Scott Galloway interviewed Aswath Damodaran on his The Prof G podcast on 1 December.
Below are my notes on the show and be aware that I have made edits for clarity (there could be mistakes)
- risk capital.
- World consists of Safety capital (treasuries, dividend investing, value cos etc) and risk capital (VC, angel investments, crypto).
- For many years risk capital is easy. Easy to raise, pushed up prices of riskiest assets. He thinks it became too easy to raise and it allowed unprofitable companies to keep scaling up.
- Now risk capital is being moved to the sidelines and this will have consequences for the rest of the decade
Twitter
- with layoffs, expenses may drop off after retrenchment payoffs are done. But advertisers are leaving and they are trying out different things in public view, hoping something works. They need a new business model.
- The people who should be worried are the debtholders since they will be bagholders.
- He wouldn't be surprised if some lenders become equity holders in a failing enterprise, because there are very little assets for them to go after.
- Galloway thinks there is a high chance or bankruptcy and there is value in the assets in terms of IP and user base. Damodaran thinks the user number is quite important. It may draw advertisers back but if users and intensity of use falls off
- However it is very opaque. He thinks some users are drawn to twitter because twitter is like a "car accident on a highway". But it is hard to say how many will stay.
Tesla
- In Nov 2021 he had a valuation of 500 billion based on a big story of Tesla becoming the biggest auto maker in the world and valued somewhere between a tech and auto company and management is running Tesla the way it needs to be run.
- His major concern now is who is running the company. Tesla is tied to Musk and no one knows who is making the big decisions right now. To get to it's value Tesla needs to execute a huge number of things. Is Musk paying attention to Tesla or SpaceX?
- He thinks there is a plausible pathway to a 500 billion valuation where majority of cars in the world are EVs and Tesla finds a way to dominate the market.
- They have to sell 5 million cars a year making them bigger than Volkswagen and Toyota. They have the advantage of name recognition Vs traditional carmakers whose existing brands are an impediment. He gives the example of the Chevy Bolt being an excellent EV but consumers do not want a Chevrolet EV. The new EV makers, with the exception of NIO, have flighty strategies.
- Tesla has a window of about 2 or 3 years to establish themselves as THE electric car company or they could lose the throne. He thinks there is a tech aspect to Tesla's business which allowed them to earn higher margins compared to auto companies but doesn't know how long it will hold up.
On Meta
- Thinks Meta has dissipated trust.
- A lot of these companies depends on trust on the founder. It looks like no one trusts Meta based on the price.
- He tried figure out what price the market places on Meta's metaverse investment and it's negative 86 billion.
- The worst thing is shareholders have given up any power to influence how Meta is run
- He said he bought Meta because it is unfairly punished. He suggests a scenario where the metaverse investment is all wasted and assume advertising business has a finite life where there is no growth. He gets a value close to today's price. So essentially that is what the market is assuming now and all is needed is some sense that their metaverse investments will have a possibility of payoff.
- Galloway and Damodaran suggests if Zuckerberg says they will slow down metaverse investment or if they bring in a co-CEO who will take another look at their metaverse investment, the stock price will pop.
- The main problem is the market doesn't trust Zuckerberg's vision and how they will earn returns on this investment. So Meta can be more transparent about their vision or scale back the investments for now. If they demonstrate they are open to somebody coming in to take a second look at the investments, the stock price will rise.
Corporate Governance
- He pointed out that US investors got the governance structure they deserved. There is an element of founder worship where shareholders thought they are getting a benevolent dictatorship which inevitably turns bad.
- Now that these structures are being tested, shareholders are finding out they have no power and founders can ignore them. He thinks we should work on systems that allow shareholders to challenge founders because founder worship will come back again and again. So the system should not stop founder worship but protect us when founder worship falls apart.
- He thinks we have outsource regulations and laws to the biggest companies. This is a pet peeve pf his against ESG because it has taken big decisions that should be in the hands of regulators and governments into the hands of powerful CEO. Corporate CEOs have fiduciary duties to shareholders and responsibility for big decisions should not be in their hands.
Crypto
- 2008 created a loss of trust in government and regulators which is not easy to fix, for example crypto came out of a mistrust of central banks.
- He thinks crypto should be cleansed of all its strongest advocates because they tell awful stories about why people should invest in crypto. For example, you should invest in crypto because it is scarce. There is no actual need that crypto fulfills.
- He thinks Cathie Wood gives out hyperbolic forecasts because it is good for her business. He worries about the lack of transparency in crypto entities such as Binance.
Investing and other advice
- Good investors should be cross disciplinary, have a good understanding of history, psychology, statistics etc, so as to avoid tunnel vision. Don't be a specialist and be a generalist instead. Be adaptable. Portfolio managers should avoid arrogance
- On parenting, kids are born with personalities and you can't change them. You can't change how they make big decision but he teaches his kids to keep options open and be willing to admit you are wrong.
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