State of Play: GameStop

Aswath Damodaran, a professor of finance at NYU Stern, joins Scott to discuss the news surrounding GameStop and the short squeeze. Aswath also shares his thoughts on SPACs, the markets more broadly, and the importance of diversifying your portfolio. Follow him on Twitter, @AswathDamodaran. Additional music by: https://www.davidcuttermusic.com / @dcuttermusic Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Scott Galloway?

  Support for the show comes from Northwest Registered Agent. Your business identity is everything that makes your business legitimate and professional. With Northwest Registered Agent, you don't just form a business. You start a complete foundation built for privacy, credibility, and growth. That includes registered agent service, a business address, operating agreement, domain, website, professional email, phone number, and built-in privacy. In other words, your home address, personal email, and phone number stay private. Don't pay hundreds or thousands of dollars for what you can get from Northwest for free. Visit northwestregisteredagent.com/profgfree and start using free resources to build something amazing. Get more with Northwest Registered Agent at northwestregisteredagent.com/profgfree.

• 0:56Scott Galloway?

  Welcome to a special episode of The Prop G Show. So what should we talk about? I know, the shit show, crazy mania, weirdness, passing of the baton from one generation to another, the mob, or the new generation of investor, whatever you want to call it. Whatever you want to call it. The markets have just been exceptionally interesting the last 48 hours. And my go-to, as well as several hundred thousand people's go-to around stocks and valuation, is the individual who was my first guest on The Prop G Show. And also probably, for lack of a better term, my role model around teaching. Because he is the best teacher in the world, no joke.

• 1:40Scott Galloway?

  He's been voted the best instructor in the world. Professor Aswath Damodaran, who literally wrote the book on valuation, the best-selling book on stock market valuation, and has this gift. Regarding the ability to communicate complicated concepts and he is, there's just occasionally in your life, there's, there's people that nobody says a bad word about because they're outstanding professionally, they reek of just depth and character and are incredibly generous. I have never heard the word no from Aswath whenever I've asked him for anything. Anyways, he's, he is the go-to, he is the Yoda here and thought this would be timely or relevant to check in and here is our interview with Professor Aswath Damodaran.

• 2:39Scott Galloway?

  Aswath, good to be with you. Okay, I'll just, I'll throw out a word and you respond. GameStop.

• 2:45Aswath Damodaran?

  I think the question with GameStop is not why it's happening, but why it took so long for this to unfold. Because in a sense, it's a culmination of three forces that we've been seeing in society. One is a complete loss of faith in experts, you know, coming back to 2018 and since, and with good, and with good reason. The second is this worship of crowds that you see everywhere. Now Yelp, we use Yelp reviews to pick our restaurants, Rotten Tomatoes to become movies. And we, we trust crowds implicitly and we've made it much easier to gather in a crowd with social media. And the third is everything is personal now. Every single disagreement you have becomes personal and political and you can see that unfolding here.

• 3:30Aswath Damodaran?

  Because I, I think what you have with GameStop is those trends coming together in investment markets and I don't think it's good for anybody involved. Of course, the hedge funds are going to feel the pain and I have no sympathy for them. But I'm not too sure this is great for small investors either.

• 3:46Scott Galloway?

  And why is that? They're claiming that this is a passing of the baton from the establishment investor class to a new cadre of investors who are leveraging a new medium and new skills and making bank. Why do you think it's not going to end well?

• 4:02Aswath Damodaran?

  And I don't begrudge them any of those things. I think everybody's entitled to buy or sell, but the question is, what's your end game? I mean, let me turn it on on the Reddit investors. Let's, as I said, no sympathies for the hedge funds. Let's say you're right, the hedge funds are screwed up and you need to take them out of the process. My question to Wall Street Bets or any other group of investors is, what's your end game? If your end game is driving Melvin Capital out of business, you might very well succeed. But you know what? Somebody else will step in. It's like a whack a mole. But once you've done that, what's in your portfolio? Do you really want to live life with AMC, BlackBerry, and GameStop in your portfolio? I mean, after all this is done, that's what you're going

• 4:46Aswath Damodaran?

  to have in your portfolio. And presumably, this is your savings, your pension fund money, your college tuition. That's a question I want them to ask themselves. Because if you make this about running the hedge funds out of town, sometimes you can get exactly what you want and then say, what the heck have I got? And the concern I have here is not about individual investors going out and trading. I think they're entitled to do that and making their own judgments, but to do it in their own best interests. Don't make this a game of driving somebody else out of the market front and center. That can be a side benefit if you want, but that can't be front and center.

• 5:25Scott Galloway?

  Talk about Reddit. What do you think, if any, is their obligation or their role in this?

• 5:31Aswath Damodaran?

  See, I think that they provide a platform. But at the same time, my feeling is you take that platform away, these people gather elsewhere. That trains left the station. We let that beast out. It's not going back in. So you can shut down Twitter, you can shut down Facebook, you could shut down Reddit, but these people are going to find a forum. Because in terms of technology, finding a forum is not going to be difficult. The question got asked is, how do we make the discussions on this forum have a focus, some sense of end game? And that is something that I think we're going to be struggling with, not just in investments, but in every aspect of our lives.

• 6:13Scott Galloway?

  It feels as if the narrative here, you wrote a book called Narrative in Numbers, and that the narrative here started out as fundamentals. An activist investor comes into GameStop, sees it as undervalued, points out some fundamentals, and the stock goes from $4 to $40. And then it became a technical trade, momentum, short squeeze. And then it became a movement, which I've never seen before, that investing in a stock is supposed to be linked to some sort of movement. Have you ever seen that sustained? This just feels as if, it feels as if, and I might be wrong, it feels as if a lot of young men, quite frankly, are being played around this notion of a movement.

• 6:50Aswath Damodaran?

  Yeah, and I think you're absolutely right. I think that it has, I mean, it's the first time I've seen AOC and Ted Cruz agree on something, right? I mean, they're both think, they're both on the side of the Reddit investors, and that should tell Reddit investors something about getting played. Because you become a pawn in a larger game, and in this case, they're playing the game with your savings, your investments. That's why I said you've got to look inward and say, what do I hope to get out of this? Because I'm not sure that you want to be a pawn in that game.

• 7:22Scott Galloway?

  Do you think there's any legitimacy to people saying, okay, there's momentum trading all over the marketplace, and we have found a subset of stocks that are shorted or over-shorted, for lack of a better term, and we're going to go in and raise awareness and go hard at them? Isn't that just an investment strategy that certain short or long players have been playing for a while?

• 7:43Aswath Damodaran?

  This is where I'm on the side of the Reddit investors. When I hear the mourning from Wall Street, you think that Wall Street's cared about value all its life. Wall Street has been a momentum play forever. I mean, when you think about whether you're a trader or investor, 99% of people on Wall Street are traders. They're not investors. They've never cared about value. They've been momentum players. So for them to say, oh my God, these naive investors, what are they doing? I think strikes me as hypocritical. And that's what I think the Reddit investors are latching on to, is the hypocrisy of this. So I think that what this is exposing is the emptiness of professional investors in Wall Street.

• 8:26Aswath Damodaran?

  That's basically what it is. Because what the Reddit investors are saying, hey, we're doing exactly what you're doing. Why are we bad and you good? I mean, so it's not as if Wall Street has cared about fundamentals and cash flows and earnings. I mean, look at Tesla. I mean, if you look at equity research analysts, magically their target price is always 20% above whatever the current price is. How the heck does that happen?

• 8:50Scott Galloway?

  Yeah.

• 8:50Aswath Damodaran?

  If you're really looking at fundamentals. So I think that on that dimension, I think they're absolutely right. Now, this isn't something that naive retail investors alone do. Everybody does it. And now that the cat is out of the bag, I think it's revealing the emptiness of a lot of hedge fund trading, which is it's not driven by fundamentals. It's driven by momentum.

• 9:13Scott Galloway?

  And what do you think should happen here? You're advising the SEC or financial regulators. What do you think is, is there, is this just educate people and let there be life lessons and let the markets reign and platforms are, like you said, going to pop up? Or does it require some sort of regulatory intervention?

• 9:29Aswath Damodaran?

  I think my instinct is let it play out because I think that the only way people learn lessons is through pay. That's unfortunate, but true. And the lessons here are going to be on both sides. It's not just those Reddit investors are going to learn lessons. Hedge funds are too, because let's face it, selling short is always a dicey game because your time horizon is not in your control. So when you sell short, you have to do things to try to make that difference narrow. In other words, make the price move in your direction. Sometimes you do it legitimately, and I'm talking about historically this being. Sometimes you do it by, you know, putting out your thesis on why you think a company's overvalued and hoping that other people read it.

• 10:13Aswath Damodaran?

  And other times you step over the line. You, you create cartels of investors who try to push the price down.

• 10:20Scott Galloway?

  Star rumors, yeah.

• 10:21Aswath Damodaran?

  It's never been, this isn't, you know, this is like the UFC brought to markets. It's always been the case. What's different about this, this short squeeze? Because remember, short squeezes have a long history. Cornelius Vanderbilt did it in 1862 to get control of New York railroads and he succeeded. What's different about this one is it's the first crowd squeeze in history.

• 10:47Aswath Damodaran?

  In a sense that usually when you have a short squeeze, it's a big player squeezing, you know, short sellers. So if you go back to, you know, to the 1980s, 90s, or even the last decade, that was true. And in this case, you're seeing, in fact, a very different kind of short squeeze, where it isn't the big investor squeezing the short sellers. It's a bunch of small investors. And that should kind of make professional investors think about how they play the game, because now the game is not in their control anymore.

• 11:17Scott Galloway?

  Yeah, I love that term. And I always like to slow down during these podcasts when there's, I think, a real and especially cogent moment of analysis or insight. I love that term, crowd, crowd short. I've never, oh, wait, did you say crowd squeeze? Excuse me, crowd squeeze that is, as opposed to an institution. We didn't talk about Robin Hood. Do you think, what's your view of Robin Hood?

• 11:39Aswath Damodaran?

  You know, I think Robin Hood started off as a place where sports gamblers came because they couldn't find any football games to bet on. I know that's a very simplistic description. But, you know, if you look at the players on Robin Hood, basically, they're very open about the fact that they really don't care about any of the things that drive bad. They've said, this is a gambling game. If I get the direction right, I'm going to make money. In a sense, again, they're an extreme version of what you see on Wall Street, because that's effectively what traders on Wall Street have always believed, even though they might never say it. On Robin Hood, they're open about it. They say, look, I don't care about earnings or cash flows or value. I don't even care what the company does.

• 12:22Aswath Damodaran?

  If I can find a way to make money, I'm going to make money. And that is kind of fed on itself, because greed draws in more people. So the more money people make, the more other people want to join it. I think we can try to stop Robin Hood, but the reality is, as I said, these people will move elsewhere. What will teach them a lesson ultimately about risk is the reality that you can lose everything you've made in 12 months or 18 months in 15 minutes. Forget about 15 days, in 15 minutes. Markets, I think, are more powerful at delivering lessons than any regulator or government is.

• 13:04Scott Galloway?

  Do you think at some point, though, so free market, life lessons, I get it, but we also don't allow people to sell their organs because we don't want them to make historically bet, we want to prevent a tragedy of the commons. At some point, if you employ gamification techniques and addictive attributes into your operating system, it encourages a lot of young men, a lot of whom are home, bored, have a phone, some stimulus. Your attitude is, look, it might be a painful life lesson, but it's a life lesson. They've got to register. Is there any, I mean, are there guardrails for, there are some online trading platforms

• 13:46Scott Galloway?

  that aren't letting, aren't allowing options or margin unless you have a certain net worth. Now, is that discriminating against the small investor or is that trying to prevent a tragedy of the commons?

• 13:55Aswath Damodaran?

  No, I think that's sensible. I think that any levered position and options are, in a sense, a type of levered position. You're taking whatever bet you're making and multiplying. So I think that reducing access to leverage, either by reducing margin buys or options, is a good idea. And I think it's a good idea across the board. I think, you know, why should individual investors be the only ones who have to kind of be scaled down on that? I think every investor, even institutional investors, need to have some kind of constraint on how many open option positions. So if you use options to hedge, of course, you're allowed to do that.

• 14:38Aswath Damodaran?

  But to the extent that you take naked option positions and you're exposed and you could potentially bring other people down with you, I think we have to think about restrictions on both leverage and options.

• 14:50Scott Galloway?

  And what do you think, I mean, it's difficult to tell, but what do you think happens to this class of stocks, the AMCs, the BlackBerrys, the GameStops of the world? Do you have any gut feel for if you were to make a prediction, what happens over the next, call it seven days, in the next 30, 60, 90 days? Any thoughts?

• 15:08Aswath Damodaran?

  I think in a sense, I look at what happened at Tilray, if you remember, two years ago, three years ago, in 2018, there was a huge, huge short squeeze on Tilray and the stock, I think, went up 100, I think it went up 10-fold. It lasted all within a few weeks. And the reason is very simple. All that sustaining use momentum, and that's all that's sustaining. GameStop or AMC now. What happens when those traders move on? Already this morning, I was, I was watching news stories that said that those that Reddit group, because they couldn't trade on GameStop, had moved on to silver. I don't know how they latched on to silver.

• 15:49Aswath Damodaran?

  But, you know, this is not a group that's going to have staying power with any stock. And to the extent that they're levered and they're, they've taken risky positions, if the stock starts to go down, it's go, it's going to go down in hyperspeed. And that's, I think, one of, one of the things to think about. Because ultimately, if you think about capital markets as existing to allow companies to access capital and survive in the economy, none of what's happening here is helping AMC or GameStop. In fact, you could argue that it could have a perverse effect of hurting these companies. And here's why. To me, AMC's chance for survival lies in somebody buying the company and making it part of a larger ecosystem, whether it's Disney.

• 16:34Scott Galloway?

  Impossible to buy now.

• 16:36Aswath Damodaran?

  But if you increase the market cap by ten, tenfold, nobody will be able to buy it. So I think that if you're doing this because you like the company, which very few people are, but if that's the reason you're doing it, it's not accomplishing that objective. And that's why I think we need to think about what's your end game here? Why are you doing it? And that's one reason why I think, you know, GameStop and AMC are very different from Tesla. Because Tesla's had five short squeezes in the last decade. And it's come out of each of them stronger than it went in. But here's the difference. When you've had short squeezes in Tesla, it's because there are people out there, whether you agree with them or not, who absolutely love the company and its products.

• 17:19Scott Galloway?

  Yeah.

• 17:20Aswath Damodaran?

  If there's a side product, they get, put David, David Iron on out of business, that's fine for them, but that's not their end game. The difference in AMC and GameStop is the end game here seems to be, let me take it to these hedge funds and make them suffer. But beyond that, there seems to be no other thought given to why these companies.

• 17:42Scott Galloway?

  Yeah, it's difficult to kind of wrap your head around. So let's, let's talk about another asset class or another group of equities that have outperformed in 2020. And there's more of them year to date, just in the first three weeks of the year than there were in all of 2019, and that is SPACs. What is your view on special purpose acquisition corporations?

• 18:06Aswath Damodaran?

  Well, I mean, again, we've had them for a long time. They ebb and flow with time. I think what they're going after is a failure in the IPO market. In tradition, the way companies have gone public is they go to investment bank and the investment bank prices them and then puts out a roadshow and then introduce them to markets. And there's this implicit agreement that companies have with investment banks, which is, hey, you give us your pricing skills and your sales skills and we will not only pay you an underwriting fee, but it'll actually let you underprice as securities by a moderate amount, 15%, 20%. You know what? Investment banks have screwed up badly on every dimension.

• 18:48Aswath Damodaran?

  They failed at pricing, they failed at selling, and when they sometimes misprice these companies, they're ridiculously mispriced. The stock that quadruples or triples on the offering day. There's no excuse for that. So people have been looking for alternatives. One, of course, is direct listings, which Bill Gurley has pushed. And that's a way in which you just go to the market directly and let the market set the price. The other is you pick somebody that you think has more expertise than you do, which is what the SPAC offers. They then collect your money and they say, we'll find the right target for you. This way, you know, you could argue that the company gets a higher price because they can negotiate with the owner.

• 19:30Aswath Damodaran?

  Investors get a better deal because they don't have to pay these investment banking fees and the strange offering prices. So I think every mistake breeds its own consequences and the banking mistakes in IPOs has opened the door to SPACs. The only brahmits SPACs is the people who create these SPACs and not doing it for your interests or my interests or the company's interest. They have their own incentives. Now, they take a pretty hefty slice of the money that's raised for themselves. And unless they're really good at supporting companies that are good companies and negotiating the best price for you, you're not getting a great deal. As you saw with Nicola, you can have SPACs that have absolutely no idea what they're doing.

• 20:15Aswath Damodaran?

  They collect your money. They claim to have expertise, but they have none. So if you're picking between banks and these SPAC founders, it's a tough choice because I don't trust either of them. But I don't think of SPACs as necessarily worse than banks, to be quite honest. I think that somehow assuming that banks will provide you the protection and IPO that you don't get with a SPAC, I think is looking at the wrong place. I still believe that eventually, I think direct listings are better for companies and maybe that's where we'll end up. But there are some growing pains. It's going to be difficult to do it under some of the rules have changed about how the proceeds are used.

• 20:55Aswath Damodaran?

  Because right now, when you do a direct listing, you can't keep the proceeds in the company to cover investment needs. You've got to let owners cash out, which is not a great endgame for a young company that needs the cash. Maybe we need to start thinking about making direct listings easier as an antidote to SPACs. Because I think that could take a lot of the money out of SPACs and put it back into the traditional going public process.

• 21:22Scott Galloway?

  So let's shift back and talk more broadly and talk about the markets in general. Your thoughts on the markets, all time highs and continuing to accelerate in the midst of a pandemic?

• 21:36Aswath Damodaran?

  I think there are three things that are driving the market. The first is the pandemic has shut the economy down, but has had done surprisingly little damage to corporate earnings collectively. I mean, obviously, some companies like Boeing and the airlines are reporting losses. But there seems to be, there seem to be other companies like Amazon and Apple that are reporting earnings that are blowing the doors of what people are expecting. So collectively, earnings did not do as badly last year as people thought they would. And they're going to do better this year than many people are projecting. So that's the first leg of this market. As earnings are coming in, they're coming in better than expected. The second leg is that the economy is going to reopen. Implicitly, that seems to be the assumption, the vaccines, no matter, you know, notwithstanding

• 22:20Aswath Damodaran?

  all of the logistical problems we're facing right now, will get given out to people, the economy will open, and we're all going to go back to spending like we did before Covid. And there's a third leg to this, to this, to this market up movement, which is that the Fed will magically keep rates low while all of this stuff is unfolding. And to me, that is the weakest leg, and here's why. If investors are right, and the economy is going to come back gangbusters, I don't see any way in which the Fed can keep rates at 1%. The Fed doesn't set rates. It's a follower more than a leader. So if you're, if you see the economy coming back, rates are going to rise, whether the Fed wants to or not.

• 23:04Aswath Damodaran?

  Jerome Powell is not a magician. So to me, the weakest link in this market is people are picking whatever they want, the best part of each story, combining it all into their one story for the market, and pushing markets up. And that's one reason when earlier, you know, a week ago, I valued the market on my blog, I valued, I found it to be overvalued by about 12% to 15%. Not monstrous, it's not bubble turf, this is not 1999. But there is a, this market is priced to perfection and beyond. And that's why you have to worry about episodes like this GameStop episode, because, you know, there's a psychological component to markets, which, you know, I don't know what

• 23:49Aswath Damodaran?

  drives that component, which can feed back into markets. When you've had market corrections, it's almost never been because of one big event, it's been a collection of small events. I mean, go back to 2008, 2001, it's the small cuts accumulating to one day, just blowing up the market. And this GameStop episode, no matter how it ends, is one of those cuts you look at and say, really? Because if it leads you to lose faith in the future of what prices actually are telling you, I think that's, we're in a dangerous place. And I would be concerned as an investor for that reason and think about at least getting some protection.

• 24:33Aswath Damodaran?

  If I have a portfolio that's done well over the last seven, eight, nine, 10 years, have been lucky enough to accumulate wealth. The reality is, no matter where you invested that money, you've made a lot over the last decade. You've got to think about protecting some of those gains now, more than in prior years.

• 24:50Scott Galloway?

  So how do you take a more defensive posture? What's the most, on a risk-adjusted basis, thoughtful way to put up some protection?

• 24:59Aswath Damodaran?

  The simplest is to just hold on to cash. To the extent that you already have cash, leave it in cash. Don't be in a hurry to put in the market. The second, and I think this is more an explicit way of getting market protection, is to buy protection. And this is why I think, you know, you can make auction trading work for you as an investor. I mean, you could buy puts on the market. It's simple to do. You can get it for three months, six months. And you've got to think about it correctly, which is the money you're investing in these puts is like the money you spend buying insurance. And when you spend on insurance, your best-case scenario is that you will lose all, that basically that money just gets wiped out over the years.

• 25:44Aswath Damodaran?

  You don't want to buy fire insurance and see your fire, your house burn down. Yeah, you don't want to use it. So you could buy it in three-month chunks. It's not unreasonably priced. And you don't have to go crazy. You're not protecting all of your wealth. I mean, you might say, look, I'm willing to take a 10% loss, but no more. But there are, and this is the plus side of having derivatives. Derivatives can be misused, but they can also be very effective in kind of holding the line when you worry about the future.

• 26:17Scott Galloway?

  So I'm one of those people that recognizes I've done really well or my portfolio has done really well over the last decade and I recognize that it's dangerous to conflate luck with talent. And that this is, it's been very easy to think you're a good investor over the last 10 years. And so I want to go into a defensive position. But I look at buying puts against the S and P or something, given the volatility in the market. It's just, it's expensive. It's an expensive way to hedge. Are there less expensive ways that maybe they'll give you as direct coverage, say diversifying across regions or going into ETFs or different asset classes? And like I said, different, different markets that provide you with some, some or most of that protection, but aren't as expensive as going out.

• 27:01Scott Galloway?

  I just look at the cost. I mean, literally as we were talking or just before we were talking, I was looking at puts. They're really expensive right now because of the volatility of the markets. So anyways, is there, is there any way to have my cake at a lower cost?

• 27:16Aswath Damodaran?

  There is with a caveat, which is, and it's funny you should ask about diversification across markets and our different geographies, different asset classes. Yesterday I just put out a correlation matrix of every conceivable asset class. You know, I did stocks, US stocks, foreign stocks, emerging market stocks, and I brought in corporate bonds, T-bonds, and I looked at gold, silver, Bitcoin, Ethereum, commodities, oil, copper. And what I, what you see in that correlation matrix is, is very interesting. You know, it's, it's, everything moves together. You know, it's

• 27:53Scott Galloway?

  There is no place to hide now.

• 27:55Aswath Damodaran?

  There's no place to hide and it's because we've learned our lessons really well. And I, let me explain what I mean by that. You know, when I took my first investments class, I was told, go out and invest in foreign markets, go out and buy real estate, go, no, diversify. That was in the 1980s. You know what? We listened. We all did what we were told to do. And there's one unfortunate side effect, which is as we did this, we increased the correlation across markets. When you secure it as real estate, you know what it did to real estate? It made it behave like stocks. That's why in years where your stocks are up, your house is also up in price. When it's years where your stocks are down, the house is also down. That did not used to be the case in the 60s, the 70s, or even the 80s.

• 28:41Aswath Damodaran?

  So the bottom line is there are no places to hide. That said, you can still get some diversification benefits by going across geographies, across asset classes. So one thing I tell people to do is, is take a look at your portfolio, do a pie chart of where exactly you're invested. My guess, for instance, not even looking at your portfolio, is you probably have a much bigger slice of your portfolio in technology than the overall market does.

• 29:08Scott Galloway?

  It's not a slice, it is the pie.

• 29:09Aswath Damodaran?

  Which, which effectively also is what made you the money, right? Over the last decade, the fact that you're in technology.

• 29:18Scott Galloway?

  Yep, yep.

• 29:18Aswath Damodaran?

  But from a risk standpoint, you are overexposed now. And, and it's difficult to adjust your exposure overnight. For the same reasons, buying puts are expensive. Adjusting your exposure overnight means selling your, you know, your tech stocks and paying this huge capital gains tax. You know, you, you probably are Florida based, but for me in California, not only do I have to pay the 20% federal tax, I have to pay a California income tax, which can push very quickly, push that tax to 30, 35%. That's a pretty big expense to pay to get my portfolio back to sync. So it's, it's not easy to reallocate your portfolio, but if you, the, the advantage

• 29:59Aswath Damodaran?

  is you have fresh income coming in, hopefully, and you know, we do, then you can direct that income to places where you're under invested. So it might be an incremental process, you're still exposed while that happens, but if you're willing to be a little patient, my suggestion is look at where you're not investing. And you might not like those parts of the economy, but guess what? Now, the prices you're getting them at, they, they would still be pretty good investments in your portfolio and serve to buffer your portfolio against the downside.

• 30:33Scott Galloway?

  I want to say, I want to ask where you see value, where you see less overvalue by region or companies or asset classes. Where do things look less, the least frothy?

• 30:45Aswath Damodaran?

  I think we've, you know, markets have been too quick to write off the value of companies, traditional companies in most businesses. And I've kind of, you know, I've made my case that traditional companies have been punished and they deserve to be punished, but not kind of keeping up with what's going on around them. But I think not all traditional companies in every space are created equal. So if you look at retail, for instance, should we be bundling all brick and mortar retail companies into one big room? Or should we pick and choose a Costco and say, look, you know, this company, in addition to being brick and mortar, is bringing something else to the table. So what I would suggest is, you know, and I'm not going to

• 31:26Aswath Damodaran?

  put names out because that would, you know, that that would put you in spaces where I think the value is, and that might not be where you think the value is. Take hotels, take brick and mortar retail, take all the places where people say disruption is destroying this business. Look across the list of companies and say, which of these companies in this list has found ways to kind of live with that disruption? So, I mean, if you look at brick and mortar retail, what is it that Costco and Dollar General did that allowed them to not just stay in the business, but prosper in the midst of this overall disruption? And my guess is you have the equivalent of those companies in pretty much every sector.

• 32:07Scott Galloway?

  So distinctive, distinctive, I don't know, the ethics of it, oil stocks, is that the kind of thing where it's probably been unfairly punished?

• 32:17Aswath Damodaran?

  Well, if you don't have any E S G concerns about having fossil fuels in your portfolio, right? So that's, it's, it's, so you've got to live with your own conscience. If you are, you know, climate change is your thing, then no matter how cheap ExxonMobil is, you can't find yourself pulling the trigger and buying ExxonMobil. But I think that that's exactly what I'm talking about, is if your conscience is okay with that kind of company, and you think it's been punished to a point where the price is right for you. Adding it to your portfolio. It's, you know, people, for instance, I own Facebook.

• 32:55Aswath Damodaran?

  And I know how you feel about Facebook and there are lots of people now who say, I will not own Facebook. I can live with Facebook because, you know, to me, from my, from my perspective, there are other companies that I worry about more than Facebook. But I'm saying, find your own Facebook. Facebook's made a lot of money for me since the Cambridge Analytica scandal, but find your own, you know, find, find your own Facebooks. Put them in your portfolio and if you can live, if your conscience can live with it, it could be a pretty decent investment.

• 33:24Scott Galloway?

  So let's do a lightning round. I'm going to give you, I'm going to throw out some names and you give me your, your reaction. So let's start with Facebook.

• 33:31Aswath Damodaran?

  Is Facebook still in my portfolio? I think that they're going to be, the next year or two are going to be trying times, but I, I don't see anybody else taking the online advertising business away from Google and Facebook.

• 33:43Scott Galloway?

  Tesla.

• 33:44Aswath Damodaran?

  I don't own it. I, you know, as you know, I bought at 180 and sold at 600 and now it's at what 4,000? No, but I have no regrets. I think that the stock is priced not just for perfection, but for things that I don't even see how they can pull off. I love the, I, I, I really like the company, but I don't like it at this price.

• 34:04Scott Galloway?

  Disney.

• 34:05Aswath Damodaran?

  I like the company. I, I, I own it and I think that they have a potential for upside if they play their cards right. The key is they have to play their cards right. They, I mean, we live in the entertainment world, content seeking now. I mean, if, you know, if you have the content and you can figure out a way to package and deliver that content, then I think you are at the top of the heap. And who has more control of content than Disney has? They haven't, they're still stuck in their old ways and some of the things they do. But if they can kind of put a new hat on and think about the content and think of more effective ways of doing it, I think there's a lot of upside.

• 34:41Scott Galloway?

  Netflix.

• 34:43Aswath Damodaran?

  Netflix, again, it's a, I like the company, but I think that, that the streaming business is approaching maturity. And at this point, it's, you know, your growth of users for Netflix is coming from emerging markets, especially India. And the problem with their India growth is you're getting about $3 a month per user, not $30 and or $20. And that's, you know, that's, so your user count could keep going up, but your revenues are not going to go proportionately.

• 35:11Scott Galloway?

  Twitter.

• 35:14Aswath Damodaran?

  You know what, it's a tough one. Now, I think Twitter's always at potential, but it's like one of these kids you keep watching or pitchers on a baseball team that are potentially at eighteen, potentially at twenty-two, potentially at twenty-five. You get to be thirty-five, you can't talk about potential anymore. So I'm waiting for something more concrete that'll show me that they're willing to deliver on their potential. And, um, no, I'm still waiting.

• 35:37Scott Galloway?

  Yeah, at some point tomorrow needs to be today. Any companies that you're especially excited about, or you think that there is something, something we should discuss?

• 35:47Aswath Damodaran?

  No, it was interesting to see Airbnb and Dash go public last year because I really like Airbnb as a company. Again, I think at today's prices, they're vastly overpriced. But to me, I never say never. I mean, I actually have a limit buy on Airbnb. The only problem is my limit buy price is a third of the current price. I don't think I'll get there this month or next month. But I will have it on my watch list because with these stocks, I've discovered that there's always ups and downs. I mean, there's always a price at which you can get in. In contrast, I don't like DoorDash. I don't like their, I don't like their business model. I don't think that, that this, I don't, I don't think they have a particular edge over, you know, Grubhub or Uber Eats or, you know, or any

• 36:31Aswath Damodaran?

  of the competition, to be quite honest. But they really pulled it off in 2020 and markets, I think, are overexcited about their success in one year.

• 36:41Scott Galloway?

  A different type of question. And I, and I don't know, usually, life isn't about what happens to you, it's how you react to what happens to you. For some reason, these markets have made me really anxious the last few days, the last few weeks. And I don't, I don't know if that's just my own body chemistry, or if there's a reason to be anxious. Do you, how do you register emotions around the markets? And what's your general sense right now? Do you feel the same anxiety? Or is this just more like looking at a chart on a, on a, on a graph?

• 37:11Aswath Damodaran?

  No, I can, I can, like a, like a psychologist, I can diagnose why you're anxious and

• 37:17Scott Galloway?

  Please, please.

• 37:19Aswath Damodaran?

  I think people laugh at efficient markets. So when you talk about efficient markets, they say that's crazy. But you know what? We all believe in efficient markets. The only question is when we think markets become efficient. In other words, when you buy an undervalued stock, how do you make money? Ultimately, the price has to adjust to the value, which means markets eventually become efficient. So if your faith in that endgame changes, if you don't, if you believe markets are just random games, that there's nothing efficient about them, then no matter what kind of investor you are, you get more nervous because there is no endgame that kind of delivers your rewards, even if you did everything

• 38:00Aswath Damodaran?

  right. So when you see something like a GameStop, where you see the price go up and you know that there's absolutely no fundamental reason, or Bitcoin. Bitcoin is just as bad a currency now as it was a year ago and 10 years ago. And it was a terrible collectible, because if you think about a collectible as moving in the opposite direction, as financial assets, Bitcoin behaved like very risky stock last year, not like gold. So when you see that prices continue to go up, it shakes your faith in that endgame being in your favor. And when that faith is shaken, I don't care what philosophy I have about markets, you get worried. You're saying, I did all my homework, but now there's no guarantee I

• 38:43Aswath Damodaran?

  will get rewarded for it because markets are just random. But my advice is this too shall pass. Markets have had a lot more staying power than all of us experts, gurus, etc. Markets find their way back to a steady state. The process, a lot of people might feel pain. But I retain my faith. I mean, it's the essence of faith is it gets shaken and you come back? Now, I tell people about, a long time ago, I was lucky enough to listen to Mother Teresa speak. And she said, every day I wake up and I question the existence of God. And I said, if Mother Teresa can get up every day and question the existence of God, I can get

• 39:25Aswath Damodaran?

  up every day and question whether markets are efficient. And that's okay. I can still have faith. So I think the essence of faith is we'll get shaken, but that doesn't mean you lose the faith. You have to rediscover a way of coming back with that faith, because without that faith, it just becomes another gambling exercise.

• 39:44Scott Galloway?

  Professor Aswath Damodaran's contributions to the field of finance have been recognized many times over. He's the recipient of several awards. The most impressive, in my view, he's been voted Professor of the Year by the graduating MBA class five times during his career at NYU amongst our, from a faculty of 190 people. In addition to myriad of publications and academic journals, Professor Damodaran is the author of several highly regarded and widely used academic texts on valuation, corporate finance, and investment management. He joins us from his home in San Diego. Thanks very much, Aswath.

• 40:23Aswath Damodaran?

  Thank you, Scott.

• 40:39Speaker 02

  Your heart can tell you a lot about your health. Apple Watch Series 12 measures your heart rate every five seconds with the most accurate heart rate sensing in a wearable. So your vitals app, now with heart rate variability, can tell you when something is off. And your readiness score can let you know when to rest and when to push. Hear the story in every heartbeat with Apple Watch Series 12. The features described are for wellness purposes only and not for medical use. iPhone 11 or later required. Based on Apple conducted study of heart rate accuracy, August 2026. Visit apple.com slash Apple Watch Series 12.