Aswath Damodaran

WSJ had a great write-up that was very interesting about the plans Ballmer was trying to get rolling. I really gained additional respect for him after reading this. He wanted to overhaul the company, but realized people would struggle doing so while he was in charge. He realized sometimes you have to let someone else do it. https://www.wsj.com/articles/SB100014240527023034600045791941507242981… [archive here](https://pages.stern.nyu.edu/~adamodar/pdfiles/cfovhds/weeklypuzzles/Mi…

This is a great quick read and it's interesting because it's an abstraction of many other markets (not just DeFi). Reminds me of Damodaran's[0] focus on price vs. value when evaluating equities: >I have long drawn a distinction between price and value, two terms that get used interchangeably in both academia and practice, but with very different drivers and implications. As we watch stock indices around the world gain and lose trillions each day, it is worth remembering that markets are pricing mechanisms, not value mechanisms, or as Ben Graham would put it, they are voting machines, not weighting machines, at least in the short term. [0](Well-respected finance/valuation professor at NYU for anyone not familiar) https://pages.stern.nyu.edu/~adamodar/

I recommend Aswath Damodaran's valuation course: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/webcasteqspr21.htm If you don't have time for the full course, I've also heard good things about Damodaran's Little Book of Valuation.

A reasonably sound place to start for investing as an individual is the Bogleheads wiki: https://www.bogleheads.org/wiki/Main_Page The general Bogleheads approach isn't to try to estimate value of individual stocks or sectors of the economy, basic idea is passive investment: buy & hold index funds to get diversified exposure to market returns, then minimise costs by avoiding funds with high management fees. Bernstein's http://www.efficientfrontier.com/ is good reading, from perspective of individual investor. If on the other hand you want to learn about how to estimate value of companies (this will probably will not have a good return on time or money invested for an individual compared to low effort passive investment approach) one place to start reading is http://pages.stern.nyu.edu/~adamodar/ & http://aswathdamodaran.blogspot.com/

> You're basing your argument on cherrypicking one single pharmaceutical company that is doing exceptionally well recently because it had the second best selling drug of 2018 Well, the discussion was about the atrocious cost of HIV medication, and Gilead is the company that holds the patent on Truvada. You didn't provide a link, but http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.htm… suggests it's actually lower in 2019 at 10.94%. From the linked Excel sheet there, there are 28 industries with higher net margins, and 65 with lower net margins. They're still doing just fine :).

I'd wager monopolies and old tech correlate pretty well... Consider industries that are growing for your next move: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histgr.htm… Usually a lot more opportunities, a lot more shuffling around, and need good talent to continue growing. Monopolies do not have a need to be innovative to stay competitive, so you'll be stuck with old technology for a while. I was in a position i hated (dev lead with micro-manager), but i had extreme flexibility to take my time. took 2 years to find my next move, got a 12% bump in base, plus 5% more for annual bonus. I've loved it ever since, challenged every day, never looked back.

Just want to point out that in many industries a revenue multiple of less than 1.0 is expected [1], such that generating greater than $15 billion in revenue does not automatically result in a company worth $15 billion. That being said, FB's net assets are $50 billion (and it's market cap is much, much (holy cow it's alot) higher), so clearly those that got in at a $15 billion valuation are very happy right now. [1] http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/psdata.htm…

Your explanation makes no sense. Since 1928, the S&P has risen 5506%[1]. Over the same period, the dollar has lost 93% of its purchasing power. If you put a dollar on the market in 1928, it would be worth $808 (1928 dollars). A dollar under the mattress is instead worth $0.07 (1928 dollars). Investing had a return 11500-fold greater than hoarding cash. [1]http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.… [2]http://www.usinflationcalculator.com/

Before you read my detailed response below, my tl;dr point is not that wind and solar suck, or that we need to hold on to oil and gas forever. My most salient point is that proclaiming an "emergency" of an "existential threat" that requires centralized authority (held by decisionmakers who usually pay no cost for being wrong) is a playbook that's as old as history, and one that almost always resulted in great human toll. I predict that more human misery will be generated by efforts to counter climate change that are predicated upon such centralized authority, than that generated by the status quo. Having said that: > The economic and political power of the oil and gas lobby is magnitudes larger than the economic and political power of the wind and solar lobby. We're talking about entrenched interests here. No arguments there from me, except I would like to add that the degree of entrenchment reflects how much modern society depends on oil and gas. > If there's ever an existential threat to our global human civilization through wind and solar You're presupposing that oil and gas is an existential threat to global human civilization. Evidence points the other way around, that humanity flourished more than ever with the usage of fossil fuels. > We have have trillions of yearly subsidies for oil and gas[0], we've had it for decades. $7T of subsidies around the world according to your source (including "implicit" subsidies; direct subsidies of $1.3T), out of a global GDP…

I'm not sure you understand how an equity cushion works. Suppose you start a company with 1,000 kg of gold. No other assets, no liabilities. Currently, that gold is worth about 60 million USD. Now you issue 1,000,000 'stable' tokens. Each can be redeemed for one USD. For simplicity, assume that you just give them away. At current gold prices, your tokens are 60x over-capitalised. If the gold price collapses 90%, your tokens are still 6x over-capitalised. That's what I mean by an equity cushion. A 'run' is everyone trying to redeem their tokens. If that happens, you just sell one million dollars worth of gold, and pay that obligation. You are not running out of anything here. In historical practice in eg Scotland, the banks that issued private bank notes there kept an equity cushion of about 30% around. That means for every 70 pounds in liabilities, they had 100 pounds of assets on their balance sheet. (For comparison, in our example of 60x over-capitalisation, that's an equity cushion of 59/60 = ~98%. Or for the 6x over-capitalisation, it's 5/6 = ~83%.) It's called an equity cushion, because on a balance sheet the excess of assets shows up at equity. That equity on the books is very different from the banks shares. It's the difference between 'book value' and 'market value'. See https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/pbvdata.h… for a table with price-to-book-values (PBV). You can also look up that value for any specific firm…

I think you guys are both right. And I'm sure one could construct some sort of venn diagram for startup funding with circles for equity, debt and bootstrapping; where a given startup is a good match for one or more funding choices (based on its biz model, industry, geography, founders, etc..). (By the way congrats on financing your Series B with revenue, that is awesome!). Just wanted to add one point in the equity vs debt debate is 'in theory' once a startup gets big enough doing the math on choosing equity or debt is very different. Once a startup is a real company and reasonably calculates how much money it needs and what it expects to earn on that money, an "optimal" capital structure calculation starts to emerge [1] and VCs and banks will compete for your business. For a healthy, growing startup, if selling a certain % of your equity to a VC looks unattractive compared taking out a bank loan then your equity valuation is being mispriced here. Negotiate it. Conversely if a bank loan looks unattractive compared to VC equity offers (because the bank's convenants are too burdensome and your monthly interest/principal payments pull too much cash away from your growing business then the lender is mispricing your borrower risk). Negotiate it. To follow on the Facebook example above, I believe they started mixing equity and debt almost immediately as early as 2004 [2]. Their seed investors backed their credit line (WTI invested $25k in equity and provided a $600k credit…

Thanks for responding, I appreciate the interesting discussion. :) You began this sub-thread by making the following claim: > It's only at the risk-free rate of return that the two products you describe are of equal value. In order to realize returns higher than the risk-free rate, investors must do work. I think that the extra gain beyond the risk-free rate should be taxed as ordinary income, because that's really what it is: income produced by work. With this in mind, look at the following table, based on historical returns since 1928:[0] Stocks TBills TBonds Arith avg. 11.50% 3.57% 5.21% Geo avg. 9.55% 3.53% 4.93% Std Dev 20.02% 3.06% 7.85% Let's say your time horizon is 10 years. You have at least four options: 1. Buy $1000 worth of equity ETFs. Sell them in 10 years. Expected value: $2,489.57. Expected tax paid: $223.44 (22%). 2. Buy $1000 worth of T bill ETFs. Sell them in 10 years. Expected value: $1,414.69. Expected tax paid: $62.20 (6.2%). 3. Buy $1000 worth of T bond ETFs. Sell them in 10 years. Expected value: $1,618.07. Expected tax paid: $92.71 (9.2%). 4. Hold $1000 worth of cash. Expected value: $1,000. Expected tax paid: $0 (0%). Do these four products have unequal present values? No, they are equally valued at $1000, despite the fact that stocks have a higher expected return, because people are risk averse. Are some of these products likely to realize returns higher than the risk-free rate?…

Yes, to gain traction, Bitcoin would have to be used in a way that appeals to both sides of the market. Both sides have to somehow share in any savings that it brings. It also has to be significantly better than the status quo. There are many markets where using Bitcoin currently doesn't have a significant advantage over the existing payment options, I think. In fact, I'm fairly sure there is often a net greater cost spread across both parties if they use Bitcoin, if you consider the case where someone exchanges other money for bitcoins in order to pay with bitcoins, and the merchant exchanges the bitcoins for other money. However, and this is an important point, Bitcoin does not have to be suitable for all markets worldwide to establish a presence in some markets. In fact, it doesn't even have to appeal to every merchant operating in a market - just to some of them, perhaps those with the lowest profit margin. If Bitcoin is to succeed as a method of payment, then I expect a scenario where Bitcoin gains a small bridgehead in niche markets, which then slowly expands to some other markets. Markets that suffer the largest burden of ID theft/chargeback fraud as a percentage of profit seem to be the most promising candidates for that bridgehead. An online merchant with a 4% net profit margin, who is also in a high risk market where they're losing 1% of revenue (i.e. 25% of profit) to fraud, might consider offering a 10% discount to customers who use Bitcoin, for example. I'd…

For reference, here's an NYU prof's website which shows typical ARR valuation multipliers by industry (see Price/Sales ratio column): https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/psdata.ht… 100x is staggering. These companies are priced as though we are already chewing through the solar system to create AI computronium. I'll pass--I expect I'll get a UBI when that scenario happens anyway.

I think you need some kind of source to back up the idea that IT or the software industry as a whole isn’t efficient. Software companies have much higher profit margins than companies that ship physical products. There really aren’t many industries that do better margins than software. To sell software, you don’t need a production facility, warehouse, nor do you even need an office building if you don’t want one. https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.ht…

https://www.cfr.org/trackers/cfr-sovereign-risk-tracker https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.…

Aswath Damodaran (https://pages.stern.nyu.edu/~adamodar/) from Stern School of Business at NYU says; 'Something bad is coming': Aswath Damodaran is ditching diversification, eyeing hard assets - https://www.businesstoday.in/markets/stocks/story/something-bad-is-com… Also see books/papers/etc. under the "Writing" section of his webpage for insights.

10% consistent profit margin is above average for publicly listed US companies. https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.ht… >Total Market 8.67%

1. This isn't a single corp, it is multiple corps. For a sense of scale, MSFT alone spent ~$55B in Capex last year. Check out this[1] for a sense of how much different industries spend each year. Note that this will cross several industries including Power, Telecom, Software, electrical equip, etc. 2. There is no commitment to spend in a single year 3. There is no actual contractual commit here, this is a press release (i.e. Marketing) 4. There is not actually a $500B pile of gold being spent. This is more of a "this is how big we think this industry will be and how much we may spend to get exposure to that industry" [1] https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/capex.htm…

>So if talent is cheap and we have many smart people unemployed why don’t we get organized and experiment on startup ideas we always wanted to build? Because capital. Software, as a whole, is the most capital intensive industry in the world after energy/transportation: https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/capex.htm…

Linked valuation workings: https://pages.stern.nyu.edu/~adamodar/pc/blog/NVIDIA2023.xlsx

Aswath Damodaran has estimated the implied equity risk premium on the S&P 500 to hover in the range from 3.5% to 6.5% over the last decade: https://pages.stern.nyu.edu/~adamodar/New_Home_Page/home.htm . So it's in the ballpark of how an average stock is expected to perform. (And as a sibling comment says, actual realized performance was even better over the last decade.) If only, say, 3% annual returns above the interest rate were projected on a project, it would be clearly below the line of viability. There would be no reason to bother with the hassle and risk: just park your money in an index fund.

Employees are one of or the most expensive part of doing business for many. I guess you could google Gross vs Net margins in various companies or industries as an example (maybe here[1]). But layoffs aren't merely firing people, they are "firing people and not re-hiring for their positions or work." So it's often closing out on entire product strategies, such as the case here with YC. [1]: https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.ht…

Related: https://pages.stern.nyu.edu/~adamodar/pdfiles/country/ESGShortNew.pdf

Historically, U.S. stock market returns have exceeded inflation substantially -- there is data at https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP… . Inflation can increase corporate profits in nominal terms, but usually it also leads to higher interest rates and lower price/earnings yields, as bonds become more competitive with stocks. I believe that after-inflation returns of stocks have tended to be highest when inflation is low but not negative.

Semiconductor companies traditionally operate at high gross margins close similar to software companies. https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.ht…

Historical S&P 500 performance with earnings and dividends: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/spearn.htm Historical inflation: https://www.usinflationcalculator.com/inflation/current-inflation-rate…

The expert on teaching Corporate Finance and Valuation is Aswath Damodaran at NYU. And he also happens to offer all his lectures, class notes, and exams for FREE at his website: http://pages.stern.nyu.edu/~adamodar/

According to Professor Damodaran's data here : http://pages.stern.nyu.edu/~adamodar/ (See Historical Returns on Stocks, Bonds and Bills - United States ), Average returns from stocks from 1994 to 2019 was 11.36% and returns for T-Bonds were 5.51%, pretty close to their 1928-2019 average returns of 11.57% and 5.15% . These results are not inflation adjusted.

Most industries have low margins. You can see net margins for US public companies here: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.htm… The average is 7.7%