1.     Slides 2.     Post-class test & solution
20	Private Company Valuation	Examine the estimation challenges associated with valuing small or large privately-owned businesses.	1.     Slides 2.     Post-class test & solution	Chapter 24
21	The Essence of Real Options	Lay the foundations for viewing and valuing some assets as options and how it adds to their values	1.     Slides 2.     Post-class test & solution	Chapter 28
22	The Option to Delay (Valuing Patents & Undeveloped Reserves)	Use option pricing technology to value unexercised options and undeveloped natural resource reserves.	1.     Slides 2.     Post-class test & solution	Chapter 28
23	The Option to Expand & Abandon	Look at how the option to expand into new markets/products can add value to young growth companies and the option to abandon investment can create value for flexible companies.	1.     Slides 2.     Post-class test & solution	Chapter 29
24	Distressed Equity as an Option	Examine how equity in troubled firms with large debt burdens can behave like options, with implications for investing and corporate finance.	1.     Slides 2.     Post-class test & solution	Chapter 30
25	Closing Thoughts	Wrapping up valuation, with closing thoughts.	1.     Slides 2.     Post-class test & solution	Chapter 34

Valuation Tools

While it is nice to talk about the big picture of valuation , and I do, in my classes, it is the nuts and bolts issues that trip us up. In this section, I will be posting webcasts that can help you navigate some of these nuts and bolts questions.

Topic	Description	Webcast	Supporting material
Getting data	Before you can do valuations and process information, you have to first collect the information. In this webcast, I look at ways to get information on a company's filings, macro economic indicators and sector-wide data.	Webcast	SEC website SEC Live FRED (Federal Reserve)
From financial disclosures to value	Much of the raw material (data) that we use for valuation comes from annual reports and financial filings. (10, 10Q). In this presentation, I lay out a template for extracting information from these filings, separating the stuff that matters from the stuff that does not, using P&G in September 2012 as an illustration.	Webcast	Presentation P&G: 10K P&G: Valuation (Excel spreadsheet)
Creating a trailing 12-month financial statement	When valuing a business, you want the most updated information you can find. But what if your most recent annual report or 10K is several months old? The solution is to create a trailing 12-month financial statement.	Webcast	Apple: 10K Apple: 10Q Apple Trailing 12-month (spreadsheet)
Estimating an implied equity risk premium	I have been a strong proponent of implied equity risk premiums, forward looking estimates that are extracted by looking at stock prices today and expected cash flows in the future. While I have an implied equity risk premium spreadsheet on my website, I try to get some of the mystery out of both the process and the inputs in this webcast.	Webcast	Presentation Spreadsheet S&P 500 on buybacks S&P 500 earnings
Leases and Debt	Accounting standards allow companies to classify some leases as operating leases, primarily based upon the degree of ownership vested in the lessee. Operating lease expenses are treated as operating expenses, not financial expenses. The sensible thing to do is to convert lease commitments to debt. In the process, though, you have to redo your financial statements.	Webcast	Disney Annual Report Converting leases to debt (spreadsheet)
Capitalizing R&D	R&D is the ultimate cap ex, if you define capital expenditures as investments designed to create benefits over many years. Accountants incorrectly treat R&D as operating expenses. The logical fix is to convert R&D from an operating to capital expenses, though this will also lead to a restatement of both the income statement and the balance sheet.	Webcast	Microsoft: 10K for 2012 Microsoft: 10K for 2011 Converting R&D to capital (spreadsheet)
ROIC and ROE: The "only" valuation numbers that matters	The return on invested capital is more than an accounting number. If computed right, it measures what a firm is generating as a return on its existing projects and provides a key indicator (though not always a definitive one) of what it will generate on future investments. That, in turn, will determine how much value growth will add (or destroy) in the company. If you don't know this number for a company, your valuation has no moorings.	Webcast	Walmart 10K (2013) Walmart 10K (2012) Spreadsheet
Terminal Value Check	The terminal value is a "big" number in DCF valuation, but it is subject to misuse and manipuluation. In this session, I take a look at how you can detect problems with a terminal value computation (in both your own DCFs and in other people's DCFs)	Webcast	Sample DCF valuation Terminal value analyzer
Employee Options	When a company uses options to compensate employees or to pay suppliers, it saves itself cash that it would have used otherwise but it does "dilute" the value of the equity held by common stockholders. When valuing a company with a significant option overhang, the right thing to do is to value the options as options and subtract that value from the estimated value of equity, before dividing by the number of shares outstanding.	Webcast	Cisco 10K Option spreadsheet
EV, Firm Value and Equity Value	The "value" embedded in a multiple can be the value of the entire firm, the value of its operating assets (enterprise value) or the value of the equity. In this webcast, we look at the differences between the three and why you may use one over the other.	Webcast	Blog post on topic Presentation Excel spreadsheet
Multiples and Fundamentals - Analyzing relationships	When asked the value a company, relative to other companies, one of the biggest challenges you face is in assessing and analyzing the data. In this presentation, I looks at steps in analysis.	Webcast	Presentation Bank raw data Descriptive Statistics
Valuing Patents as Options	The exclusive rights to produce a product or provide a service can provide the owner with "optionality", allowing for a premium on top of a discounted cash flow value. In this webcast, I look at a simplified example.	Webcast	Presentation Spreadsheet
Valuing Distressed Equity as an Option	With money-losing companies, with a lot of debt, equity takes on the characteristics of a call option (to liquidate the business). In this webcast, I look at the mechanics of applying this approach to a troubled company.	Webcast	Jet India Financials Jet DCF valuation Jet Option valuation

 

http://people.stern.nyu.edu/adamodar/New_Home_Page/webcastvalonline.htm

20 Lessons from Seth Klarman on What the 2008 Crash can Teach You

Lesson #1: Expect the Unexpected

The classic “expect the unexpected” is true for the market. Take measures to prepare for the worst because the market reality can be worse that what you imagined. Nassim Taleb popularized the term “black swan” based on rare and hard to predict events happening. But it does happen.

 Lesson #2: Too Much of a Good Thing

Watch out when there is too much of a good thing. Markets constantly rising? Loans available to anyone? Interest rates constantly hovering near zero? This environment creates a false sense of security and when things fall back to the mean, it will trigger a crisis.

 Lesson #3: Control Risk First

Don’t try to milk the last drop from your investments. Always consider risk and downside first over potential returns. When entering a crisis, you have to make your positioning conservative and be able to pounce on new opportunities while others are forced to sell.

 Lesson #4: Paying Less is Less Risky

Risk comes from the price you paid for the stock. It isn’t uncertainty or volatility. When there is great uncertainty and it drives prices down, you buy with less risk.

 Lessons #5: Financial Risk Models are Useless

Market risk models done by computers are a waste of time. Reality is impossible to model. Human logic based on actual and real time facts is more accurate than boxed formulas and numbers.

 Lesson #6: Don’t Invest for Short Term Gains

Don’t be tempted to invest for short term gain simply to earn something off cash that’s doing nothing. This is a higher risk strategy which increases the likelihood of losses and illiquidity precisely when the cash is needed.

 Lesson #7: Stock Price is Not an Indicator

The stock price is not the fair value of a stock. People mistake that the stock market is completely efficient. During good and bad times, the stock price is not an indicator.

 Lesson #8: Expand Your Circle of Competence

When a crisis hits, your investment approach has to be flexible. Don’t get too stuck on one method because opportunities can come in many different ways. If your investment approach is too rigid, start to expand your circle of competence.

Lessons #9: Buy When Prices Go Down

Buy when the price is going down. Volume is higher, there is less competition. It’s better to be too early than too late. Don’t be afraid to buy things on sale.

 Lesson #10: New Financial Products are Not For Your Benefit

Be wary of new financial products. They are always created in times of exuberance and never questioned. The subprime loans were the rage as institutions only saw the upside. Then it got killed.

 Lesson #11: Rating Agencies are Useless

Ratings agencies are useless and always a step late. What’s the point in lowering or increasing a rating after it’s happened?

Lesson #12: Illiquid Stocks Come at a Price

Illiquid stocks will cause high opportunity costs. Make sure you are compensated for that illiquidity.

Lesson #13: Public Investments Still Rock

All things being equal, public investments are better than private ones. During a crisis, you have a better change to average down with public investments over private ones.

Lesson #14: Debt is Evil

Stay away from all forms of leverage. Don’t assume a maturing loan can be rolled over since you have no idea what the capital markets will do.

Lesson #15: LBOs Are Disasters Waiting to Happen

LBOs (Leveraged Buyouts) are stupid manmade disasters. If the price paid is too high the equity portion is an out of the money call option.

Lesson #16: Financial Stocks are Risky

Financial stocks are very risky. For example banks are highly leveraged, very competitive and difficult to run businesses. Unless you have deep experience and knowledge of the industry, invest in safer industries that you understand.

Lesson #17: Long Term Clients is Key to an Investment Fund’s Success

If you manage funds, having clients with a long term orientated mindset is crucial. You don’t want investors pulling out their money during a crisis.

Lesson #18: Government Officials Don’t Know Anything

When a government official says that a problem has been “contained”, it’s a contrarian signal. Pay no attention.

Lesson #19: The Government is the Ultimate Short Term Trader

The government is the ultimate short term oriented player. It will do anything to quickly ease the pain with band aid patches on the economy or financial markets without thinking about the implications. If the pain can be deferred to the future, the government will take on huge amounts of risk to do so.

Lesson #20: No One Cares About You More than Yourself

No one is going to take responsibility for the crisis so you have to look out for yourself and manage your risk well. Why? Because no one will take responsibility for making you lose money.

http://www.oldschoolvalue.com/blog/investing-perspective/20-lessons-2008-crash/