A few weeks ago, Mike and I reviewed Professor Aswath Damodaran’s piece on Facebook (FB) for a Behind the Idea podcast. The professor’s case was that Facebook’s price post the Cambridge Analytica-related sell-off was too low given the company’s strong growth and market position. We appreciated the framework Damodaran brought to Facebook, but were not sure it was giving enough credence to the possibility that Facebook becomes dethroned one day.
But it’s easy to read a thesis and get an impression without catching all of the thought process behind it. Whether it’s because we misread or skip words, or that we don’t have a good enough background on the company or the author’s overall approach, or have our own biases to project onto the thesis, misinterpretations can happen.
Professor Damodaran is one of the more visible and better known names in the online investing community. He hosts a wealth of investing resources and analysis for students and investors across the web. And he has shown a willingness to venture into hotly covered stocks such as Facebook (FB), Valeant Pharmaceuticals (VRX), or Tesla (TSLA).
Professor Damodaran. Source
So, we invited him onto Behind the Idea to better understand his case and his investing philosophy, and are thrilled to say he took us up on it. Mike and I spoke with the Professor about Facebook’s enduring advantage and the hypocrisy of many complaints about the company, about why the Margin of Safety concept doesn’t suit the current market, and the importance of faith in your investing philosophy. The nuance of a conversation helped: I came away with a better understanding of his case for Facebook and against margin of safety, for example.
Why the ‘Dean of Valuation’ is a terrifying title – 1:10 minute mark Recapping Damodaran’s Facebook thesis – 2:00 How do you deal with the risk to Facebook’s dominance? – 3:45 The piece WhatsApp plays in the puzzle – 9:20 About the data issue… – 11:20 What to do when a stock’s fair value is reached? – 15:30 What’s wrong with a margin of safety? – 20:00 Separating price vs. value in equity research – 26:30 The two words you need to avoid using in investing, and the problem with true believers – 28:30 The philosophy of teaching and the importance of faith in investing – 33:30 The difference between losing faith and getting the story wrong – 38:15 Getting the life/portfolio mix right – 41:00 Portfolio construction, or how do you sleep at night owning 53 stocks? – 43:45
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What do you think about value investing in 2018 – have you adapted to the times? Does Facebook’s platform-wide data collection serve as a moat or a risk? And are there any other guests you’d like to hear on Behind the Idea? Let us know below.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Neither Mike nor I have any positions in any of the stocks named. Professor Damodaran is long FB per the discussion on the podcast.