Episode summary
You’re Buying Hope. He’s Raising Cash | Aswath Damodaran on How He Is Investing in a World of AI
Excess Returns
· · 1 hr 2 min · Hosts: Matt Zeigler, Kai Wu · Guests: Aswath Damodaran
Summary
Aswath Damodaran argues that investing starts with price, not admiration: he wants undervalued businesses, including young or money-losing ones, if the valuation is right. His own portfolio is deliberately broad, usually 30 to 45 stocks with only three or four changes a year, because he does not want any single name to threaten his family or lifestyle. He uses stories as well as numbers, but avoids businesses where politics matters more than operations.
A major theme is discipline around selling and watchlists. Damodaran says great companies can be great investments only at the right price, so he monitors names like Mercado Libre, Palantir, Tesla, Nvidia, Meta, and Alphabet until valuation improves. He uses Monte Carlo simulations to make buy and sell thresholds more systematic, arguing that investors need triggers on both sides of the trade instead of only knowing when to buy.
On AI, he expects a bubble, but not necessarily a bad outcome for investors who pick carefully. He thinks AI will lower profit margins across the economy because the spending becomes a cost item for everyone, while a few winners capture most of the upside. He is skeptical of debt-funded AI infrastructure, wary of cross-ownership risks, and expects the biggest near-term gains to accrue to chip makers and data-center builders before value shifts toward product and service companies.
Key takeaways
- Damodaran says his core rule is to buy undervalued companies, not necessarily great companies or great managers.
- He keeps 30 to 45 stocks and sells only three or four a year because he wants diversification and low personal risk.
- He uses watchlists to track attractive businesses like Mercado Libre, Palantir, Tesla, Nvidia, Meta, and Alphabet until price and value line up.
- He argues that investors need explicit sell rules, because without them winners are hard to let go and new opportunities have nowhere to fit.
- He expects AI to create a bubble, but says the bigger issue is that collective AI spending may reduce margins across the economy.
- He thinks debt-funded AI infrastructure is especially risky because losses could spread beyond the original risk-takers.
Notable quotes
“Investing is about buying something at the right price. It's not about buying great companies”
“I don't have enough confidence no matter how much work I put into an investment to put my money in five stocks or four stocks”
“I think any major change in the way we live and work is going to create a bub”
“Collectively though, if you take all of these companies that are spending tens of billions of dollars, they're going to step back and that collective investment is going to have a negative net present value”
“I think in many ways I think AI is going to become a cost item that red the other aspect of AI is just like online retailing know gave consumers more weapons to play off retailers against each other”
How the episode opens
Investing is about buying something at the right price. It's not about buying great companies. It's not about about buying superior management.
It's about buying at the right price. And that animates almost every one of my choices. My prediction overall, I think AI is going to lower profit margins electively across companies.
There will be one or two players who make those investments. So, the investment is going to pay off big time. They're going to it's going to be a winner take all business.
They're going to take hundreds of billions of dollars. Collectively though, if you take all of these companies that are spending tens of billions of dollars, they're going to step back and that collective investment is going to have a negative net present value. I'm wary about where we are at the market in terms of pricing, in terms of what we're building in.
It seems while there's a path where we can justify where we are today, there are also multiple pathways where things can go bad. So from that perspective, I want to move my money into things that are not correlated with equities. Watching excess returns, the channel that makes complex investing ideas simple enough to actually use where we believe better questions lead to better decisions.
I'm Matt Ziggler. Kai Woo of Sparkline Capital is co-hosting with me and our guest, the Dean of Evaluation himself, Professor Oswath Demadon. Oswath, welcome back to Access Returns.
Thank you for having me.
So, last time we got pretty deep into the basics of how you actually build the stock portfolio. We also got some tips on booking Airbnbs in the home neighborhood for the family to come in, bouncing grandkids on knees and stuff like that, too. I encourage people to
Check out the actual important life philosophy in that episode.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai valuation
- portfolio construction
- sell discipline
- company lifecycles
- capital cycle risks
Companies and tickers mentioned
- AAPL
- META
- Apple
- Meta
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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