One of the key topics that I cover during my value investing workshops and courses is valuations i.e., importance of valuations and the process of valuing stocks. But before I start this specific section, I warn members about two bitter truths of valuations and how they can avoid them.
I first learned these truths during my reading of Aswath Damodaran, Professor of Finance at the Stern School of Business at New York University, where he teaches corporate finance and equity valuation. He is widely quoted on the subject of valuation, with “a great reputation as a teacher and authority”. In other words, Damodaran is to business valuations what Peter Drucker was to business strategy.
Couple of years back, I read his The Little Book of Valuation, wherein the first chapter reiterates an important fact about “value” – that it’s more than a number, and that understanding it well is a way to stay ahead of the pack.