Uploaded March 2025 | Updated September 2026, 1 week ago
In this session, we started with a discussion of whether to concentrate or diversify your portfolio and my (very old) blog post on the topic:
aswathdamodaran.blogspot.com/2011/11/how-much-diversification-is-too-much.html
We continued with our discussion of intrinsic valuation, by first finishing our discussion of emerging market companies before turning to financial service firms . For decades, we have valued banks using the dividend discount model, simply because getting cash flows is so difficult, but that approach is built on trusting management at banks to behave sensibly (paying out what they can afford to in dividends) and regulators to do the same. For me, that trust was breached in 2008, and I present a way of estimating FCFE for a bank, using investment in regulatory capital as my stand in for reinvestment. Next session, we will wrap up the valuation section and start on pricing. If you are interested in reading more about valuing financial service companies, try this link:
papers.ssrn.com/sol3/papers.cfm?abstract_id=1798578
The Deutsche Bank post is here:
aswathdamodaran.blogspot.com/2016/10/deutsche-bank-greek-tragedy-at-german.html
In the context of valuing commodity companies, I talked about how Monte Carlo simulations can help deal with uncertainty. If you decide to go that route, you can use Crystal Ball (an add on to Excel and freely available to Stern students) to make your excel spreadsheet valuation into a simulation. Finally, in the context of talking about value vs price, and the efficient market view of the gap, I mentioned a documentary on efficient market investing. Here is the WSJ article linking to it:
wsj.com/finance/investing/investing-david-booth-errol-morris-documentary-4dd7ff80?mod=wsjhp_columnists_pos_3
Start of the class test: nyu.box.com/s/gyi2e2gleyq9p9plzxgpis2ct83cwfmkhttps://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/dcfvaltests3.pdf
Slides: nyu.box.com/s/gyi2e2gleyq9p9plzxgpis2ct83cwfmk
Post class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session16Ctest.pdf
Post class solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session16Csoln.pdf
In this session, we started with a discussion of whether to concentrate or diversify your portfolio and my (very old) blog post on the topic:
aswathdamodaran.blogspot.com/2011/11/how-much-diversification-is-too-much.html
We continued with our discussion of intrinsic valuation, by first finishing our discussion of emerging market companies before turning to financial service firms . For decades, we have valued banks using the dividend discount model, simply because getting cash flows is so difficult, but that approach is built on trusting management at banks to behave sensibly (paying out what they can afford to in dividends) and regulators to do the same. For me, that trust was breached in 2008, and I present a way of estimating FCFE for a bank, using investment in regulatory capital as my stand in for reinvestment. Next session, we will wrap up the valuation section and start on pricing. If you are interested in reading more about valuing financial service companies, try this link:
papers.ssrn.com/sol3/papers.cfm?abstract_id=1798578
The Deutsche Bank post is here:
aswathdamodaran.blogspot.com/2016/10/deutsche-bank-greek-tragedy-at-german.html
In the context of valuing commodity companies, I talked about how Monte Carlo simulations can help deal with uncertainty. If you decide to go that route, you can use Crystal Ball (an add on to Excel and freely available to Stern students) to make your excel spreadsheet valuation into a simulation. Finally, in the context of talking about value vs price, and the efficient market view of the gap, I mentioned a documentary on efficient market investing. Here is the WSJ article linking to it:
wsj.com/finance/investing/investing-david-booth-errol-morris-documentary-4dd7ff80?mod=wsjhp_columnists_pos_3
Start of the class test: nyu.box.com/s/gyi2e2gleyq9p9plzxgpis2ct83cwfmkhttps://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/dcfvaltests3.pdf
Slides: nyu.box.com/s/gyi2e2gleyq9p9plzxgpis2ct83cwfmk
Post class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session16Ctest.pdf
Post class solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session16Csoln.pdf
