August 2024
In the latest Global Macro conversation on Top Traders Unplugged, Aswath Damodaran, Professor of Finance at NYU Stern School of Business, joined Alan Dunne for a thought-provoking discussion on current markets, valuation, and investing.
They recorded on July 22nd just as the equity correction was unfolding.
Some of highlights of the conversation included:
On AI
Transformative Impact: AI will undoubtedly change how we work and live, but its net effect on the economy might be closer to zero than anticipated.
Investment Pitfalls: We could be right on the big picture of AI as a revolutionary force yet miss the mark in every investment story we create around it.
Market Dynamics: While markets excel at pricing potential gains for disruptors, they often overlook the challenges facing the disrupted.
Nvidia’s Valuation: The hype around Nvidia and the AI market alone do not justify its current valuation.
On P/Es and Old School Value Investing
Valuation Measures: P/E ratios and Shiller’s CAPE are blunt tools with significant limitations.
An Evolving Economy: In today’s "winner-take-all economy", focusing too much on low P/E stocks can lead to disastrous outcomes.
Flexibility in Investing: Avoid the mindset of “never” investing in certain stocks; the real question is finding a reasonable valuation given the size of the market.
Technological Shifts: Modern technology and data availability have changed the game for strategies rooted in Benjamin Graham’s and Warren Buffett’s value screens.
On the Equity Risk Premium and Market Valuation
Historically low ERP: The equity risk premium (the additional return investors demand over Treasuries) is at its lowest since before the GFC.
Comparisons to 2000?: However at around 4%, the disconnect between ERP and survey expectations isn’t as pronounced as it was in 2000.
Future Returns: While equities are priced to deliver about 8% annualised returns over the next decade, outcomes ranging from 4% ann to 12% ann would be well within statistical expectations, underscoring the importance of diversification.
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