Aswath Damodaran - Making Sense of the Market

**Patrick O'Shaughnessy** (0:00)
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Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best.
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**SPEAKER_2** (1:48)
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (2:12)
My guest today is Aswath Damodaran, Professor of Finance at NYU's Stern School of Business. Aswath is one of the clearest teachers of investing in finance in our industry and through his blog, books and YouTube has open-sourced his wisdom for decades.
This conversation is a master class of key investing concepts. We discuss inflation, narratives, disruption, the evolution of alpha and edge and his thoughts on ESG. Please enjoy this great conversation with Aswath Damodaran.
Aswath, I've wanted to do this with you for, I don't know, I guess more than a decade since I started reading your work on valuation and markets and narrative and numbers, so many different things. I think because we have the opportunity to talk about so many different topics today, it's important that we start with the most important one in today's markets in late May, 2022, which is inflation. Inflation is something that almost no modern investors below a certain age have ever had to deal with as professionals and all of a sudden it's been thrust in their face. I'd love you to just do a deep dive for us and how you as an investor, ultimately focused on valuing companies, think about inflation as a now dominant force in markets.

**Aswath Damodaran** (3:25)
I think it's interesting when he said most investors below a certain age haven't dealt with it. That's true for investors in the US, perhaps in Europe. The reality is there are countries outside which have had inflation, sometimes in astronomically high inflation. Turkey, for instance, I mean, they've had to deal with inflation now for a decade.
I think that sometimes talking to people outside your geographies can give you some sense of what you need to be scared about. And I think that's one thing that I found early in this discussion. When we first started talking about inflation in 2021, I found it disconcerting that people are so quick to dismiss inflation. Not only did they buy into the feds and the administration sales pitch that this was transitory, it was going to go away. So also, what's the big deal? And I think only people who've never lived through an inflationary period will ever say what's the big deal about inflation? Because it takes over the conversation as it has right now.
It drives everything else out of discussion and it drives the market. And I'm afraid we're in one of those spirals where inflation drives everything we do in markets.

**Patrick O'Shaughnessy** (4:32)
Maybe you can describe just exactly how that mechanically works. Why is inflation so incredibly important?
Good, bad, and ugly?

**Aswath Damodaran** (4:41)