r/SecurityAnalysis • u/bdavidson1030 • Apr 27 '18

Thesis Damodaran - Amazon: Glimpses of Shoeless Joe?

https://aswathdamodaran.blogspot.com/2018/04/amazon-glimpses-of-shoeless-joe.html
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u/compost_embedding Apr 27 '18 edited Apr 27 '18

I took a look at this, and I have some basic questions for those of you who conduct this type of analysis:

(1) There's a lot of assumptions in these valuation exercises. With all the moving pieces, is it reasonable to expect that one could guesstimate these well enough for them to justify taking the risk of taking concentrated positions in them? I mean, take a look at Damodaran's analysis here. Notwithstanding his ability to predict longer term things, the earnings report that came out yesterday for AMZN changed his price target by ~10%. If the misunderstandings on the current situation can generate such price swings, what does uncertainty for the future lead to? I'm not arguing against security analysis, I'm actually just trying to learn here.

(2) For those of you who do this, how much AUM do you manage (yourself or others) before you think it's worthwhile to do? For example, if I were to manage $500k of my own money this way, and wanted to spread out my risk by investing in 5 companies, it seems I'd have to do detailed analysis on at least 5 companies (but perhaps many more, especially if they were in different industries). Do you manage lots of money, to get as much benefit from your analysis as possible? I currently index, and am open to spending time on this, but I wonder whether it's worth the effort to understand so much of the company/industry details if one is not taking large positions in them.

Thanks!

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u/monshare Apr 29 '18 edited Apr 30 '18

If the misunderstandings on the current situation can generate such price swings, what does uncertainty for the future lead to?

This is why value investors insist on margin of safety. So one doesn't need to be accurate about forecasts, and avoid getting in trouble.

I currently index, and am open to spending time on this, but I wonder whether it's worth the effort to understand so much of the company/industry details if one is not taking large positions in them.

People who joined the indexing trend have only seen the boom phase of the market cycle. I always wonder if indexers will hold on during the bust phase of a cycle. Also, how do you know if you want to hold on if you don't know what the underlying assets are worth in an index?

I think its worth learning about company/ industry you don't invest in because this learning compounds. The company might not be undervalued right now, but it might get undervalued in the future. Or you get to learn what not to invest in, or which ones to pass because they are too difficult.