Great Insights as usual. A different way of cutting the same pie meaning that a company with a strong balance sheet (low debt, lots of cash, high margins, low fixed costs) will survive or infact thrive in this market condition. Also explained well on the drawbacks of a 'flexible' company meaning that they will not have a strong 'moat' that can defend agains its competitors. Thanks again for using data to prove the basic principles around strong financials and its implications during a crisis situation.
Sometimes I hesitate on clicking on a new post from Professor Aswath because I would be afraid that it would lead me down a rabbit hole. I'm glad this video wasn't the case.
Professor what do you think about the commonly held wisdom these days that equity markets are now FED driven rather than being organic that everyone from HF managers on Bloomberg and a lot of retail investors are saying ?
Great lecture as usual, especially the last point about social cost. I do think that in the post covid-19 era where we/government need to pay back all the debt, companies that have been taking advantage of the system need to step up and take more social responsibilities
Thank you for all your excellent analysis Professor Damodaran. My question to you is, is Operating flexibility more important that financial flexibility in the current market? I understand, as you mentioned growth companies (small companies and emerging tech companies) are doing well due to high operating flexibility, however at the same time most of these companies are highly levered as well, giving them low financing flexibility. Do you think this simply means that operating flexibility is more important that financial flexibility?
Another question. You seem to be able to paint a pretty clear picture of the winners and losers in this crisis. From an opportunity standpoint, do you see more appeal in the companies that have taken hard hits or the ones that have already out performed? I guess it comes down to ones assumptions on whether or not he crisis will resolve quickly (ie; if it resolves quickly then I think it likely makes sense to buy the large cap-heavy companies with low flexibility as the larger climate will basically shift back to their favor). Just curious to hear your thoughts.
It would be interesting to see this analysis done on another time period - a time period with healthy growth. I suspect that also in such a time period companies are some what valued by their flexibility.
Aswath, thanks for your fascinating insights. I really appreciate the work you put into these videos. I'm curious what sources you use to access data. Can you recommend any good free data sources?
The problem with using gross margin as it is presented is that there are still a lot of variable expenses below gross profits. It would be better to use adjusted gross profit margins
One question, Prof. I think the dividiend yield part is flawed. Could it be that the high dividend yield is the effect and the drop of stock price the cause? Or can you clarify the Dividend Yield is the history number before 2/14, 2020? Thanks.
Concerning the price of bitcoin (of which I am not an advocate as a currency or safe value store), could some of the price drop be explained by a drop in energy prices leading to lower mining costs, thus driving the value down?
I am interested in mergers and acquisitions, companies integration from finance prospective.. if you can advise me where can i find a resources or technical advices ?...Thanks
Dear professor. Thank you. Might I suggest a book, based on your final sentiment - that we, as taxpayers are going to bear the cost. The deficit myth by Mrs. Kelton explains how taxes dont finance gvt. spending.
Why don't more companies just do buybacks instead of paying dividends? Aren't buybacks superior for investors, due to tax delays (gaining more interest on interest)?
Taxable income and cash flow. Some ppl rely on divvys as a form of cash flow supplementary to whatever their goal is. Dividends are also taxable as income earned over in the US. Some companies are divvy - monthly even. They have their function surely. Share buybacks, function as deferred income, sort-of. When u buy it today @ $200, if there is a buyback announced, the shares are worth more now. Provided, ppl do not sell it. Capital gains are not guaranteed until in the pocket, Divvys fulfill that function. Therefore, some prefer 1 over the other. (Avoiding the word usage of option, incase ppl think im using options or smth)
This is addressed by the professor in his lectures. Its extremely difficult for companies to change their DNAs since their board is composed of members its policies reflect. In case of dividend behemoths, most of the share holders and board members are very likely pensioners and dividend oriented folks. Any move to change that will be opposed and will not be allowed to go through. When there is a tectonic shift in technology (ex: wired to wireless) and company needs to change its DNA, this becomes a huge challenge -- One common strategy is to spin off a new company (ex: Verizon wireless) with different philosophy.
This is barely relevant to the video, but I saw on the McKinsey&Company’s website that they were using (1-reinvestment rate) instead of using dividend payout ratio on the stable dividend discount model. They said that by using that equation, not the payout ratio, would better estimate the true amount of cash that is “dividend-able” therefore it’s better. I would like to know what do you think about that? Thank you always. For reference here is the website, www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-real-cost-of-equity#
1-RR makes sense because it is measuring how much cash is left after their net cap ex & working cap requirements. So in a way it's an alternative to FCFE or what companies can afford to pay to equity holders. I know the question wasn't for me but I thought I'd chime in lol
Unfortunately, the Supreme court decision of 1976 Buckley vs Valeo, the subsequent Reaganomics & the Glass-Steagall repeal paved the way for unfettered capitalism whose unofficial motto was: "Privatize the profits & socialize the cost", BUT... In Denmark we have an employment system called 'Flexicurity': "...a welfare state model with a pro-active labour market policy... (that) has relatively low employment protection... (yet ensures) a system of income security & unemployment benefits... (that are) accessible for two years for members of an unemployment insurance fund and there are high compensation rates for low-income groups (up to 90% of previous earnings for lower-paid workers). (And) those who are unemployed but who are not members of an unemployment insurance fund are entitled to means-tested cash benefit, which is paid at a lower rate than unemployment benefit." This will ensure that company flexibility won't have a disproportionate impact on society.
@@ettringite99 Makes damn good profits aswell BUT... I'd rather have several hundreds of millions dollars and 50% in taxes in a sober sociaty than be a double digit billionear who evades taxes like the plauge in an materialist sociaty. But effecient government is also the issue, what the Danish state and US state does with tax payer money and how varies to a scary amount.
If we make our markets dependable on liquidity injections, we might end up with an inefficient financial system that trembles upon the doubt of its next "fix": such as Japan.
Thank you for the generous sharing of your research.
Great Insights as usual. A different way of cutting the same pie meaning that a company with a strong balance sheet (low debt, lots of cash, high margins, low fixed costs) will survive or infact thrive in this market condition. Also explained well on the drawbacks of a 'flexible' company meaning that they will not have a strong 'moat' that can defend agains its competitors. Thanks again for using data to prove the basic principles around strong financials and its implications during a crisis situation.
Sometimes I hesitate on clicking on a new post from Professor Aswath because I would be afraid that it would lead me down a rabbit hole. I'm glad this video wasn't the case.
Thanks so much for so many learning opportunities in every video!
Love this series. I'm not sure where a person could find a better analysis. Thank you for sharing your thoughts.
Great video sir. Very few (at least i don't know one) would have such wisdom and also be able to share it the way you do. Thanks.
You are like sports commentator saying what's happening. Thanks.
Thanks Prof. You are my role model!
Thank you!!! Very interesting
Professor what do you think about the commonly held wisdom these days that equity markets are now FED driven rather than being organic that everyone from HF managers on Bloomberg and a lot of retail investors are saying ?
Great lecture as usual, especially the last point about social cost. I do think that in the post covid-19 era where we/government need to pay back all the debt, companies that have been taking advantage of the system need to step up and take more social responsibilities
Thank you for all your excellent analysis Professor Damodaran. My question to you is, is Operating flexibility more important that financial flexibility in the current market? I understand, as you mentioned growth companies (small companies and emerging tech companies) are doing well due to high operating flexibility, however at the same time most of these companies are highly levered as well, giving them low financing flexibility. Do you think this simply means that operating flexibility is more important that financial flexibility?
always great and brilliant observations and analysis, thank you prof
The 'dark side of flexibility', that is so interesting, thank you
Aswath, in commodities, I would like to see an analysis of agribusiness that very important in the global chain of values. Food import.
Another question. You seem to be able to paint a pretty clear picture of the winners and losers in this crisis. From an opportunity standpoint, do you see more appeal in the companies that have taken hard hits or the ones that have already out performed? I guess it comes down to ones assumptions on whether or not he crisis will resolve quickly (ie; if it resolves quickly then I think it likely makes sense to buy the large cap-heavy companies with low flexibility as the larger climate will basically shift back to their favor). Just curious to hear your thoughts.
Professor, can you do a blog on Special Purpose Acquisition Company SPAC?
Very interesting : the capacity of flexibility!
It would be interesting to see this analysis done on another time period - a time period with healthy growth. I suspect that also in such a time period companies are some what valued by their flexibility.
Thank you, that was excellent!
Aswath, thanks for your fascinating insights. I really appreciate the work you put into these videos. I'm curious what sources you use to access data. Can you recommend any good free data sources?
$BC seems to me like "Millennial Tulips"
The problem with using gross margin as it is presented is that there are still a lot of variable expenses below gross profits. It would be better to use adjusted gross profit margins
sir please upload investment philosophy video series. Thank you
It is on here.
It's already on his channel
One question, Prof. I think the dividiend yield part is flawed. Could it be that the high dividend yield is the effect and the drop of stock price the cause? Or can you clarify the Dividend Yield is the history number before 2/14, 2020? Thanks.
Where can I find all this data? I can see you've put a link for an excel file, but what about new data that comes out?
Does anyone know what data source Professor Damodaran is using to get the percentile ranks of certain metrics like gross margin?
S&P CapitalIQ
Thank you, prodessor! Is there any appropriate flexibilty index to invest in?
No, Hertz seems to millennial tulips.
Concerning the price of bitcoin (of which I am not an advocate as a currency or safe value store), could some of the price drop be explained by a drop in energy prices leading to lower mining costs, thus driving the value down?
I am interested in mergers and acquisitions, companies integration from finance prospective.. if you can advise me where can i find a resources or technical advices ?...Thanks
Could Inflation be the reason for copper being up 4.35% ?
Dear professor. Thank you. Might I suggest a book, based on your final sentiment - that we, as taxpayers are going to bear the cost. The deficit myth by Mrs. Kelton explains how taxes dont finance gvt. spending.
Why don't more companies just do buybacks instead of paying dividends? Aren't buybacks superior for investors, due to tax delays (gaining more interest on interest)?
Taxable income and cash flow.
Some ppl rely on divvys as a form of cash flow supplementary to whatever their goal is.
Dividends are also taxable as income earned over in the US.
Some companies are divvy - monthly even. They have their function surely.
Share buybacks, function as deferred income, sort-of.
When u buy it today @ $200, if there is a buyback announced, the shares are worth more now. Provided, ppl do not sell it.
Capital gains are not guaranteed until in the pocket, Divvys fulfill that function.
Therefore, some prefer 1 over the other. (Avoiding the word usage of option, incase ppl think im using options or smth)
This is addressed by the professor in his lectures. Its extremely difficult for companies to change their DNAs since their board is composed of members its policies reflect. In case of dividend behemoths, most of the share holders and board members are very likely pensioners and dividend oriented folks. Any move to change that will be opposed and will not be allowed to go through. When there is a tectonic shift in technology (ex: wired to wireless) and company needs to change its DNA, this becomes a huge challenge -- One common strategy is to spin off a new company (ex: Verizon wireless) with different philosophy.
This is barely relevant to the video, but I saw on the McKinsey&Company’s website that they were using (1-reinvestment rate) instead of using dividend payout ratio on the stable dividend discount model. They said that by using that equation, not the payout ratio, would better estimate the true amount of cash that is “dividend-able” therefore it’s better.
I would like to know what do you think about that?
Thank you always.
For reference here is the website,
www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-real-cost-of-equity#
1-RR makes sense because it is measuring how much cash is left after their net cap ex & working cap requirements. So in a way it's an alternative to FCFE or what companies can afford to pay to equity holders.
I know the question wasn't for me but I thought I'd chime in lol
Unfortunately, the Supreme court decision of 1976 Buckley vs Valeo, the subsequent Reaganomics & the Glass-Steagall repeal paved the way for unfettered capitalism whose unofficial motto was: "Privatize the profits & socialize the cost", BUT...
In Denmark we have an employment system called 'Flexicurity': "...a welfare state model with a pro-active labour market policy... (that) has relatively low employment protection... (yet ensures) a system of income security & unemployment benefits... (that are) accessible for two years for members of an unemployment insurance fund and there are high compensation rates for low-income groups (up to 90% of previous earnings for lower-paid workers). (And) those who are unemployed but who are not members of an unemployment insurance fund are entitled to means-tested cash benefit, which is paid at a lower rate than unemployment benefit."
This will ensure that company flexibility won't have a disproportionate impact on society.
Unfortunately, there's a lot of truth in the socialise the costs, privatise the profit approach!
@@ettringite99 Makes damn good profits aswell BUT... I'd rather have several hundreds of millions dollars and 50% in taxes in a sober sociaty than be a double digit billionear who evades taxes like the plauge in an materialist sociaty.
But effecient government is also the issue, what the Danish state and US state does with tax payer money and how varies to a scary amount.
QE have to be unlimited now. or else we all will be in deflationary spiral much like japan.
If we make our markets dependable on liquidity injections, we might end up with an inefficient financial system that trembles upon the doubt of its next "fix": such as Japan.