Hello everyone! In the following traktat I review Aswath Damodaran’s youtube channel, which can be found here: https://www.youtube.com/@AswathDamodaranonValuation
Intro
In my journey of Looking for Answers (TM), in my quest for gaining understanding of micro and macro money systems, I’ve been watching a lot of youtube videos, some are excellent (Thanks George Gammon!), some less so. Aswath’s channel has been bookmarked in my brave browser for more than a year, and I gave it another try.
I figure, I should post my review of his channel here on my blog as well, because youtube does not have a nice framework in place for having a discourse. Comments just get lost. To save the time I spent on analysis and the write up, I’m saving my comment here – with pictures!
To be clear, the reason I didn’t watch Aswath’s channel a year ago, was because it was difficult and confusing. Now I used to put the blame squarely on myself, in that if someone sounds intelligent and I lack knowledge in that field, I’m inclined to believe that by gaining insight I would gain clarity. A lot of times when I learn something, it’s confusing and “feels wrong” in the beginning, but once I reach a certain threshold it all sort of falls into place. Not giving a chance to a system, framework or a speaker, is possibly close-minded and I specifically avoid such behavior. In any event, now that I’ve bootstrapped my understanding of money and finance to some extend, I can assert that I don’t like Aswath’s channel, that I was confused because the speaker is confusing, and that at least my own time, is better spent studying elsewhere.
Compare and contrast it with the wonderful channel of George Gammon! You can find it here: https://www.youtube.com/@GeorgeGammon/videos . His videos are nice and short at 10 minutes, he edits them well, cuts to the chase, and doesn’t shy away from the truth. It’s highly remarkable, and George is currently a role model for me.
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I wrote the following comment on the following video, for Aswath.
In this video at time 20:28 (that’s the screenshot above), lets pause and look at the picture without being distracted by his monologue. Can you, the viewer, tell me the direction, or conclusion, of that slide? There are arrows, but where do they all lead to, i.e. what is the point? You are right if you answered: the slide is just a really convoluted illustration that value = discounted cash flow. But we already knew that theoretic Value=DCF, the slide only introduces confusion!
Is there a difference between “T.Bond rate”, “ten-year treasury bond rate”, “Current 10-year, US treasury bond rate” and “Risk free Rate”? No.
Is there any meaning to gray background, or red coloring? No, and the inconsistencies make the slide look worse, not better.
And what in the world is “expected inflation”, anyway? Is that different from inflation? Aswath should use the term “reported inflation” or just “inflation.”
The risk premium does *not* reflect “collective fear & risk aversion”. Aswath should not dismiss risk seekers.
And I ask again: with all the arrows in the slide, where do they lead and what’s the outcome of the slide? And don’t tell me that they all point to DCF, in fact, the market does not reflect DCF at all. We don’t live in a world where DCF is reflected in markets.
So the arrows lead nowhere. This is just one example but I find the round-aboundedness of Aswath’s reporting to be only confusing to me, so I unsubscribed.
P.S.: at 26:35 he says, “I’m not gonna do anything crazy, like going long or short on an index.” Okay buddy… you do you.
To be clear: investing in an index is a conservative investment. To make a “less crazy” investment, one would have to go into “riskless” assets such as government debt, or into operations such as income-generating real estate, which arguably is riskier than investing in indexes. Going long on an index is supposedly the only passive income strategy that is both fire-and-forget, and pays out at the end (i.e. theoretically doesn’t lose you money long-term).
P.P.S.: The best youtube videos are processed and edited, to compose a narrative rather than a free-style monologue.
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And since this is a text post and I’ve already done the work, I’ll throw in another example.
Very briefly. In this video non-sarcastically titled “Free Cash Flow: Back to Basics”, Aswath attempts to replace the good old concept of Free Cash Flow with two, round-about, confusing and irrelevant concepts: Free Cash Flow to Equity (huh?) and Free Cash Flow to the Firm (aka what everyone else would call, the regular Free Cash Flow).
In the first slide (3:38), Aswath makes it look like FCF excludes working capital needs, or even revenue. For him, the only liability is debt servicing? Which is clearly nonsense. As I’ve argued elsewhere, Aswath probably refers to his own portfolio. That slide cannot possibly represent a real business.
I’ll spare you the agony. In the second screenshot (5:55), Aswath claims that Free Cash Flow to Equity (huh?) can include, somehow, New Debt Issued. Now I’ve just looked it up and FCFE is a real thing. Corporate decision makers use many analytical tools to re-allocate capital, and I’m sure FCFE has its marginal uses.
However, if someone says: “we are free cash-flow positive” and you later find out that they achieved that by issuing unsurmountable, unpayable debt, and upon being confronted they clarify: “oh yeah, we are free cash-flow positive, to equity” – that is just the exact opposite of what you would expect.
The point of being cash-flow positive is the point of not incurring debt. Adjusting the definition to include potentially crippling debt in being “cash flow positive”, is utter nonsense in my opinion. Even talking about it in these terms, seems like a waste of time. I am only spending my time (and yours!) on it, because it is a farewell to a significant youtube creator. It is unfortunate that a popular, accredited NYU professor, disappoints me so.
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I’d like to finish on a bright note. In line with the latest fad. Allow me to present to you, a money bank:
