[APPLAUSE] ASWATH DOMODARAN: Thank you. Thank you very much. I just posted, a
couple of days ago, on where-- I actually am very
lucky at the intersection of three different businesses. I'm a teacher first. I love to write,
and I'm in finance. And the way I described
it, I'm in three businesses that are all the begging to be
disrupted, three really big, badly-run businesses,
all of which need to be taken
to the cleaners. So I've made it my
objective at this point in my life to disrupt the
businesses that I'm in. And this is one of those
acts of disruption. Because I think,
for too long, we've thought about teaching as being
classrooms in universities, but I don't see that
restriction anymore. So what I'd like to
talk about is actually what I've been
teaching for 30 years. To give you some background,
I came to NYU in 1986. And when I first came to NYU,
they gave me a class to teach. It was called Security Analysis. And for those of you who know
the history of that class, it was a class than Ben
Graham talked at Columbia in the 1950s, that you know
who, he who shall not be named, took. And it's a class with a
long and hoary traditions. So they handed it
to me and said, you've got to teach this class. I took one look at the
class and said, no way. This is the most boring
piece or collection of topics I can think,
because by the 1980s, it was showing its age. So I went to head of
the department and said, I'd like to teach
a Valuation class. And he said, don't do it. There isn't enough
stuff in valuation to actually teach a class. And you know what? In 1986, there wasn't
enough stuff in Valuation. There were no
books in valuation. In fact, when I did my
MBA, which is way, way, way back in time-- 1979 through
'81-- two years of the program, we spent about an hour and a
half collectively on valuation. So I thought about it. And I said, I'd really
to teach the class. And I considered two options. One is to go the official
route in the university, which is to ask officially for
the class to be OKed. And if you've ever been in
an academic setting, as most of you have how, you
know how difficult it is to get things done
officially at a university. A committee will be formed to
report to another subcommittee. And by the time they get back
to you, you'll ready to retire. So I discovered early
on in my academic life, that if you want to get
something done, its best to do it subversively. So here's what I did. I said, OK, I'll teach the
Security Analysis class. And I went into the classroom,
and I taught a Valuation class. They have absolutely no idea
what I do in the classroom. I mean, I could be teaching
Cooking, for all they know. So you know how long it
took them to find out? In 2008, I got a call
from the dean's office. This is 22 years after I've
been teaching this class. We've heard you're
teaching a Valuation class. And I said, yes. I've been doing it for 22 years. They said, we should
call it Valuation. I said, welcome to reality. So if you look at
the NYU schedule, you won't see
Valuation until 2008. But that's because I've
hijacked like six other classes in previous iterations and made
them all Valuation classes. I'm fascinated by Valuation. But I'll tell you upfront
what I think about valuation. I think valuation is simple. Fundamentally, anybody
can do valuation. I think we choose
to make it complex. Whose we? The people who
practice valuation. Why? Because that's how
you make a living. You've got to cover things
up with layers of complexity, keep people away. So I want to get back to basics. Obviously, in 40
minutes, I'm not going to cover the
details of valuations. But I want to kind of hit some
points that I think sometimes get missed, especially
when people look at valuation from the outside. So here's the first
message I want to deliver. Valuation is not accounting. And the reason I say that
is, most people, if you say, valuation, think numbers,
think accounting statements, think income balance sheets. Valuation is not accounting. And it's actually a task I face
every year I teach this class. In fact many of the
MBAs that I teach come into my class in the first
year in the spring semester. When they come in
the spring semester, they've taken one
class in accounting. And if you've looked at how
MBA programs have evolved, MBA programs are
very diverse now. I get museum directors. I get basketball players. So to them, the only sense
of finance they've had is the Accounting class. And part of my job
is to get them out of the accounting mindset. So let me start
off by explaining the way I see the difference
between accountants look at the world and how
finance looks at the world. Accounting is backward-looking--
nothing bad about that. So nothing I say should
be viewed as bad. It's their job to
record what's happened. So if you look at a balance
sheet-- and most of you, if you open up a 10-K
or an annual report, will see a balance sheet. This is a classic
accounting balance sheet. So let me look at the breakdown
of how accountants break down a company. On the asset side,
they break assets down into current
assets-- basically, inventory, accounts receivable,
cash; fixed assets-- land, building, equipment. Accountants are big on
tangible fixed assets. For some reason,
if they can see it, they're much more
comfortable with it. Then you have financial assets--
investments in other companies. And then you have what
accountants euphemistically like to call intangible assets. Now, if I went around
this room and asked people to name intangible
assets, you'd see lots of things come to
the surface-- brand name technology. But if you look at an
accounting balance sheet, you know what the most
common intangible asset is? AUDIENCE: Goodwill. ASWATH DOMODARAN: Goodwill. And let's be completely
clear about this. Goodwill is the most
useless asset known to man. And here's why-- for
goodwill to manifest itself in an accounting
balance sheet, do you know what a company has to do? It has to acquire
another company. So if you're the
greatest company in the face of the Earth
and you've grown entirely with internal investments,
there will be no goodwill on your balance sheet-- period. The minute you do an
acquisition, goodwill pops up. And here's why it pops up. You acquire a company. It as a book value
of $4 billion. So what do the accountants
say, until just before you acquired it? It's worth $4 billion. It's worth $4 billion. You offer $10 billion. The accountant has a $6 billion
problem to explain away, right. So you know what he does? He calls it goodwill. He puts it on the balance sheet. And he has to do it because
the balance sheet has this very unpleasant requirement. It has to balance. Goodwill is a plug variable. The problem with Goodwill
is it sounds good. And when something
sounds good, people feel the urge to pay for it. So every week, I get
emails from people saying, I'm valuing this company. It has $5 billion in goodwill. How much should I pay for it? And my response is,
it's a plug variable. What the heck are you doing
paying for a plug variable? On the other side of
the balance sheet, again, accountants
get carried away. You have Current Liabilities,
Accounts Payable, Supplier Credit, Deferred
Taxes, so all kinds of stuff. Then you've got
long-term liabilities-- bank loans, corporate bonds. And then you have an item that's
called Shareholders' Equity. If you get a
chance, take Google, look at the balance sheet. There will be a
Shareholders' Equity number. Take any company. There's a Shareholders'
Equity number. You know what goes into it? Everything that's happened to
this company over its lifetime. Think about it. When you look at the
Shareholders' Equity for Coca Cola, in that number is the
original public offering that Coca Cola made-- which
was what, 100 years ago-- and everything that's
happened since. The Shareholders' Equity is
a reflection of the past. So here's what I'm
going to do first. I'm going to
replace it with what I prefer to look at a company
as-- a financial balance sheet. And at some level, a
financial balance sheet is far simpler than an
accounting balance sheet. At another level,
it's far more complex. Look at the asset side
of the balance sheet, there are only two items--
Assets in Place and Growth Assets. Let's take the
easier half of that. Assets in Place are
investments you've already made as a company. That's pretty straightforward,
so value of investments you've already made. Pick any company you want. Think of the investments
they've already made. Growth Assets is
a little messier. It's a value I'm
attaching to investments I expect you to make, next year,
two years out, five years out, 10 years out, forever. I'm giving you
credit for investment you haven't even
thought about yet. That's pretty scary, right? An accountant can never do that. But I play by no
rules, so if I feel that you have great
investments in the future, I can give you a large value. Let's look at a contrast. You look at Proctor & Gamble. Where's most of the value
for the company coming from? Investments they've already
made or Growth Assets. Most of the stuff
they've already done is already on the ground. What else are they going to do? But if you look at
LinkedIn and you can pick any young
growth company-- and I'm not going to pick
them in terms of quality. Just think of any
young growth company. On a good day, may be
LinkedIn's assets in place are worth $1 billion, because
they made about $10 million in operating income last year. You're paying $40
billion for the company. The extra $39
billion is for what? Expectations,
perceptions, hopes. Nothing wrong with it. But that's the first stop
when you're an investor. You've got to stop and
do a reality check. What are you buying, when
you buy this company? Because the way you
assess the company is going to be very different,
if it's Procter & Gamble, as opposed to LinkedIn. If you're Proctor &
Gamble, you should be very focused on
earnings reports and say, how much did
they make last year. If you're LinkedIn, who cares
what they made last year. That's why, when I see investors
freak out over earnings reports from young companies--
and there are lots of them. Take any social media company. Look at how they freak out. Earnings per share were
$0.02 below expectations. I don't care, because
the value of your company is not coming from
what you did last year. It's coming from what I think
you can do in the future. So when look at an earnings
report for Twitter, I'm not looking at what
did they do last year. I'm looking for clues as to
is their growth potentially increasing or not. Are they doing the right
things to create value from their growth assets? Most of the tools
we have in finance were developed for
mature companies-- PE Ratios, Return on Invested
Capital, things you're taught in Business school. But if you have
a growth company, you try to asses them
using those tools. It's like using a
hammer to do surgery. Think about it. That's going to be
bloody, and it's going to come to a bad end. It doesn't work. So one interesting
thing you can do when you sit with a businesses
is take the accounting balance sheet and contrast with the
financial balance sheet. The younger a
company, the less you will learn by looking at
the accounting balance sheet, a for a simple reason. If you haven't been around
long, the accountant has nothing to record. So if you look at a Twitter
balance sheet or a LinkedIn balance sheet, there
isn't much there yet. Doesn't make them
a bad companies. It just makes the different. And on the other side
of the balance sheet, you've got only two
items-- debt and equity. There are only two ways
you can fund a business. You can borrow the money,
or use your own money. You can slice this and dice
this as much as you want. You can call them
bonds and stocks. But every business has
to have that choice. And guess what? You tell me where the bulk
of your value comes from. I'll tell you whether you
should be funding your business with debt or equity. And think why. Let's say, you're a
young growth business. How young? You're an idea business. You're Snapchat-- no
revenues yet, no earnings yet, plenty of potential. How should you
fund your business? What's the problem
with borrowing money to fund an idea of business? Have you tried paying
interest with ideas? Go to the banker and
say, you know what. I have a lot of ideas. You can't make interest
payments with ideas. If you're an idea business,
this is Corporate Finance 101. Don't go looking for trouble. You have to raise equity. So that's the first message
I wanted to deliver. Here's the second one. I often see Valuation classed
structured around spreadsheets. In fact, some of you might have
sat in one of these classes by Training the Street. I like those guys. They come in with spreadsheets. They teach you how
to be an Excel ninja. You can write macros
on top of macros. You can do those
shortcuts and turn columns into yellow, green,
blue, et cetera. And at the end of two days,
you are a master at Excel. And you think, this is
what valuation is about, at the end of the process. in fact, the way I
like to describe this is to step back and
think about what drives the value of a company. If I'm asked to value
a company, there are four basic questions
to which I need answers. Here's the first one. You've already made those
investments in the ground. What are the cash flows you're
getting from those existing investments? Could be very small if you're
a young growth company. But that's my starting point. That's why I look at the
last financial statements, to get a measure of what
your existing cash flows are. The second question I'm going
to ask you is, what is the value that I see you creating
with future growth. Notice how I phrased
the question. I didn't ask you, what's
your future growth. Growth, by itself, can be worth
a lot, can be worth nothing, or can destroy value. Grow can be good,
bad, or neutral, because you've got
to pay for growth. So I'm going to ask,
what's the value you create from future growth. Much more difficult
to answer then, what are your cash flows
for existing assets? But I need that answer. Third, I'm going to ask, how
risky are these cash flows. Notice, I didn't
throw in any terms to kind of buzz words
you throw in there. What's a beta? Those are tools. Don't mistake tools
for end games. I need a measure of risk. And I need to bring
it into the value. And finally, I'm going to ask,
when will your business be a mature business,
because I've got to put some closure on this process. I cannot keep estimating
cash flows forever. So those are the four questions
around which the valuation swivels, which then
brings me to the way I think about valuation. When I start my
Valuation class, which doesn't start until
Monday, there'll be 200 people who
walk into the class. And the first question
I ask them is-- are your numbers people? Are you story people? Think about it for a moment. I bet, given where I am, that
there are more numbers people in this room than story people. And the reason I say that
is, when I look at investing, you have two camps. You have the numbers people, who
love to grind through numbers. It's all about the numbers. And it's the story people
who like to be creative. They like story telling. The VC business is a
storytelling business. I know, they throw numbers in,
like the Target Rate of Return. But it's an after thought. It's a negotiating tool. It's a story game. And the problem right
now is, the story people think that the numbers
people are all geeks. And the numbers people think
that the story people are all crazy. And they can't
talk to each other. In fact, sometimes,
it's almost funny to sometimes watch two story
people and two numbers people trying to talk about things. And they're talking
right past each other. And here's the challenge
I see myself having. When I come into that class
and say, how many story people. How many numbers people? I ask them actually,
in a very simple way, to see which one you
are, if you're not sure. I ask them-- how many of you
enjoyed History in high school? You have 20 people--
I loved that class. Those are the story people. So how many of you preferred
Algebra to History? That's the numbers
people right there. And my end game for
my Valuation class is to have numbers people with
imagination and story people with discipline. That's the way to
think about valuation. If you're a story
person, I'm not going to stop you
from telling stories. Stories actually
much more effective at selling business
than numbers are. And it's been true for
as long as human beings have been on the Earth. So if you tell a story,
what I want to also bring in is enough numbers to
discipline yourself. Because if you don't
have the numbers, it's very easy to veer
away into fantasy land. If you're a numbers person
you have no imagination, you're not going to be able
to do valuation because it's all about the numbers. If you do a good evaluation,
it should sing a tune. It should tell me a story. That's what I'm looking for. Behind the numbers,
what is the story you're telling about a company? So when you look
at the two groups, each believes they're
the chosen people. The numbers people say,
we're the chosen people. We have spreadsheets. We have numbers. We're on the right
side of history. And the story people think,
oh, you should listen to us. We have the great-- we
are the creative people. And I think they're both
right, and they're both wrong. There's something to be
gained from the other side. And to me, that is the key
in doing valuation right. You've got to work with
both sides of your brain. I don't even know whether it is
mythology or not, that there's a left brain and right brain. But let's face it. Some of us prefer to
work with numbers, and we have to force ourselves
to think about stories. And some of us prefer
to tell stories, and we have to force ourselves
to think about numbers. Think about your weaker
side and work on it, because that's what's going to
give you power in valuation. So when I do a valuation-- and
I use a Discounted Cash Flow valuation. It's a tool. So when you hear DCF
being used as a curse word-- and venture capitalists
have used this on me. You're doing a DCF. And the way they say it, the
contempt oozes out of them. You can't value this
company using a DCF. I think they're completely
misunderstanding what a Discounted Cash
Flow valuation is. Because ultimately,
what am I saying? The value of your business
is the present value of your expected cash flows
from running this business. That's been true for as long
as business has been around. We can debate as to whether we
can estimate these cash flows. But don't tell me,
cash flows don't matter, that it doesn't matter
whether your company ever makes money. We heard that in
the Dot-com era, and look at how well that ended. It does matter
how much you make. So when I think about a
Discounted Cash Flow valuation, a Discounted Cash
Flow valuation, to me, is just a tool to bring
in answers to those four questions. My cash flows and existing
essence feed into my base here. My value from growth gets fed
in through the growth rate I use and how much I'm setting
aside to get that growth. My risk is built in
through the discount rate. And I bring it to
closure, by assuming that at some point in
time, things settle down. And I can estimate the
value of everything that happens after that with
this big number at the end. But the DCF is not the end game. It's just a tool to convert
your story into a number. So let me use a
very simple example to kind illustrate this. I want to pick somebody who's
never done a valuation before. And we're going to do
some Valuation 101. Anybody who's never
done a valuation before? OK, you can be my Guinea pig. I can't move too
far away, because I have to be on the camera. But this is an empty envelope. I'm not David Copperfield,
no magic tricks. So here's what I'm going to do. I'm going to put a $20 bill. It's a little crumpled, but
it's legal tender still. How much should you
pay for this envelope? Don't think too long. That's what gets us in trouble. AUDIENCE: $20. ASWATH DOMODARAN: First
rule in valuation, if you pay $20 for an envelope
with $20, you get nothing. So let's try again. How much should you
pay for this envelope? AUDIENCE: $10. ASWATH DOMODARAN: Go $1. You never know what
disease I have. I might not be able
to read numbers. First rule in valuation-- if
you know the value of something, don't throw it on the table. You know the value of a company. Don't offer that value up front. Because then what do you
have left for yourself? Put it in your back
pocket, start really low, and then build up. But this is such a
transparent asset value, that if I put it up
for a bidding war, my guess is, by the
end of the bidding, you'd probably get
pretty close to $20. Now I'm going to
make it interesting. What is this going card say? AUDIENCE: Control. ASWATH DOMODARAN: Control--
I'm going to put control into this envelope. How much should you pay
for this envelope now? It's got control in it. You know what? I tried this in
investment bank last week. In investment banks,
you're trained. If you put a control into a
company, there's a 20% premium. I don't know where
that came from. The guy offered me $24. I sold it. He thought it was a game. I said, no, no, no, no,
this is a real transaction. Pay me the $24. So guess what he'd done? He paid $4 for a
three by five card that I stole from NYU, that
cost me absolutely nothing. This is a money machine. Now that I know you like
to pay for three by five cards with nice sounding
words, I can say, try more. What does it say? AUDIENCE: Synergy. ASWATH DOMODARAN:
Synergy-- that's a big one. I'll throw that in there. That will probably go to $26. What does this say? AUDIENCE: Brand name. ASWATH DOMODARAN: Brand
name-- oh, that's a big one. That's $32 right now. And if that doesn't work,
I have my two trump cards. What does this say? AUDIENCE: Strategic
consideration. ASWATH DOMODARAN:
Strategic-- that is the most dangerous word. When I hear the word, strategic,
I'm running out of the door. Because you know what it means? The numbers don't fly,
but I really, really, really want to do this. A strategic deal is
a really stupid deal. But you really want to do this. A strategic buyer is a synonym
for a stupid buyer-- a buyer who makes up his
mind to buy something and then shows up at the table. And if nothing else works
here is the trump card that always works. What does this say? AUDIENCE: China. ASWATH DOMODARAN: China. Just mention the word. It's amazing how
common sense will leave through the other door. Take a look at earnings reports. Every company that reports
it, even the most horrible, at the end they would
say, but there's China. Nothing about China,
but there's China. That alone doesn't it. They said, China. OK, we'll forget
all of the facts. The fact that you've lost
billions doesn't matter. You have China. I call these weapons
of mass distraction. You know they come out
because the numbers don't fly. In fact, I have a
very simple test. When I read an
analyst's report, I count the number of times
these words show up. I have a list of a dozen. And the more times
these words show up, the less substance
there is to that report, because this it's
what you use when you can't come up with a real
reason for doing something. So here's my first proposition. It's called the It Proposition. If it does not affect the cash
flows and it does not affect risk, it cannot affect values. And what's it? Whatever it is controls synergy. I'm not saying, control
doesn't have value. But if you tell me
control has value, tell me what it's
going to change. Maybe by controlling
this company, you're going to
run it differently, generating different cash
flows, maybe by synergy, saying, my revenues will grow faster. Let's talk about specifics. You can't let buzzwords
drive decisions. Because if you let
buzzwords drive decisions, you're going to
make bad decisions. And worse, you're not going
to plan to deliver those, because there's
nothing behind them. The second proposition, I
call the Duh proposition. I've named it after a subset
of emails I get every week. And usually this is
how the emails will go. I'm valuing a
money-losing company. I expect it to
lose money forever. Which valuation model will work
best in valuing this company. I feel like walking
up to the person, slapping them around the
face, saying, wake up. You're valuing a
money-losing company. You expect to lose
money forever. You're thinking about
paying for this company. What's wrong with you? Which brings me to the third
and final proposition-- next week, when my class starts,
I let people pick companies. In fact, I insist that
they pick companies. They have to value those
companies over the next 14 or 15 weeks, over the semester. They can pick whatever
company they want. They can pick Lukoil. They can pick Google. They can pick Amazon. And sometime in the
first or the second week, a subset of people-- not
everybody in the class, thank god-- but 10 of
them will show up saying, I have to change my company. I say, it's a little early. Why are you panicking? They say, well, I worked out
the cash flows for my company. And they're negative. And you said in the
Duh proposition, if the cash flows are negative,
you can't value a company. And I say, that's
not what I said. If the cash flows
are negative forever, you can't value the company. But if your cash flows
are negative in year one, year two, year three,
it's not the end of the world. In fact, there are a
subset of companies, when you value the company, you
should get negative cash flows up front. What types of companies will
you get negative cash flows up front? AUDIENCE: Growth companies. ASWATH DOMODARAN: Young growth
companies-- and here's why. To grow, what do you have to do? You've got to put money
back into the business. There is no magic
bullet that you can use to grow at 80% a year. So if I'm valuing
a Tesla, I should expect to see negative
cash flows up front. Why? Because you've got to
build those assembly plants to deliver those
10 times more cars I expect you to sell
five years from now. But if you have negative
cash flows upfront, you've got to have
disproportionately large positive cash
flows in the future. You see why they have to be
disproportionately large? You use $1 billion in year one. You've got to make up for it
with $10 billion in year 10. So with young growth
companies, that's exactly what you
should expect to see. You should see negative
cash flows up front, because that's what you
need to grow the company. And as a company matures,
Nirvana shows up. Cash flows turn positive. You get the big values. But that's OK. So here one way to think about
the search for valuation. You sit down to value a company. You pull up the financials--
annual report, 10-K, 10-Q. That will give you
a sense all of what this company did last year. And if you have
a mature company, that might be all you need. Because they're so
set in their path, that you can pretty much value
the company using last year's financials. But if you have a company that's
in transition and market that's changing, you have to
collect information about how the
market is evolving, who the competitors are. When you think
about risk, you're going to look at the past. You're going to
look at the future. You're going to be looking at
every piece of information. And my only suggestion if
you value new businesses-- don't do a blind Google search. You know what mean? So if you say-- For instance, I
have to value Uber. If I type in Uber in
Google, you know what I get? Everything ever
said about Google on the face of the Earth. When you search, you
want focused searches. In other words, you first figure
out what you're looking for. And then you go looking for it. In fact, what I do is, I
open up an Excel spreadsheet with the inputs I need. And with each one, I
say, this is the number I'm looking for right now. I'm not going to
get distracted, even if I find something interesting
about something else, for the moment. I'm going to stay
focused on-- so if I'm looking at the
risk in a company, that's all I'm looking for. Are there any clues
I can get by looking at the company, the market,
and the competitors, about that risk? And at the end of
the process, I'm keeping my eyes on the prize. This is not about
getting more information. It's about taking data and
converting into information. We live in a world where
we have too much date. That's the reality we face. Our job is to take the
data and compress it into information that actually
shows up in our valuations. So here's a simple
example of a valuation of a very boring company. We all know what 3M does, right? Incredibly sophisticated
stuff like the Post-It note, but don't laugh. It's an incredibly
profitable product. It's a company with
a long history. And this is a valuation
I did of 3M in what I call the days of innocence. Those are the days when
they were developed markets on one side and emerging
markets on the other. And never the twain
shall meet-- pre-2008. So it's a mature
company, in what I thought was a mature market. In hindsight, I was
hopelessly wrong. But my point is, in valuing
3M, I had to make estimates. But those estimates
were easy to make. Why? Because there was a lot
of history I could use. I knew what their
business model was. I didn't have to figure out what
they would do in the future. So it's a valuation
that was centered. There was uncertainty, but the
uncertainty was much smaller. The way to think
about it-- if you think about narrative and
numbers, in the case of 3M, the story is almost done. You're in chapter 33. There's not much room for
you to change the story. You can't go back and
rewrite the story. So this is a valuation that you
could do almost on autopilot. And this is the kind
of company that you're taught to value in a
Valuation class in school. And I have some really
bad news for you. If this is the kind of
company you can value, anybody can value these
companies. in fact, I'm not even sure
you need a body. In fact, how many of you
have an Apple device? Or is that not
allowed in Google? If you have an Apple device,
go to the iTunes store and type in uValue. It's an app that I co-developed
with a friend of mine, Anand Sundaram at Dartmouth,
that does valuation. So you download it. You plug-in the numbers. If your flight is
30 minutes delayed, you have nothing to do. You're one of those
freakish people who likes to work with numbers. You put in nine numbers. You value a company. You move on. And I wrote it because I wanted
to disrupt this valuation business. Because so much of what
you pay for in valuation is a banker feeding in numbers
into something like that and then spending 25 days
making it look like he did a lot of other stuff
and then charging you millions of dollars
for something he has no business
charging you millions for. So if you're valuing 3M
or companies like that, you don't need an appraiser. You don't need a banker. Anybody should be able
to value those companies. But let's talk about more
interesting companies. This is a valuation I did
of Apple in March of 2013. I've actually valued Apple
every three months forever. But since 2010, I've been
public about my valuations. What I mean by that is, on my
blog-- which is a Google blog, so that a good think about it--
I post my valuation of Apple, because I don't
believe in hype-- The way I describe it is,
I'd rather be transparently wrong than opaquely right. And in this business, people
want to be opaquely right. What I mean by
that is, they will say things that are so
difficult for you to construe, that no matter what happens,
they can say, I told you so. And it drives me crazy. So what I do is, I say, this is
what I think the value of Apple is. And of course, I'm
going to be wrong. But at least you can
see where I went wrong. So this is a valuation I
did of Apple in March, 2013. Because every time a new
earnings report comes out, I re-value the company. So I'm due for one very soon,
because Apple's earnings reports just came out last week. What I'm trying to
illustrate here though is, in traditional valuation,
here's how you value a company. You making best case. Basically, not
even best case, you make your expected
value estimates for things like cash
flows and growth and risk. point estimates. So I ask you what the growth is. You give me a number. You ask me what the risk is. You give me a number. But the reality, if
you think about it, is, you face uncertainty. You have a distribution
in your head, and I'm forcing you
to give me a number. And part of you is saying,
it's 8%, but it could be 3%. It could be 11%. And 25 years ago, I can
see why you were stuck. You had to do that,
because we did not have the tools to actually
bring in uncertainty. I actually have Crystal
Ball attached to my Excel. If any of you use
Crystal Ball, it's a simulation add-on to Excel. And what it allows
you to do is enter a distribution for
your assumptions, rather than a single number. So if I'm writing a
company like Apple, rather than give one number,
I can give you a distribution. So rather than say, revenue
growth is 6%, I can say, it's uniformly distributed
between 3% and 9%. And the more
uncertainty you feel, the wider the distribution
is going to be. And if any of you have
done a simulation, here's what happens. The computer goes and picks
one outcome of each simulation and does a valuation. Crystal Ball's default
is 100,000 simulations. This is what my simulated value
for Apple was in March of 2013. What is that? How does that help me? The stock price was $450. In my base case valuation,
I got about $580. So I could give you the
base case value and say, I think Apple is undervalued. But your defense will be,
but you could be wrong. Of course, I could be wrong. But what the distribution shows
you is how wrong I can be. And if I'm a decision-maker,
I'd much rather base it on a richer set of information. Because here's what I can
tell you about Apple-- I can give you an expected
value, like I did before. I can also tell you, if you
pay $450, what the chance you are wrong upfront is. I can give you an
ex ante probability. There's a 21% chance
you could be wrong. All I have to do is count the
number of values below $450. And I put up a distribution. And in March of 2013, based
on my valuation, I said, I know I can be hopelessly
wrong on my inputs. But based on the
outcomes, it looks like there's a 90% chance-- you
see where the 90% comes from? The 10th percentile
is about $450. The stock is trading at $450. Investing is a game of odds. And it looks to me,
based on my assessments, that the odds are in my favor. And of course, this
is an investment that's worked out hopelessly
well, in some cases. Hopelessly, well because
the stock is now what? $840, with the seven to one split. Not everything
works out that well. But what I'm trying to say is,
don't let uncertainty stop you. And especially in the
technology business, I find this defense
to be very troubling. You ask people, why are you
not valuing this company? Because there's too
much uncertainty. What does that mean? Your estimates could be
wrong, but that doesn't mean you can't make an estimate. Saying that this too much
uncertainty to do a valuation and then investing
in the company, to me, is the
height of insanity. And lots of venture capitalists
go through that cycle over and over again. They say, I don't want
to value the company, but I'll invest in the company. You can't tell me one
thing and do the other. So if you cannot
value the company, at least do the logical thing
and never invest in those companies. But if you want to invest
in young growth companies, you have to get your
hands around those numbers and make your best estimates. Now, of course, with
a young startup, all these questions become
more difficult to answer. In you're the founder
of a young startup, let me ask you
the four questions to which I need answers. And you're going to see why
life is so much more difficult. First question-- what
are you cash flows from existing assets? You're a young startup. What the answer to the question? What assets? I have nothing. I'm sitting on a chair. I don't even own it. OK, that was easy. Then I ask you, how
much value do you think future growth will bring in? You say, a lot. I say, can you be a
little more specific? Not really-- I don't even
have a business model yet. I say, how risky are you? Very. But you can't give me
past prices and earnings, because you haven't been around. I say, when will you
be a mature company? And you fall on the
ground laughing. You might not even make
it through tomorrow. Every question becomes
like pulling teeth. And that's why, with young
startups, people give up. My suggestion is,
rather than give up, make your best estimates. Don't put the weight of the
world on your shoulders, saying, I have to be right. You cannot be right, but you
can still make estimates. For the last four
years, every time you've had a big IPO come
up, the week before the IPO, I've tried to value the IPO. The reason I do it the
week before the IPO is, if you wait until
the IPO is priced, that number starts gnawing
away at your brain. So when you do a
valuation, your number starts to wander
toward that number. So this is actually a valuation
I did of Twitter, the week before their IPO. So what triggered this
was, I was on CNBC. So once in awhile, I
end up in that insanity. And I was actually-- we
were talking about Twitter. And there's an analyst there
who was very optimistic about Twitter. So I said, why do you think
Twitter is worth so much? He thought it was about
$65 or $70 per share. He said, because the online
advertising business is huge. So I said, how big is the
online advertising business? He said, I don't
know, but it's huge. This is exactly what
gets us into trouble. People don't want to
talk-- it's like China. Online, it's huge. And because it's huge, I
can pay whatever I want. So I said, you know what? If I want to value Twitter,
that's where I need to start. I need to figure out how
big this business is. Doesn't take a whole lot of
research to figure this out. But the entire online
advertising business in 2013 was about $120 billion. That's the whole global
online advertising business. The biggest player,
by far, is Google. And if you look at the
breakdown, you can see, Google is about 33% of the
global online advertising. The next biggest is
Facebook, and then you have a splintered business. So that's the
business right now. I do know that
online advertising is becoming a larger and larger
portion of overall advertising. Print media is
going out of style. So here's what I had to do
first, to value Twitter. I had to figure out how big
this market was going to be. Because before I talk about
what the revenues for Twitter are going to be, I
need to figure out what they're aiming for. So I make some assumptions. I assume that the
overall advertising market is about $550 billion. So about 20% of all advertising
is online right now. But the overall advertising
market can growing about 3% a year, because it's an
expense to companies. They can't grow at 10% a year. But online advertising
would increase as a percentage of that to
become about 40% of the market. That gave me my endgame. It give me my online advertising
market a decade from now. It's about $200 billion. AUDIENCE: How did
you figure 40%? ASWATH DOMODARAN: I made it up. And I made it up on
the following basis-- I looked at how quickly
existing advertising media revenues are dropping. Print advertising is
falling through the floor. But TV advertising has actually
been surprisingly robust. So there are certain
kinds of advertising where I think you're going
to see other advertising. Billboard advertising
is not going to go away. Because if you're driving,
it's tough to have online ads. Maybe you'll figure
something out. But you'll have a
lot of accidents. So I made that assumption. Clearly, that's where
you and I can have different values for Twitter. But at least we're
talking about substance. So if you made a
stand saying, I think it's going to be 60%
of the market, OK. So you have to go marshal
the ammunition for that. So I use 40%. And then I had to
make a judgment as to what percentage of that
market Twitter would capture. That's tough. You've all seen how
Twitter ads work, right? It's that sponsored Tweet
that shows up-- pisses me off, no end. I've never clicked
on a sponsored Tweet. I hope nobody ever does. But that's the way they make
their advertising revenues. And that's their strength
and their weakness. Their strength is
140 characters. Their weakness is
140 characters. That's a strength, because
it makes it nice, compact. The weakness is, it can't
be your primary advertising. So the way I see it is,
even if Twitter succeeds, it'll never be
Google or a Facebook. It'll be a lesser player. And that led me to use a
market share of about 6% for Twitter, which is
still about $12 billion. Here's a company with a half
a billion dollars in revenues right now. And over the next
decade, I'm assuming it's going to go
24-fold to $12 billion. So that gave me half the game. I then have to figure
out how much money they will make once they're
past this growth phase. And there are two
big targets here. One is Google, and
the other is Facebook. Both are immensely profitable. Google's margins are
about 22% of revenues. Facebook's are about 30%. And Facebook's
margins are dropping, each year that you watch them. Because as they get bigger,
it's tougher and tougher to maintain-- these
are immense margins. But I thought I was being
optimistic, when I used a 25% end margin for Twitter. I said, that's what
you're shooting for. So I've got my
revenues in year 10. I've got my margins in year 10. I also had to bring in that
final piece, which is, this isn't going to happen by magic. You're not going to go from
half a billion in revenues to $12 billion, without
doing something. So I had to estimate
how much they would have to put back
into the business, in acquisitions, new technology. That's a reinvestment
I'm getting. And I'm computing it based on
how much their revenues are changing each year. Those three pieces
give me my cash flows. The small revenues
become big revenues. The losses become profits. The reinvestment
gives them the engine to drive the revenue growth. That's what I spent
the bulk of my time on. Most people who do this
kind of cash flow valuation, there are two parts to DCF,
Discounted Cash Flow valuation. There's the D and the CF. The D is the discount rate. Here's my problem with
the way DCFs are done. 80% of the time that
most analysts spend is on the D. They'll finesse
it to the nth decimal point. 20% is on cash flow. I'll make a confession. The Twitter valuation,
97% of the time that I spent was on the cash
flow, and towards the end, said, I need a discount rate. And for the discount
rate, what I effectively used a
discount rate of about 11%. And I didn't think
about it too much. 11% puts you in the 95th
percentile of US companies. So I'm basically saying,
they're a really risky company. I could finish
this a little more. But I really don't care. This is really the small stuff. My bigger assumption is
what my revenues will be, what my margins will be. This is not where I'm
going to screw up. And I always have to factor
in that with a young company, there's a chance that
they would not make it. In the case of Twitter,
I assume that there was zero chance that
they would not make it, because they have
access to capital. It's not that they
won't screw up. But they seem to have access
to people who keep giving them money, even if they screw up. And that's a nice skill to have. Those are the things that fed
into my valuation of Twitter. And in the week before the IPO,
the value that I put was $18. And if you remember your
history, it was priced at $26. And on the offering
day, it didn't even open for about two hours. And when it did open,
it opened at $46. And I got a call
from somebody saying, how do you explain the $46. And I said, I don't have to. I didn't pay it. I've never felt
the urge to explain what some other person pays. AUDIENCE: What was
your final valuation? ASWATH DOMODARAN: $18 per share? Yeah. So I get calls saying, how do
you explain Uber's $41 billion. Ask somebody who
paid the $41 billion. I didn't do it. I just take Uber once in awhile. But I'm not big $41
billion to my driver. So I don't feel the urge
to try to explain it. In fact, that's one final
thing I want to say. Much of what you see passing
for valuation out there's is really pricing. If you have no idea
what I'm talking about, let me give you a couple
of very simple tests. How many of you own a
house or an apartment? What, Google doesn't
pay you enough to buy your own apartment? Time to raise your salary, so
I'll make sure that happens. You know how this works. What do you do? You hire a realtor. The realtor shows you a house. I'm thinking of
moving to La Jolla, especially after two
winters like-- I'm done. 28 winter in New
York, I'm out of here. My wife is from California. I'm going back. I went to UCLA. I can't take this anymore. So I talked to my wife. And the minute I said it,
she's checking out houses. Hey, this is a good thing. And she picks the most
expensive part of California to look-- La Jolla. This is a slum in La Jolla. It's less than $1 million. That shows it's one of the
cheapest houses probably in La Jolla. But here's my question. How did the realtor come up with
that $995,000 for the house? How does a realtor come up with
the number for an apartment. What does he or she do? She looks at other apartments. Or he looks at other units
that sold in the neighborhood, adjusts for the fact that
you have an extra bedroom or a bigger lot. It's pricing There's
no valuation going on. You think, those
unsophisticated realtors. Let me show you a second. You've seen an equity
research report? If you haven't, save yourself
the trouble, because here's what the analyst will do. There will be a company name. There will be a multiple, which
is like a standardized price, like a price per square
foot, a price earnings ratio. There will be 15 other companies
that the analyst claims are just like your company. In what universe, I don't know. I've seen Google Equity
Research reports. These 15 companies
are just like Google. Oh, really? That's amazing. How do you find those? I would argue that the realtor
was on much firmer ground, looking at apartments
around the neighborhood, than an Equity Research
Analyst trying to find 15 companies like Google. But that's exactly what
the Equity Research Analyst is doing-- pricing
your company, based on what comparable companies
traded, though there's nothing comparable about them. You're saying, those
unsophisticated Equity Research Analysts. You sometimes see
a discounted-- this looks like one of
those discounted-- if you pay a banker, this is
what you get-- cash flows. The next time you see a
valuation from a banker, zero in on the biggest number
in the Discounted Cash Flow valuation. It's always the end number, the
value at the end of your file. Take a look at where
that number comes from. And I'll wager, in nine out
of 10 banking valuations, that number comes from applying
a multiple to year five number. What do I mean by that? In this case, here's what I did. I took the operating income in
year five and multiplied by 10. Why 10? Because that's what other
companies trade at right now. I can tell you all
kinds of stories, but this is a pricing as well. I'm just hiding it in year five. I call these pricing in drag. The drag component
is the cash flows. While you're distracted
by the cash flows, you slip in 10 times. That's what's
driving this number. Most of what passes for
valuation out there is pricing. You're saying, so what. It's a very different game. What sets prices? It's demand and supply,
mood and moment. What's sets value? Cash flows, growth, and risk. Could the two give
you different answers? Absolutely. If you are trader-- not
a traitor, but a trader-- you care about prices. What's CNBC? CNBC is an instrument for trade. You are trading the stock. All you care about
is what moves prices. So the only question I'm
asking is, what's the mood. What's the momentum? Where's it going? So if you ask me to explain why
people are paying $41 billion for Uber, you know why? Because they think they
can sell for $75 billion. That's basically
it-- that they think that they can take it in
a public offering for $75 billion. Are they right? If the momentum continues,
they could very well be right. Does that mean that Uber
has a value of $75 billion? That's a very
different question. Sometimes price and
value can diverge. And if they diverge,
they can give you very different numbers. The social media space
is a pricing space. In fact, if you ask me why
social media companies trade at what they do, I have
a very simple answer. It's not because how much
they made in revenues. It's not because how
much money they make. Thank god for that, because
most of them make no money. So here's what I did. I decided to let the data tell
me what drove the pricing. And here's what I did
to answer the question. I took every social
media company. It's easy to get the public
information, what the market value is. And then I collected all
the information I could about these companies--
what they had in revenues, what they had in earnings. What I was trying
to figure out is, how is the market
pricing these companies. What is it using to
come up with the prices? And I drew on statistics
to answer that. All I did was a correlation
between the market cap and different variables, to
see which one had the highest correlation with the market. So what is it that makes some
social media companies valuable and the others not? And you could look
across the correlations. And by far-- look
at the correlation. The most critical
variable in explaining the market value of a
social media company is the number of users. I'll give you a very simple way
to value social media company. Here again, you
can save yourself the trouble of hiring a banker. You tell me how
many users you have. If you go back to
the previous page, the market is paying
about $100 per user. You tell me how
many users you have. I'll tell you what your value
is going to be in the company. So how many users
does Twitter have? 250 million. 250 million times
100 is $25 billion. We're done. Who cares about cash
flows, growth, and risk? Facebook is 175 billion
users, million users. They wish they had 175 billion. What planets are you going onto? 1.75 billion users-- you
multiply that by 100. You get $175 billion. And remember last year when
Facebook bought WhatsApp? How many of you have
WhatsApp on your phones? How many of you pay
for your WhatsApp? That settles my case,
like one in five people. In fact, last year, when
they bought WhatsApp, the paid $20 billion for
the company. $19 billion seems to have rounded up to 21. Don't ask me how
those things happen. It's just a couple
of billions anyway. I got a call again, saying,
how do you-- for some reason, people think I have to
explain what other people do. How do you explain
what Facebook just did? And I said, you're
missing the point. Facebook is not buying WhatsApp
for the earnings, the cash flows and the revenues. What are they doing? AUDIENCE: The users. ASWATH DOMODARAN: How many
users did WhatsApp have? Like 400 million. Even if you allow for the fact
that about 80 or 100 million of those are already
Facebook users, you're buying 300
million new users. if the market is
paying $100 per user. 300 million times
100 is 30 billion. You're getting a bargain. Don't laugh. This game is going
crazy right now. People are buying
users, because that's what the market is rewarding. You're saying, what's
wrong with that. Markets are fickle. Today, they like users. Tomorrow, they might not. Remember, they liked website
visitors for a long time? But they said, you know what? I can't pay dividends
with website visitors. It's kind of tough to say, I'll
take three visitors, please. Send them to my house. They'll work around. I paid a lot of
money for your stock. At some point, they're
going to ask for substance. And the way I describe
social media companies-- it's like having a
gigantic store with nothing on the shelves and
lots of foot traffic. That's you're buying. What are you hoping for? That if you put something
on the shelves, maybe they'll stop and buy it. It's not an unreal exercise. Call it a field of dreams. Remember, Kevin Costner, "if
we build it, he will come," Shoeless Joe. It's the same thing. If we have the
users, it will come. How it will come, I don't know. But it will come. But that's what
pricing is about. It's not about what you
and I think matters. It's what the market
is building in, which brings me to my last point. And I hate to be the
one to break this. This is a game where luck
is the dominant paradigm. When I say, this, I'm
talking about investing-- venture capital investing,
regular investing. We like to think it's
skill and hard work. It's luck. If you're lucky, you can
do a horribly sloppy things and be incredibly rich. If you're not, it doesn't
matter how well you do things. You're still going
to lose money. If you're lucky, all
else is forgiven. And all too often,
when people make money, they like to claim it's skill. For a while, the hedge fund
managers were saying this. We're skillful guys. We're the smartest
people in the room. Says who? When people talk about smart
money, I always cringe. There is no smart money. There's less stupid money
and more stupid money. But there's really
not smart money. And in fact, the best
evidence that there is no smart money in hedge funds
is what's happened collectively to the hedge fund business. You know how hedge
funds work, right? First, they take 2% of
your money up front. Then they take 20% of
whatever your upside is. It's a horrendously bad set up. But you do it because
you're greedy. You think they can deliver
more than the market. Collectively, hedge funds
deliver about one percentage point less than
what you could make by putting your money in
an S&P 500 Index fund. It's a strange business. I can't think of-- the analogy
would be starting a plumbing business called Floods R Us. And here's what you do. There's a leak in your house. You call me, and
I leave a flood. You would never call me back. That's what we do collectively
with these hedge funds. We pay them tons of
money to do what? Earn less than what we could
have made by not paying them. You figure it out,
because I certainly can't. So here's my final
point about valuation. It's one of my favorite
movies of all the time, "The Wizard of Oz." Remember the story? Dorothy gets sucked
out of Kansas. She gets dumped in Oz. She wants to go back to Kansas. Don't ask me why. I'd have stayed in Oz. So of course, the move starts
with, I need to go back. And of course, she's
given the classic advice. Go meet the Wizard of Oz. He has all the answers. The entire movie is about
her going on the yellow brick road and this motley
crew of characters she collects-- the Scarecrow
who needs this and then Tin Man, the Lion. And they all get to Oz,
expecting the wizard to be this all powerful
person, who grants-- They walk into the chamber. They each tell the
wizard what they want. And the wizard has this deep
voice, until the curtain drops. And you realize it's a small
guy behind the curtain who's been pulling-- there's
really no Wizard of Oz. But it turns out
that they all got what they needed, during
the course of the journey. You say, what's this got
to do with valuation? I firmly believe that you
learn valuation by doing. You really want to
learn valuation. Here's what you need to do. Value a company. The first time you do it, it
will be like pulling teeth. Then value another
company, as different from the first
company as you get. So next week, I'm
putting up a valuation. It's a crowd valuation of Uber
post that I did on my website. At each stage, I ask you
to decide what Uber is. Is it a car-service company
or a transportation company? Is it a local networking benefit
or a global networking benefit? I can tell you my story. And at the end of the process,
say, based on your story, this is Uber's value. And the value for
Uber ranges anywhere from $800 million
to $95 billion, depending on the story you tell. When we get big
differences in value, it's not because the
numbers are different. It's because we have
different narratives. Not all of these narratives
are equally likely. And that's really the
question you've got to ask. It's, what is the right
narrative for my company? I promised I would
not talk about Google. But I will leave you
with this thought. If you're thinking about Google
as a company going forward, as an investor, here's
the question I'm asking. What is the narrative I'm
telling about this company? What do I see this
company doing? Because that's what's going to
drive the valuation of Google, not the fact that because
of exchange rate movements, you did not deliver the growth. Who cares? In the larger scheme
of things, those things don't change your narrative. If investors react to
it, let them react to it. This is about telling
a story and delivering the kinds of decisions
that back up that story. That's about it. Thank you very
much for listening. If you have any
questions, I have a couple of minutes to
answer the questions. Yes. [APPLAUSE] AUDIENCE: I was wondering. You had these graphs
with distributions on what your valuations are. Have you done an analysis of how
accurate the distribution is, compared to-- ASWATH DOMODARAN:
How would you do it? It's like nailing
Jello to a wall. And here's what I mean by that. It's a very noisy process. This is a distribution
at a point in time. If I move forward a month
and I redo the distribution, the entire distribution
will shift. It's really not about the
distribution of value. It's about value versus price. So what you can look
at is, if you're right about values, the
price moving towards a value. In the case of Apple, it
turned out that it did. But it's a sample of one. So it's almost an
article of faith. If you're an investor, you
believe that ultimately price moves towards value. There's no guarantee
that it will. So if you do your job. You collect the information. You make your best judgment. You estimate a value
in a distribution, and you decide, based
on it, to buy something. What you're checking
to see is not whether the value
gets delivered, but whether the price
moves towards the value. And I believe it does. And that's why I stick with it. But it's a fact-based process. If it doesn't work,
you need to let it go. Yes? AUDIENCE: Was it ever
proven that price moves over the value? ASWATH DOMODARAN: Again,
ultimately, there's a reality here,
which is businesses-- perception is fine. If you're valuing a Picasso,
or pricing a Picasso, it's all perception. If tomorrow we all woke up
and said, the guy can't paint. He's got a nose in
the wrong place. But a business can't
be all perception. So price can deviate from
value for extended periods. It's not a question of
whether it moves the value. It's when it does. And that's really the debate. There are some people who say,
it takes so long to happen, that there's no point
even waiting for it. Those are the traders. They say, well look, I'm going
to make money in the next. If your time horizon
is six months, don't even waste your
time thinking about value. You have to play
the pricing game. So it's almost a given, when
you play the investor game, that you have a
longer time, or else. Yes. AUDIENCE: So a Google,
a lot of times, our valuation is first, because
we're making an acquisition. How do you mix in
the cost of bringing this whole team on board. And how to you incorporate
that into the valuation? ASWATH DOMODARAN: Well,
I think, at the right-- I'll tell you what I think
about acquisitions in general, rather than speak about Google. At the right price, I
don't care who you buy. At the wrong price, I
don't care who you buy. Basically, at the
right price, you can buy the worst
possible target. And you're going
to come out ahead. At the wrong price, you
can do everything right, but you're already screwed. In acquisitions,
the problem I see is that we spend too much time
on finding the right target and doing all that neat
stuff where we fit stuff, and too little time asking,
what are we paying for that. You're right. After the acquisition, there's
all that post-acquisition work you have to do, to
deliver, especially if you're talking about
synergy, because that's often what drives your acquisitions
or whatever additional value it creates. So that requires that
you take the strengths of the company you've acquired
and add it onto your strengths, to deliver it. That requires work. And that's, I think,
the bottom line. It's not going to
happen magically. And that's why I prefer that it
be done before the acquisition, that you start
putting plans down of what you're going to
do, before the acquisition, rather than wait after the
fact, and say, oh my god. This is not going to work. So if you've got an
acquisition process. It's got to be disciplined. And it will work only if
you're willing to walk away from the table, even
if it was the best target you've ever found,
but the price is too high. If you're never willing to
walk away from the table, you are going to overpay,
over and over again. And in too many big
companies, the problem I see is that the company decides
it's going to do an acquisition and then goes to the
bargaining table. You're in terrible
position to bargain, if you've already decided
you're going to do this. Last question, then
I'm going to stop. AUDIENCE: I have a question. ASWATH DOMODARAN: Go ahead. AUDIENCE: So I was curious. What is your take on an
individual investor, people like us, who have
full-time jobs? And a lot of us are not MBAs
and not students of valuations. And the traditional,
conventional advice is to buy at index point. I was just curious. Do you endorse that? Or for someone who's
interested in learning, what do you recommend? ASWATH DOMODARAN: Well,
investing takes work. And if you don't have
the time for that work, it's probably best
not to put yourself at risk by doing
something because you heard somebody say it. So my suggestion is, go with the
low-time-intensive investment strategy. It doesn't always have
to be an index fund. It Has to be some kind of--
you've got to spread your bets and don't overreach. You don't get rich by investing. You get rich by doing
whatever you're doing. And investing is about
preserving what you made elsewhere and growing it. It's when you get
greedy about trying to make that killing
on your investment that you tend to overreach. So I have to stop there. Unfortunately, I
have a 4:18 train. I wish this were not true. I'd have normally
stayed until 5 o'clock. So thank you very much
for listening. [APPLAUSE]
His stuff is always worth reading / watching. So, thanks.