Aswath Damodaran - Making Sense of the Market Pt. 2

**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. This show is an open-ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money. Invest Like the Best is part of the Colossus family of podcasts. And you can access all our podcasts, including edited transcripts, show notes, and other resources to keep learning at joincolossus.com.

**SPEAKER_2** (1:43)
Patrick O'Shaughnessy is the CEO and founding partner of PositiveSum and 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 PositiveSum or 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 PositiveSum or O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (2:15)
My guest today is Aswath Damodaran, who is joining us for a second time on Invest Like the Best. Aswath is a professor of finance at NYU Stern School of Business and is often referred to as the Dean of Valuation for his clarity of thought on the subject. This conversation picks up where we left off 18 months ago and covers a wide range of topics from macro risks to Nvidia and the process of crafting a personal investment philosophy. Please enjoy this great discussion with Aswath Damodaran.
Aswath, about a year and a half ago now we had our first conversation which was, I think at the time, our most listened to ever. So let's see if we can top it here today.
To do that we have to do a whirlwind tour of the world of markets and business and investing. And I thought I'd just begin by asking you for your state of the union on the market overall. Just started kind of the last part of the year, the last quarter, been kind of a wild year last 18 months. I'm just curious for your take on the general prevailing narrative as you see it of what's going on in markets today.

**Aswath Damodaran** (3:15)
I think there are two prevailing narratives and one of them has to be right and the other one's going to be wrong with profound implications. The first is that the last 18 months is actually the aberration that we're going to revert back to where we were before that. That the Fed is going to reimpose its power, rates are going to go down, everything's going to go back to the way it was. That's one perspective and a lot of people are doing mean reversion to the last 10 years. That is the perspective they're taking is, hey, you know what? This too shall pass and everything's going to be okay. The other is that maybe the last 18 months are the norm, not the exception and what we saw in the decade leading into that was actually the aberration.
And you know what? There's a pretty good argument that the latter is in fact the more reasonable assumption and here are the implications. You look at a 4.5% rate, you're shocked, especially if you're 25 or 30, you're saying T bond rates at 4.5%, nobody's seen anything like this before. Not true. We've seen much worse than this, but I think because you had a decade of low inflation, low interest rates, complete access to risk capital, it kind of altered. It skewed our perspective and psychology of how we frame what we're looking at is huge.