Several Selected Publications: (see very bottom of page for hundreds of more research papers on value investing) Warren Buffett, one of the world’s most famous and successful investors and CEOs, has granted permission to author/entrepreneur Mark Gavagan to publish “Gems from Warren Buffett – Wit and Wisdom from 34 Years of Letters to Shareholders” Gems From Buffett
Get the entire 10-part series on Warren Buffett in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.
The Brandes Institute provides some very well written and value oriented research from a partner institute for the well-established value investor. Click here.
SUPER INVESTORS OF GRAHAM-AND-DODDSVILLE Famous Speech by Warren Buffett on Value Investing. I would call this the Gettysburg Address of Value Investing. This is a must read for any value investor.
The Wisdom of Great Investors The mini-book (FREE!) put together by Davis Funds offers the wisdom of many of history’s most successful investment minds, including, but not limited to; Warren Buffett, Chairman of Berkshire Hathaway and one of the most successful investors in history; Benjamin Graham, recognized as the “Father of Value Investing” and one of the most influential figures in the investment industry; Peter Lynch, portfolio manager and author, and Shelby Cullom Davis, a legendary investor who turned a $100,000 investment in stocks in 1947 into over $800 million at the time of his death in 1994.1
Awesome resource page from Aswath Damodaran Great Professor of Finance at NYU, who teaches value investing.
Get the entire 10-part series on Seth Klarman in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.
(A great resource website for value investors)
Fama-French (Monthly 1926, Daily 1963)
MSCI Barra – See more at: http://www.mebanefaber.com/2013/03/21/free-data-sources/#sthash.kO2Kjk6T.dpuf
Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.
Get the entire 10-part series on Walter Schloss in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.
(in chronological order- with selected reviews and remarks)
(in chronological order)
Books: How to Think Like Benjamin Graham and Invest Like Warren Buffett Money Masters of Our TimeLessons from the Legends of Wall Street…Benjamin Graham on Value InvestingBenjamin Graham: The Father of Financial Analysis
Speeches: “Securities in an Insecure World”, a speech Benjamin Graham delivered at Town Hall, St. Francis Hotel, November 15, 1963.
(in chronological order)
(in chronological order)
InvestorLit Research: Stocks vs. Bonds (May 2013) Bruce Grantier, founder of InvestorLit (www.investorlit.com), focuses on the allocation between stocks and bonds in this review. With investors at what he describes as a generational juncture, the overwhelming evidence now favors stocks over bonds. Please click on the link above to read the full article. [RESEARCH ABSTRACT]
Value vs. Glamour: Emerging Markets (April 2013) According to the International Monetary Fund, emerging markets now represent more than a third of global GDP—and are expected to grow at a faster rate than advanced economies.* With such explosive growth, investors often assume that an investment strategy focused on growth would yield better results. Yet, the results from the Brandes Institute’s Value vs. Glamour: A Global Phenomenonstudy show strong evidence of a value premium in developing countries. This study shows that value stocks in emerging markets have:
• Outperformed glamour stocks over the long term • Experienced similar price volatility as glamour stocks • Participated more in positive markets than glamour stocks • Fared better during down markets than glamour stocks
Value vs. Glamour: A Study of the Indices (February 2013) By examining returns for U.S. stocks from 1968-2012 and stocks outside of the United States from 1980-2012, the Brandes Institute’s Value vs. Glamour: A Global Phenomenon study reveals a consistent value premium across valuation metrics, geography and market capitalizations. But what about commonly used benchmarks? Would a comparison between Value and Growth indices yield similar results? Now updated through December 2012, this study examines large- and small-cap value and growth indices around the globe and presents evidence of a value premium within common benchmarks over the long term.
ETF Structure and Practice: Potential Issues or Popular Myths? (December 2012) This paper combines excerpts of select, existing studies and comments from industry experts to debunk certain myths about the dangers of investing in exchange-traded funds (ETFs) and to highlight possible issues for individual and institutional ETF investors. We seek to provide the basis for measured questions that thoughtful ETF investors may pose regarding investments already made, or being considered. [RESEARCH ABSTRACT]
Value vs. Glamour: A Global Phenomenon (November 2012) In previous versions of our Value vs. Glamour study we have explored the historical performance of stocks based on their fundamental characteristics and quantified a value premium. Expanding on the work of noted academics, we extended the scope of their research to determine if the value premium was consistent across global markets. In this update, we expand our study through 2012 to include the recent worldwide economic downturn. We also examine if value investing has worked in emerging markets over the long term.
The Key to Long-Term Success: The Income Component of Returns (November 2012) During the last two decades of the twentieth century, the investing world saw declining dividend and bond yields, while prices for both equities and bonds rose. In the early years of this century, investors seemed to belittle the importance of income as a component of returns, focusing primarily on the potential for capital gains. In this paper, The Brandes Institute investigates income’s role as a component of total returns based on 86 years of financial asset performance.
[RESEARCH ABSTRACT]InvestorLit Research: Behavioral Finance and Investment Management (July 2012) Bruce Grantier, founder of InvestorLit, shares first-hand experience with the effects of biases on investment decision making—and how to counter those biases. He also summarizes Behavioral Finance and Investment Management, a CFA Institute-published book. Among his conclusions: “Investors should be quite careful about modern portfolio theory” and “…fears often are mistaken or inflated, causing investors to react reflexively, often to their detriment.” Please click on the link above to read the full article.
Broad is the New Narrow: How Passive Investing Creates Concentrated Portfolios (April 2012) Passive investing, particularly in emerging markets, has become an increasingly popular means of quick, “diversified” exposure to a particular segment of the markets. Defensive investors, as Benjamin Graham noted, would be best served owning a diversified list of leading companies. Yet it’s the presumption of diversification that can lead investors astray. Many passive investments are, in fact, extremely concentrated owing to the disproportionate size of its largest holdings and blindly weighting by market capitalization. With emerging markets now the largest region of the equity markets by number of investable securities, they offer opportunities for investors willing and able to invest actively outside of the largest securities.
Boomers Behaving Badly: A Better Solution to the Money-Death Problem (January 2012) The biggest single financial worry for American workers may be “money death,” the fear that they will run out of money during retirement. Americans within 10 years of retirement number 60 million and are forecast to grow to more than 75 million within the next decade. Investment strategies for retirement rooted in conventional wisdom or extrapolated from successful past approaches may no longer be ideal for healthy and wealthy Boomers. Supported by a proprietary modeling tool—the Brandes Retirement Simulator—we are able to estimate wealth outcomes based on personalized financial and lifestyle inputs. The results suggest that the baby-boomer generation should consider contrarian strategies, including equities and fixed income assets with higher-return potential to address the “money death” problem. Please click on the links below to view the video, research summary or to use our online retirement simulator. You can also click on the link above to read the original research paper.
Volatility: Implications for Value and Glamour Stocks (November 2011) What happens to value and growth stocks when investing after extreme volatility? In this study, we introduce the context of market volatility for value and glamour stock returns. Tracking returns for style indices after periods of extreme volatility, we reveal evidence showing value stocks typically outperformed growth stocks and did so with less variability immediately after periods of high and low volatility from 1980–2011. This paper adds to previous literature by providing another angle for value investing as a potentially successful long-term strategy.
Death, Taxes, and Short-Term Underperformance: Global Equity Mutual Funds (October 2011) In our original Death, Taxes, and Short-Term Underperformance studies, we examined the short-term underperformance of U.S., non-U.S., and global mutual funds. Our research found that investors in equity mutual funds should expect periods of underperformance – both versus the benchmark and relative to peers. Our studies also indicated that even longer periods of underperformance, up to three years, had relatively little impact on some of the better funds’ ability to generate long-term success. In this handout we revisit and update our previous study on short-term underperformance of global equity mutual funds.
The Role of Expectations in Value and Glamour Stock Returns (June 2011) When value and glamour stocks missed earnings expectation targets, what happened to their stock prices over the following year? Prices of value stocks increased when earnings expectations were beat and missed – and even when business fundamentals deteriorated. Glamour stocks behaved more predictably, with prices rising and falling after beats and misses, respectively. In this report, the Brandes Institute investigates the role that expectations played in investors’ assessment of value and glamour stocks to better understand the sequence of events that allowed value stocks to deliver superior long-term returns. The evidence suggests an undercurrent of behavioral error, counters assertions published by select scholars, and provides fresh evidence explaining why value investing historically has been a successful long-term strategy. This is a preprint of an article whose final and definitive form has been published in The Journal of Behavioral Finance©  [copyright Taylor & Francis]; The Journal of Behavioral Finance is available online at www.informaworld.com
Broad is the New Narrow: How Passive Investing Creates Concentrated Portfolios (April 2011) Passive investing, particularly in emerging markets, has become an increasingly popular means of quick, “diversified” exposure to a particular segment of the markets. Defensive investors, as Benjamin Graham noted, would be best served owning a diversified list of leading companies. Yet it’s the presumption of diversification that can lead investors astray. Many passive investments are, in fact, extremely concentrated owing to the disproportionate size of its largest holdings and blindly weighting by market capitalization. With emerging markets now the largest region of the equity markets by number of investable securities, they offer opportunities for investors willing and able to invest actively outside of the largest securities.
Equity Dispersion: Value Stocks Yet to be Rewarded (January 2011) The correlation of returns for various equity asset classes has been high. In addition, the range or “dispersion” of returns across asset classes – and across sectors within those asset classes – has been low. These factors have made it difficult for active managers to outperform. But dispersion of valuations remains relatively wide by historical standards, creating a fertile environment for value-based stock pickers. When return dispersion broadens or returns to more normal levels, these undervalued securities may outperform the broader market.
New Insights into the Case for Emerging Market Equities (December 2010) While high growth economies in emerging markets tend to attract attention, recent research concludes that valuations were the key driver in historical equity performance in developing markets. In this updated paper, we share academic research that finds no discernable relationship between GDP growth and subsequent equity performance. We also review research demonstrating how emerging market stocks with the lowest valuations have tended to outperform those with higher valuations. Value vs. Glamour: A Global Phenomenon (December 2010) In 1994, Josef Lakonishok, Andrei Shleifer, and Robert Vishny published a landmark study investigating the performance of value stocks relative to glamour securities in the United States over a 26-year period. Their research concluded that value stocks tended to outperform glamour stocks by wide margins. The Brandes Institute subsequently updated their work and extended the scope of the initial study to include non-U.S. markets to determine if the value premium was consistent across global markets. Now updated through June 2010, the study includes both the glamour-driven markets of the late 1990s and early 2000s, as well as the more recent worldwide economic downturn.
Dividend Yield and the Implications of Cash Sitting on Balance Sheets (November 2010) Robust cash flow yields for large-cap stocks have reached unprecedented territory in 2010 in relation to both investment-grade and junk-bond yields. In this article, Brandes Institute Advisory Board Member Bill Raver examines how these cash flow yields suggest stocks offer compelling potential for capital return and appreciation for shareholders. Mr. Raver also examines the record cash levels sitting on the balance sheets of public companies and the impact an increase in dividends and share buyback activity may have on performance and liability obligations going forward.
Risk Management and its Application in the Portfolio Management Process at the Ontario Teachers’ Pension Plan (September 2010) Since the financial crisis that started in late 2007 and lasted throughout 2008 and early 2009, many have criticized quantitative risk management systems. Zev Frishman, Vice-President of Global Equity Strategies with the Ontario Teachers’ Pension Plan (“OTPP”) and Brandes Institute Advisory Board member, suggests it is not the concept and principle that are at fault but rather the reliance on poor systems or poor understanding and application of quantitative systems. In this paper, Mr. Frishman shares how the OTPP uses a unique in-house quantitative system to help manage risk.
The Role of Expectations in Value and Glamour Stock Returns – Excerpt (August 2010) When value and glamour stocks missed earnings expectation targets, what happened to their stock prices over the following year? While prices for glamour stocks fell as expected, prices for value stocks went up – even when business fundamentals deteriorated, based on results revealed in this Brandes Institute study. These findings counter assertions published by select scholars and provide fresh evidence explaining why value investing historically has been a successful long-term strategy.
This Time is Different: Behavioural Aspects of Financial Crises (May 2010) In “This Time is Different: Behavioural Aspects of Financial Crises,” Brandes Institute Advisory Board member Bruce Grantier reviews the book This Time is Different: Eight Centuries of Financial Folly. With this review, Grantier provides a reminder to investors of the frequency and nature of financial crises and the importance of adhering to enduring investment principles. This article is part of an ongoing series presented by the Brandes Institute addressing the question, “What is Risk?”
Back to the Future: Conventional Investing in a Complex World (January 2010) In the wake of market volatility, many investors may feel a desire to change their approach and be more “nimble” or “opportunistic” in their pursuit of investment goals. In this paper, Robert Maynard, Chief Investment Officer for the Public Employee Retirement System of Idaho and Brandes Institute Advisory Board member, cautions investors who are thinking about abandoning traditional investment plans. He advocates policies that are simple, transparent, and focused rather than adopting increasingly popular “alternative” tactics such as illiquid instruments and vehicles, leverage, and complex, opaque investment strategies.
The Risk of Risk Management: A Roundtable Discussion with the Brandes Institute Advisory Board (January 2010) In the wake of a tumultuous investment period, investors continue to sharpen their focus on risk management. During 2009, the Brandes Institute Advisory Board, comprised of investment professionals working around the globe, shared their thoughts and unique experiences regarding how best to measure and manage risk. In this article, we share excerpts of their conversations that highlight the advantages, inherent limitations, fiduciary implications, and implementation challenges involved with Value at Risk (VaR) and other tools intended to measure and manage risk. This article is part of an ongoing series presented by the Brandes Institute addressing the question, “What is risk?”
Death, Taxes, and Short-Term Underperformance: Non-U.S. Funds (November 2009) Death, Taxes, and Short-Term Underperformance: U.S. Funds (November 2009) Brandes Institute believes short-term underperformance is one the few certainties in life. Now updated through June 2009, these articles illustrate the potential for periods of short-term underperformance. Our research focuses on the performance results of U.S. and non-U.S. mutual funds over the last decade. Observations suggest that underperformance in shorter time periods – such as one quarter, one year, or even three years – is to be expected, even for funds that have performed strongly over the long term. (Note: These articles have been filed with FINRA.)
Value vs. Glamour: A Study of the Indices (October 2009) The Brandes Institute “Value vs. Glamour” studies demonstrate that value stocks have outperformed growth stocks over the long term. But what about commonly used benchmarks? Over the long term, have value indices outperformed their growth counterparts?
Value vs. Glamour Revisited: Historical P/B Ratio Disparities and Subsequent Value Stock Outperformance (September 2009) Value vs. Glamour Revisited Non-U.S. Handout (November 2009) Value vs. Glamour Revisited U.S. Handout (June 2009) The Brandes Institute recently revisited its Value vs. Glamour research, focusing on the relationship between the valuation difference in price-to-book ratios, and subsequent relative performance. The Institute discovered that, historically, when the difference in P/B ratios between value and glamour stocks was at or near its peak, value stocks delivered meaningful outperformance over the subsequent 5-year period. This article documents the recent expansion in the gap between median P/B ratios for value and glamour stocks and examines the implications for investors.
Corporate Credit: An Opportunity on a Global Scale (July 2009) The meltdown in liquidity in the corporate debt market in the second half of 2008, the related widening in spreads, and concerns over use (and misuse) of credit default swaps may have created both cyclical and secular opportunities for fixed income investors.
Benjamin Graham and Risk (April 2009) In “Benjamin Graham and Risk”, Brandes Institute Advisory Board member Bruce Grantier examines the similarities and differences between the modern portfolio theory concept of risk and the writings of Benjamin Graham and other prominent value investors. This article is part of an ongoing series presented by the Brandes Institute addressing the question, “What is risk?”
Is U.S. Small Cap a Viable Alternative to U.S. Private Equity?(April 2009) A number of academic papers have indicated that returns for private equity funds, on average, have not outperformed public equities in the United States. This contradicts the risk premium one might expect with private equity, given the liquidity, transparency limitations, and additional origination costs associated with private equity investments. In this paper, Brandes Institute Advisory Board member Bruce Grantier examines the academic research and historical performance (both on an asset class and manager value-added basis) to evaluate small cap as an alternative investment to private equity.
Risk Evaluation within Asset Management: A Practical Perspective (March 2009) Drawing on his 20 years of experience in the investment industry, Brandes Institute Advisory Board member Peter Branner cites developments that may have contributed to the 2008 financial crisis – and how these “risks” may be better managed. Among the seven aspects of risk he addresses are mark-to-market accounting, an emphasis on relative performance, and short-term underperformance. Branner’s article, “Risk Evaluation Within Asset Management: A Practical Perspective,” is one in a series of Brandes Institute pieces that seeks to answer the question, “What is risk?”
Results from Investors’ Survey Regarding Currency (February 2009) The Brandes Institute conducted an online survey of institutional investors worldwide the week of December 8-12, 2008. In this survey, clients responded to questions on the use of currency overlay programs, the impact of currency on plan assets, and the role of the carry trade in currency markets. The survey results are anticipated to be published in an upcoming issue of Pensions & Investments. The attached summary shares key findings, including areas of material difference between the responses of U.S. and non-U.S. investors.
Death, Taxes, and Short-Term Underperformance: Global Equity Mutual Funds (December 2008) While there may be few certainties in life, the Brandes Institute believes short-term underperformance is one of them. In this article, we study the performance of a wide range of global equity mutual funds over the last decade. Our observations indicate that underperformance in shorter periods – such as one quarter, one year, or even three years – is to be expected, even for portfolios that may have performed strongly over the long term. (This article has been filed with FINRA.)
Behavioural Investing: A Practitioner’s Guide to Applying Behavioural Finance (November 2008) Investors typically strive to be logical and unbiased decision makers. However, many investors often are subject to innate tendencies that can contribute to less-than-rational decisions. In this light, one would do well to first understand common behavioural tendencies and misperceptions. In this article, Brandes Institute Advisory Board member Bruce Grantier reviews James Montier’s book Behavioural Investing: A Practitioner’s Guide to Applying Behavioural Finance. The book addresses timely topics such as group decision making, modern finance, and the nature of bubbles. Grantier finds that Montier’s book effectively and convincingly communicates how the brain is hardwired to like short-term gratification (often leading to quick and easy decisions), and to dislike social-exclusion behaviour (often leading to herd-like decisions).
Has the Carry Trade Worked In World Bond Markets? (October 2008) The Brandes Institute paper Carrying On? (published in 2006) documented a currency market inefficiency that had provided the potential to improve investment returns by owning higher interest-paying currencies. In Has the Carry Trade Worked In World Bond Markets?, we test whether this anomaly also was present in the global fixed income markets, using 10-year maturity government bonds. For the full study period (1973-2007) there was no clear pattern. However, when the data is split between the same two periods we used for the currency analysis, a different perspective emerges. For the 1973-1986 period, the higher bond returns were obtained in the low-yielding markets, while the reverse is evident between 1987-2007, with the “bond carry trade” having been more successful.
Value vs. Glamour: A Global Phenomenon (September 2008) In 1994, Josef Lakonishok, Andrei Shleifer, and Robert Vishny published a landmark study investigating the performance of value stocks relative to that of glamour securities in the United States over a 26-year period. Their research concluded that value stocks tended to outperform glamour stocks by wide margins. However, their study did not include the glamour-driven markets of the late 1990s and early 2000s. What effect might this period have on their conclusions? To find out, the Brandes Institute updated their Value vs. Glamour research, now through June 2008, to examine the comparative performance over a 40-year period. In addition, we also extended the scope of the initial study to include non-U.S. markets, seeking to determine if the value premium has been evident worldwide.
Global Small-Cap Stocks: A Life Cycle Perspective (September 2008) In previous research, Global Small-Cap Stocks: Reexamined and Redefined, the Brandes Institute found divergent construction methodologies among global small-cap index providers and introduced a custom series of country and regional small-cap universes to explore detailed historical fundamental data. In the second phase of this research, Global Small-Cap Stocks: A Life Cycle Perspective, we use “life cycle” analysis to sort companies into different phases of development and challenge the notion that international small caps are similar to domestic small caps. In this research, we make a number of interesting discoveries on why international small caps are structurally different from domestic small caps, or even international large-cap stocks.
Structured Products: Asset Backed Securities – Opportunities Resulting from Systematic Mispricing (September 2008) Asset-backed securities have attracted attention in the recent months amid the uncertainty surrounding the mortgage sector and securitized debt. This paper examines the “boom/bust” cycle of subprime mortgage pools, and demonstrates how long standing perceptions of rating agencies and their ratings could potentially be either a risk or an opportunity.
Value Investing: Has It Worked In Emerging Markets? (August 2008) The Brandes Institute’s Value vs. Glamour research has demonstrated the persistent outperformance of value stocks over glamour stocks in developed markets worldwide over long time periods. Investors may wonder if the value premium is also evident in developing countries. In this article, we investigate whether “glamorous” companies in developing countries have outperformed their “value” counterparts over the last few years. We also reveal whether value investing has worked in emerging markets over the long term.
Value vs. Glamour: Bond Performance (July 2008) Previous research by the Brandes Institute has shown the historical long-term performance advantage of value stocks over glamour stocks. What about corporate bonds? Here, we show that bonds issued by value companies have provided greater appreciation than those issued by glamour companies.
The Investor’s Paradox: Making Intelligent Decisions Amid More Choices (June 2008) Having more choices is always a benefit – or is it? In the book The Paradox of Choice (New York: HarperCollins, 2004), Professor Barry Schwartz convincingly argues that the process of making constant decisions amidst a sea of overwhelming choice – be it health care options, televisions, or investment products – can and often does result in behavioral biases, stress, and poor decisions. In this article, we share insights from The Paradox of Choice and discuss the implications for investors.
Value vs. Glamour: The Challenge of Expectations (February 2008) In “Value vs. Glamour: The Challenge of Expectations,” the Brandes Institute examines the historical performance of individual glamour and value stocks. We believe this performance data demonstrates why investors should be cognizant of the relationship between stock price and value. The specific stock references remind investors that companies with soaring growth rates and wide popularity may not always make great investments.
Liability-Driven Investing and Equity Duration (January 2008)Increasing interest in liability-driven investing (LDI) in the pension community has prompted many plan sponsors to seek longer-duration investments. Historically, empirical evidence has guided plan structures toward long-duration bonds as an appropriate liability-matching instrument, citing relatively short durations for U.S. equities. However, LDI depends upon accurately measuring duration for assets – including equities. In this article, the Brandes Institute reexamines assumptions used to calculate equity duration and poses key questions for investors to consider when pursuing LDI.
Fixed Income Falling Knives Phase Two: Examining the Relationship Between Issuer-Specific Bond and Equity Returns (October 2007) Previous research by the Brandes Institute documented the opportunities available by investing in falling knives (securities whose prices have fallen sharply). Now, in new research on this topic, we investigated the relationship between bond and equity prices in this context. Specifically, we looked for evidence of whether a company’s stock price before a fixed income falling knife event gave any indication of its subsequent bond prices, or vice versa.
A Survey of Corporate Governance Literature Since 1989 (September 2007) This paper, jointly authored by Professor David Finegold of the Keck Graduate Institute, Professor George Benson of The University of Texas at Arlington, and David Hecht of the Brandes Institute, provides a comprehensive review of academic literature on corporate governance relating board structure and practices to firm financial and stock market performance. We believe this to be the first comprehensive review of research on boards and performance since Zahra and Pearce published “Boards of Directors and Corporate Financial Performance: A Review and Integrative Model” more than 15 years ago. In addition to reviewing more than 90 articles, the research also addresses how the findings may apply to the major governance reforms introduced by the United States Congress and the New York Stock Exchange (NYSE) and Nasdaq in the last few years. This paper was published in the academic journal Corporate Governance: An International Review in September 2007. The definitive version is available at www.blackwell-synergy.com.
Death, Taxes, and Short-Term Underperformance: Fixed Income Mutual Funds (September 2007) In our initial Death, Taxes, and Short-Term Underperformance equity studies, we established that short-term underperformance may be unavoidable, even when investing in top-performing equity funds. In this article, we find strikingly similar results among fixed income funds. Given bond investors’ loss-averse predisposition, weathering stretches of short-term underperformance may have proved challenging, even when investing in fixed income funds that delivered favorable long-term performance. (Note: This article has been filed with FINRA)
Value vs. Glamour: A Study of the Indices (September 2007) As described in our “Value vs. Glamour” studies, value stocks have outperformed growth stocks over the long term. But what about commonly used benchmarks? Over the long term, aren’t returns for growth and value indices about the same?
Stumbling on Value Investing (August 2007) One of the Brandes Institute’s goals is to expand the investment community’s understanding of market behavior. As such, we are interested in aspects of behavioral finance. Using excerpts and examples from Daniel Gilbert’s book, Stumbling on Happiness (New York: Knopf, 2006), this article seeks to illustrate psychological pitfalls that may prevent long-term success for investors. It also includes seven tips designed to limit the influence of potential behavioral shortcomings and help investors make more informed decisions.
Global Small Cap Stocks: Reexamined and Redefined (July 2007) The small-cap premium has not been apparent consistently in developed markets outside North America since 1989. Why? In this comprehensive study, the Brandes Institute investigates existing methodologies for defining the global small-cap universe and their relationship to performance. We also introduce regional and country universes designed to analyze constituent-level fundamentals and their influence on historical performance differences. Our research reveals that North American small caps have shown differentiating fundamental traits vs. their non-North American small-cap peers. But these differences in fundamentals may not fully explain the performance disparity. Perhaps the origins of a company and its point on its “lifecycle” are different across regions. The Brandes Institute intends to examine the performance characteristics of lifecycle groupings among small caps across regions and sectors.
Death, Taxes, and Short-Term Underperformance: Non-U.S. Funds (July 2007) Death, Taxes, and Short-Term Underperformance (February 2007) Now updated through 2006, these articles illustrate the potential for periods of short-term underperformance may be one of the few certainties that investors can count on. Our research focuses on the performance results of U.S. and non-U.S. mutual funds over the last decade. Observations suggest that underperformance in shorter time periods – such as one quarter, one year, or even three years – is to be expected, even for funds that have performed strongly over the long term. (Note: These articles have been filed with FINRA.)
Currency Hedging Programs: A Long-Term Perspective (April 2007) This article addresses currency performance over extended periods of time, and examines the potential implications for investors considering implementation of a currency hedging program. While currency movements have tended to be mean-reverting, there have been extended periods of positive as well as negative impact for investors. By reviewing historical returns, the paper highlights the behavioral considerations that may influence the effectiveness of hedging programs.
Fixed Income Falling Knives (October 2006) In 2002, the Brandes Institute first explored the Wall Street adage “never catch a falling knife,” which warns against investing in equities whose share prices have dropped sharply in a short period of time. But our study suggested that investors who avoid falling knives altogether may be foregoing significant opportunity. Do the same dynamics exist for bonds? To answer this question, we defined fixed income falling knives using widening spreads among corporate bonds, then tracked their subsequent performance. In this paper, we reveal our findings.
Balance Sheet Cash: Unlocking Value in Japan (October 2006) Are companies using cash on their balance sheets to enhance shareholder value – especially in Japan, where many firms tend to have higher cash positions than U.S. or European companies? In this study, the Brandes Institute investigates key factors that differentiate the cash-rich companies of Japan from other developed markets. Additionally, the study explores the fundamental characteristics and structural impediments that may have contributed to these firms’ cash surpluses, as well as the potential for future reforms to assist in unlocking the value within these Japanese companies.
Carrying On? (October 2006) The “carry trade” technique, which involves owning a higher interest rate currency by borrowing in a lower rate currency, has been widely employed by currency traders since the reintroduction of floating exchange rates in the early 1970s. This paper examines whether, and in what conditions, the carry trade’s profits may be overwhelmed by typically infrequent but large losses. We also discuss the behavioral factors that may shed light on this pattern.
Value vs. Glamour: Updated and Expanded (September 2006) Value vs. Glamour Non-U.S.: The Value Premium in Non-U.S. Markets (December 2006) In 1994, Josef Lakonishok, Andrei Shleifer, and Robert Vishny published a landmark study investigating the performance of value stocks relative to that of glamour securities in the United States over a 26-year period. Their research concluded that value stocks tended to outperform glamour stocks by wide margins. What effect did the popularity of glamour stocks in the late 1990s and early 2000s have on this conclusion? The Brandes Institute updates our study through June 2006, examining comparative performance over a 38-year period. We also extend the scope of the initial study to include 14 non-U.S. markets in seeking to determine if the value premium was consistent across global markets. (To request earlier versions of our value vs. glamour research, please e-mail[email protected].)
Currency Update: The Long-Term Perspective for Canadian Investors (May 2006) So far this decade, many Canadian investors’ returns from world markets have been eroded by a strong Canadian dollar. In this article, we examine whether the last few years have been particularly unusual compared to a longer-term history. We also look at issues facing Canadian investors considering hedging their non-domestic currency exposure.
Commission Recapture: Considerations and Reflections (December 2005) Some institutional investors believe commission recapture programs are a “free lunch.” Others believe the “lunch” is not free; in fact, they believe it may come at a significant cost. In this article, we seek to evaluate commission recapture programs from various perspectives, clarify and raise awareness of key issues surrounding these programs, and stimulate debate regarding their potential benefits and drawbacks.
Benjamin Graham on Fixed Income (December 2005) Drawing on books written by Benjamin Graham, we explore his thoughts on fixed income securities. Similar to his philosophy on common stocks, Graham’s approach to fixed income is based upon the margin of safety concept.
Value vs. Glamour in Non-U.S. Markets: Recent Value Outperformance, Its Drivers and Considerations (December 2005) This article addresses factors that contributed to non-U.S. value stocks’ considerable outperformance versus glamour stocks over the past five years, as well as the implications, if any, for investors.
Reviewing The Future for Investors by Bruce J. Grantier, CFA (December 2005) Brandes Institute Advisory Board member Bruce Grantier (Vice President, Pension Assets at Scotiabank) shares his perspective on Jeremy Siegel’s latest book, The Future for Investors: Why the Tried and True Triumph Over the Bold and the New.
Currencies and Hedging: The Longer-Term Perspective (November 2005) Currencies and Hedging Appendices (November 2005) Are currency markets efficient? Does hedging your international equity portfolio reduce your international diversification? Do stop-loss limits help overall hedging returns? In this study, the Institute compiled and analyzed data from the perspective of investors in 23 developed countries over the full 32-year era of floating exchange rates to seek to answer the above questions and others. The findings may challenge many assumptions about currencies and hedging.
New Insights Into the Case for Emerging Market Equities (July 2005) Emerging markets may attract equity investors who believe they will profit from superior economic growth. But is this true? In this article, we examine London Business School research that reveals no positive relationship between a country’s GDP growth rate and its stock market returns.
Perceptions and Practice in Manager Selection (March 2005) On the topic of selecting investment managers, we investigate two related questions: (1) does a steady, second-quartile performance ranking every quarter result in first-quartile status over time, and (2) how often do “good” managers experience “bad” stretches of performance? The findings suggest that, theoretically, a steady, second-quartile manager would migrate into the first quartile over time – with an important exception. Also, the tough stretches of performance for “good” managers may create opportunities to exercise “contrarian manager selection.”
The Group Dynamics Q-Sort (December 2004) Investors and consultants strive to identify investment managers they believe will be “superior” over time. In addition to assessing performance, practitioners may seek to evaluate a manager’s philosophical or cultural “fit.” But how do you quantify culture? How do you gather hard data on soft skills? The Brandes Institute partnered with Prof. Randall Peterson of the London Business School and Watson Wyatt Worldwide to assess business management skills among money managers using a tool, the Q-Sort, typically applied by social scientists. We believe the results shared in this research paper provide insights for interpreting firms’ cultural characteristics and a context within which more informed decisions about managers’ top management teams may be made.
Concentrated Portfolios: An Examination of Their Characteristics and Effectiveness (September 2004) Until now, concentration in portfolios has not been well defined, yet many investors seem to regard it as a positive, based on the recent pace of introductions of more focused portfolios. With this study, the Institute – working in collaboration with Global Wealth Allocation - seeks to provide a more useful definition of concentration and test whether concentration, on its own, does in fact enhance returns.
Market Efficiency and the National Football League (September 2004) What does the issue of market efficiency have in common with professional American football? An interesting subset of efficiency research has focused not on stock markets but on the markets surrounding football wagering. In this article, we take a look at some football-related findings that provide fresh insight into the market efficiency debate.
The Past, The Future, and Modern Portfolio Theory (August 2004) This article, published in the August 2004 issue of PLANSPONSOR magazine, begins with a brief review of the origins of modern portfolio theory (MPT). From there, we examine three MPT ideas that lean heavily on the past as a guide to the future, and we use real market data to put these ideas to the test. Our findings highlight areas where the relationship between the past and the future is shaky – and suggest that investors who expect the future to behave like the past could be in for a surprise.
Examining the Income Component of Long-Term Returns (July 2004) Significant capital appreciation for equities and fixed income over the last decade seems to dwarf income’s contribution. Is this an aberration from historical performance? This paper investigates income’s role as a component of total returns based on 78 years of financial asset performance. The paper includes research from an extensive U.S. real estate study recently conducted by the Brandes Institute in conjunction with Professor Elroy Dimson of the London Business School. The results call into question some common preconceptions of income’s contribution to equity and real estate returns.
A Perspective on Long-Term Real Estate Returns United States (April 2004) How have capital appreciation and income contributed to real estate returns over the last 77 years? In a collaborative study sponsored by the Brandes Institute and in conjunction with Professor Elroy Dimson of the London Business School, we investigate long-term real estate returns in the United States. The study provides data to 1926 on a national (as opposed to regional) basis, and by breaking out components of total return.
Behavioral Finance – Pitfalls & Prevention for Plan Sponsors (February 2004)Behavioral Finance – Pitfalls & Prevention for Plan Sponsors II (March 2004) Robert Maynard, Chief Investment Officer at the Public Employee Retirement System of Idaho, raises awareness of behavioral issues and their relation to common investment problems with the goal of enhancing decision-making, particularly for institutional investors.
Falling Knives Around the World (August 2004) Our research into Wall Street’s adage “never catch a falling knife” showed that when many investors saw risk among companies whose share prices had dropped sharply, there also was opportunity. Historically, the majority of falling knives in our studies were created during a few periods of market turmoil. Given the declines in global markets in 2008, we are focusing current research on various traits of the recently created group of knives and comparing them (and subsequent returns) with knives generated in prior, turbulent periods.
Changes in the Characteristics of International Diversification (October 2003) What are the potential diversification benefits from equity holdings outside the United States? Our findings – prepared in collaboration with Ashdon Investment Analysis & Research, LLC – suggest that diversification benefits have sector aspects as well as country ones, and that U.S. investors should pay attention to size and multinational characteristics, as well.
Proxy Voting: Making Sure the Vote Counts (October 2003) When attempting to exercise their primary avenue for activism – proxy voting – shareholders around the world must overcome a variety of legal, regulatory, and procedural obstacles that may prevent them from getting their votes counted – and counted correctly.
“Managing Pension Fund Assets as if the Long Term Really Did Matter” (October 2003) Leading financial organizations, including the United Kingdom’s Universities Superannuation Scheme Limited (USS), sponsored a contest with this provocative title seeking proposals for a more effective approach to the issues facing long-term investors.
Taking Time Out (October 2003) Most investors consider share price movement to be the critical factor in their decision to buy, hold, or sell any security. Here, we challenge that perception by taking time “out of the equation” and focusing on business value instead of share price.
A Monograph on Prehistoric Survival Patterns… (October 2003)The “Misinformation” Ratio (September 2002) Published in the September 30, 2002 issue of Pensions & Investments magazine, this article discusses variations in common methods of calculating information ratios and Sharpe ratios – and shows how these variations can sometimes lead to confusing results.
Creating Value Through Activism (August 2002) From the perspective of an institutional money manager, we explore risks and opportunities for activism, including why it remains an infrequent option, whether it should be encouraged, and its potential and limitations in contributing to long-term shareholder wealth.
MBA & Executive Classes Starting in the fall of 2001, Aswath Damodaran's corporate finance and equity classes have been web cast. You can track the current semester’s classes and use the presentations that go with the class. If the current semester is ongoing, the previous semester’s classes are also archived. If you are trying to take this class online, you will probably have better luck accessing the archived semester’s classes (rather than the current one).
Financial Management (Corporate Finance for undergraduates) (Links were finally removed, but watch the sessions for the Corporate Finance class instead. It is the same class)
The webcasts of a shorter executive ( two-day) MBA valuation seminar and a three-day corporate finance seminar can also be downloaded. The formet covered primarily DCF valuation and is available in 4 3-hour sessions and the latter is a condensed version of my regular corporate finance class and is composed of six 3-hour sessions.
Paper Listing (Click on the paper to see a short abstract. You can download the paper as a pdf file)
|Equity Risk Premiums: The 2010 Edition||Equity Risk premium paper, updated to reflect data through the start of 2010.||Download paper as pdf file|
|Equity Risk Premiums: Post-Crisis Edition||This is an updated version of the equity risk premium paper that takes a detailed look at how the equity risk premium and other risk measures have evolved since September 2008 (the date of the last version of the paper).||Download paper as pdf file|
|Valuing commodity and cyclical companies||Commodity and cyclical companies pose special challenges when doing valuation, because their earnings and risk measures move with commodity and economic cycles. In this paper, we examine techniques and approaches that we can use to compensate for this volatility.||Download paper as pdf file|
|Valuing financial service firms (2009 version)||It is difficult to estimate cash flows at financial service companies. As a consequence, they remain one of the last bastions for the dividend discount model. Inherent in the use of this model are two assumptions – that financial service companies pay out what they can afford to in dividends and that the regulatory constraints that they operate under will keep risk under control. In the crisis of 2008, both assumptions came under assault. In this paper, we look at ways of adapting to the changed enviornoment, when valung banks, insurance companies and invstment banks.||Download paper as pdf file|
|Valuing young and start-up companies||How do you value a young or start-up business with little to show in terms of operating performance? In this paper, we examine ways in which we can adapt valuation approaches to account for the absence of historical information and the possibility that many of the young firms that we value will not make it through to success.||Download paper as pdf file|
|Valuing Declining and Distressed Companies (The 2009 edition)||We face two key problems in valuing declining and distressed companies. The first is that these firms rather than growing over time may shrink, both in terms of revenues and margins. The second is that many of these firms will not survivie as going concerns. In this paper, we deal with both issues and how to reflect them in valuation.||Download paper as pdf file|
|Valuing emerging market companies||Companies in emerging markets often face additional risks, relative to their developed market counterparts, from polticial and economic turmoil in the countries in which they operate. In this paper, we look at how to incorporate this risk both into discounted cash flow and relative valuation models.||Download paper as pdf file|
|Valuing companies with intangible assets||Many companies derive their values from intangible assets, ranging from brand names to patents to technological know how. In this paper, we look at how accounting numbers may need to be mofified when valuing these companies and how we capture the full effects in value.||Download paper as pdf file|
|Valuing the Octopus: The multinational, multibusiness company||As globalization becomes a reality, many companies have operations spread over many different businesses across multiple countries. In this paper, we examine the ways of dealing with the tangle of different currencies and risk profiles that coexist within each company. In particuar, we look at the viability of sum of the parts valuation as opposted to valuting the aggregated company.||Download paper as pdf file|
|Leases, Debt and Value||When leases are categorized as operating leases, the expenses associated with them are treated as operating expenses and leases become as source of off-balance sheet debt (and assets). As the debate about this practice become heated, we look at the consequences of this practice for widely used measures of profitability and financial leverage as well as inputs into valuation models.||Download pdf fileOperating lease converterIndustry averages|
|Estimating Riskfree Rates||The riskfree rate is a fundamental input to most risk and return models. In practice, estimating riskfree rates becomes difficult when there are no default-free securities. In addition, the question of what riskfree rate to use (short term or long term, dollar or foreign currency) is a critical one. This paper examines these issues.||Download pdf file|
|The Equity Risk Premium (2008 Edition)||The equity risk premium (ERP) is a central input into discounted cash flow models, and more than any other number, it captures what investors think about stock prices in the aggregate. In this paper, we examiine the determinants of equity risk premiums and the three basic approaches used to estimate the number – surveys, historical returns and implied values. We look at why the approaches give you different answers and how to pick the right number to use in analysis.||The Equity Risk Premium (ERP): Determinants, Estimation and Implications|
|Valuing Multiple Claims on Equity||Equity claims can vary on a number of different dimensions – voting rights (control), liquidity and cash flows. We examine how to allocate the value of equity across multiple claims on equity in this paper. In the process, we examine the premium that should be paid for voting shares, the discount to be applied to illiqudid shares and the effect of contingent claims.||Valuing Equity Claims|
|The Origins of Growth||One of the most difficult challenges in valuing a business is estimating the expected growth rate in future years. In this chapters, we look at the three ways in which this growth rate can be estimated – from history, from analyst or management estimates and from fundamentals. We look at the pluses and minuses of each approach and why they may generate different estimates.||Download paper as pdf file|
|Measuring Returns: ROE, ROC and ROIC||The value of a firm ultimately depends on its capacity to earn returns on its investment that exceed its cost of funding those investments. Accounting measures of returns, primarily return on equity and capital, are significnant determinants of value. In this paper, we examine the motivation behind the focus on returns and how best to clean up accounting numbers to estimate and forecasts returns.||Measuring Returns|
|A Survey Paper on Valuation||People have been valuing businesses for as long as businesses have been around. We examine how valuation techniques have evolved over time and the common foundatation that different approaches share.||Survey paper on Valuation (Download paper)|
|Simulations, Decision Trees and Scenario Analysis: Probabilistic Approaches to Risk||With the advent of simulation software (like Crystal Ball and @Risk), a full-fledged simulation or scenrio analysis is well within the grasp of any analyst valuing a company or analyzing a project. However, what rold should simulations and scenario analysis play in valuation? And what is the relationship between these analysis and traditional expected value calculations (where we adjust for risk in the discount rate)?||Probabilistic Approaches to Risk(Download paper)|
|Value at Risk (VaR)||Value at Risk has acquired a cache, especially among financial service firms, as a new and sophisticated way of analyzing risk. We look at the basis for VaR, its pluses and minuses.||Value at Risk (VaR)(Download paper)|
|To Hedge or Not to Hedge? That is the question..||Investors and businesses have more options and opportunities than ever before to hedge risk. But should firms hedge risk? What is the payoff to doing so? If a business or investor chooses to hedge risk, what is the best way to hedge risk (derivatives or insurance, for instance)?||To hedge or not to hedge? (Download paper)|
|Exploiting Risk: A Strategic View of Risk Management||Firms become successful, not by avoiding risk, but by seeking it out. Developing a template for deciding which risks to exploit is key to success. In this paper, we examine the potential competitive advantages that a firm can exploit to advantage.||Strategic Risk Taking(Download paper)|
|The Value of Intangibles||Intangibles are a large and growing part of many company’s assets. Starting with the presumption that current accounting standards do not do a good job of assessing their value, we look at whether intangible assets can be reasonably valued, and if so, the best ways of accomplishing this task. We categorize intangible assets into three groups – independent, cash generating intangibles (like trademarks and franchises) that can be valued with conventional DCF models, composite intangibles that affect the sales of many products and not just cash flows (such as brand name) that are more difficult to isolate and value and intangibles with the potential to generate cash flows in the future that are best valued using option pricing models.||The Value of Intangibles(Download paper)brandnamevalue.xls: Spreadsheet for valuing brand name|
|Marketability and Value: The Illiquidity Discount||Investors prefer more liquid assets to otherwise similar illiquid assets, but how much at they willing to pay for liquidity? In this paper, we beign by examining our definition fo liqhidity and the empirical evideence on how much markets value liquidity. We consider the empirical evidence on the consequences of illiquidity for equity, fixed income and private equity markets and how best to inrorporate illiquidity into estimated value. Finally, we consider practical ways of estimating the illiquidity premium for illiquid companies (and ssets).||The Value Of Liquidity(Download paper)liqdisc.xls: Spreadsheet to value liquidity|
|The Value of Cash, Cross Holdings and Other Non-operating Assets||Most businesses carry cash on their balance sheets, though the motives for holding cash vary widely across firms. Some of the cash is held to cover operating needs (transactions), some to cover contingencies (precautionary motive) and some reflects managerial incentives. We consider how best to value cash in both discounted cash flow and relative valuations, and consider the net debt and gross debt approaches in valuation. We also examine how to incorporate the value of cross holdings, both majority and minority, into business valuations.||The Value of Cash and Cross Holdings(Download paper)GrossvsNet.xls: Resolving the differences between gross and net debt approaches|
|The Value of Control||How much is control worth? The answer to that question affects how much the control premium should be in acquisitions, how much of a premium voting shares should trade at and the discount that should be applied to minority stakes in private companies. This paper looks at how best to measure the value of control and how this can be useful in answering a variety of valuation questions.||The Value of Control(Download paper)controlvalue.xls: Spreadsheet to value control|
|Employee Stock Options, Restricted Stock and Value||Companies use employee stock options (ESOPs) and restricted stock issues to compensate employees. In this paper, we examine why their usage has increased over the last two decades and how best to deal with the option overhang in valuation. We also look at ways of incorporating future option grants into value per share today.||ESOPs, Restricted Stock and Value (Download paper)|
|The Value of Synergy||Often promised, seldom delivered is the best description for synergy, the most widely used rationale in corporate mergers. In this paper, we explore how synergy is created and how to value it. We also examine why companies miscalculate so often when it comes to synergy.||The Value of Synergy (Download paper)synergyvaluation.xls: Spreadsheet to value synergy|
|25 Questions on DCF valuation||Every valuation analyst has faced one or more of these questions in real world valuations and has had to come up with an answer. These are my very opinionated (and not necessarily correct) answers to the 25 top questions that we face in DCF valuation. Take it for a spin!||Valuation Questions|
|Value and Risk||We take far too narrow a view of risk in finance. When we talk about risk management, we often only talk about risk hedging and when we estimate value, the discount rate is the only place where we reflect risk. In reality, risk is both a threat and an opportunity and successful firms not only protect themselves against some types of risk but actively exploit other types of risk to establish competitive advantages. In this paper, we present a way of considering risk management in this broader sense and consider ways in which we can bring risk into the other components of value. We also consider what types of firms are most likely to benefit from risk hedging and from risk management.||Download paper (pdf)Effects of risk on DCF value (spreadsheet)Risk hedging as a put option (spreadsheet)|
|Measuring Company Risk Exposure to Country Risk||It is common practice in valuation to assume that companies within an emerging market are all equally exposed to country risk and that companies that are incorporated and trade in developed markets like the United States are immune from it. This is clearly at odds with common sense, since companies within an emerging market can be exposed to different degrees to country risk and multinationals like Coca Cola and Nestle can be exposed to significant emerging market risk. In this paper, we propose a measure of company exposure to country risk called lambda and suggest ways in which we can estimate lambda.|
|Dividends and Taxes||In January 2003, President Bush proposed that dividends be tax exempt to investors. While the ultimate shape of the tax reform is not clear, changing the tax rate on dividends can have significant effects on both equity values and on the corporate finance decisions – investment, capital structure and dividend policy- of companies.In this paper, I estimate the effect of making dividends tax exempt on the overall value of equity in the market (13-14%) and argue that there will be profound changes in the use of debt and stock buybacks, with both declining.||Download paper(pdf)divtaxpremium.xls (effect on market)stockvaldiv.xls (effect on individual stocks)|
|Information Transparency and Value: Can you value what you can’t see?||It is clear that some firms are more forthcoming about their financial affairs than other firms, and that the financial statements of some firms are designed to obscure rather than reveal information about the firms. No matter how strict accounting standards are, firms will continue to use their discretionary power to spin and manipulate the news that they convey to financial markets. The questions we face in valuation are significant ones. How do we reflect the transparency (or the opacity) of a firm’s financial statements in its value? Should we reward firms that have simpler and more open financial statements and punish firms that have complex and difficult-to-understand financial statements? If so, which input in valuation should be the one that we adjust?||Download paper(pdf)Download the complexity scoresheet|
|‘Valuing Distressed Firms||Traditional valuation techniques- both DCF and relative – short change the effects of financial distress on value. In most valuations, we ignore distress entirely in valuation and make implicit assumptions about the consequences of a firm being unable to meet its financial obligations and these assumptions often are unrealistic. Even those valuations that purport to consider the effect of distress do so incompletely. In this paper, we begin by considering how distress can be explicitly considered in both discounted cashflow and relative valuation models.||Download paper (pdf)Download Global Crossing valuationdistress.xls (estimate the likelihood of default from bond price)|
|The Dark Side of Valuation||Valuing a firm is difficult when it has negative earnings, a limited history or few comparables. When all three of these components come together, as is the case with many young start-up firms (Did someone say internet firms?), analysts all too often either assume that they cannot be valued or that new valuation models have to be devised. In this paper, we make an argument that these firms can be valued, albeit with noise, and use Amazon.com as a case study to illustrate the principles involved.||Download paper (pdf)Download Amazon valuation: 1/1/99An Updated Amazon valuation: 1/1/2000|
|Real Option Applications in Corporate Finance and Valuation||Are there options embedded in investment decisions? Undoubtedly. There are also options in financing and valuation. The real question is whether these options have value, and how much they are worth. In this paper, I examine the whole range of real option applications, from the options to expand, delay and abandon in investment options to the option to liquidate in the equity of the firm. I also look at potential applications of real options in R&D and valuing undeveloped natural resources, and suggest that real options need to pass a three-part test to have value.||Download pdf file|
|Valuing Private firms||The fundamentals that determine value for private firms as the same as those that determine publicly traded companies, but there are three critical issues. The first relates to the scarcity of information about private firms. The second issue is that of illiquidity and how it affects value. The final issue is the question of control and whether there should be a premium for control or a discount for the lack of it.||Download pdf file|
|Valuing Financial Service Firms||Financial service firms – banks, insurance companies and investment banks – are often difficult to value because cash flows cannot be easily estimated. In this paper (which is a chapter in the second edition of my valuation book), I look at the questions involved in valuing financial service firms.||Download pdf file|
|Valuing Acquisitions||This paper (which is a chapter from my corporate finance book) looks at how best to deal with the valuation of control and synergy in acquistions and related issues.||Download paper (pdf)|
|Valuation Multiples: First Principles||This paper (which is a chapter from my investment valuation book) looks at the first principles that we need to follow when using multiples||Download paper (pdf)|
|Estimating Risk Parameters||The beta or betas in risk and return models measure an asset’s relative risk. We look at the limitations of standard approaches to beta estimation (such as regressions) and consider alternative approaches.||Download pdf file|
|Dealing with Operating Leases||Many firms lease the assets that they use. If the leases qualify as operating leases, they affect operating income and do not show up as part of capital. In this paper, we argue that this can distort measures of profitability and can affect the valuation of firms with substantial operating leases, and suggest ways in which we can correct earnings and cash flow measures.||Download pdf fileoplease.xls: Convert operating leases from operating to financial expenses|
|Dealing with R& D Expenses||Accounting standards in the United States and in much of the rest of the world require that R&D be expensed. Since these are expenses that are designed to generate future growth, it is much more logical to treat them as capital expenditures. In this paper, we explore ways in which R&D expenses can be capitalized and the implications for earnings, cash flows, valuations and multiples.||Download pdf fileR&Dconv.xls: Convert R&D from operating to capital expense|
|Financing Innovations||The last two decades have seen a stream of innovation in financial markets, especially in the corporate bond arena. Some of these innovations were designed to give firms more flexibility in designing cash flows on borrowings, allowing them to match up cash flows on financing more closely to cash flows on assets, thus increasing their debt capacity. Some firms are issuing these new and more complex securities for the wrong reasons – to keep up with other firms in their peer group, and to take advantage of loopholes in the way ratings agencies and regulatory agencies define debt and equity. In this paper, we take a big picture view of financing innovations, and some of the good and bad reasons for innovations.||Download pdf file|
|Beyond Dividends||This is a chapter from the second edition of my corporate finance book on spin offs, divestitures, equity carve outs and tracking stock. It is not path-breaking, by any stretch of the imagination, but it provides a comparison of the different actions, and why a firm may choose one over the other.||Download pdf file|
|Value Enhancement: Back to Basics||Value enhancement has become a hot topic of late. This paper examines the fundamentals of value creation and enhancement, from a valuation framework, and then considers the merits of EVA and CFROI as value enhancement devices.||Download pdf file|
The following are short podcasts (webcasts), ranging from 20-40 minutes to length that cover multiple topics in valuation.
|Topic||Webcast||Supporting Presentations/ Material|
|Corporate FinanceValuationPortfolio Management||Corporate Finance Basics Valuation Basics Portfolio Management|
|Value Creation/Destruction in Acquisitons||Acquirers’ Anonymous: Seven Steps to Sobriety|
|Valuation: A short introduction||PresentationP&G valuation (Excel) P&G Yahoo! Finance data: Income statements,Balance Sheet and Key Statistics|
|The use and misuse of multiples||Presentation|
|Real Options in Valuation||Introduction to Real Options|
For the last few years, Aswath Damodaran has done an annual webcast for AIMR. While you have to visit the AIMR site to see these webcasts, the material for the webcasts can be downloaded here:
There are webcasts Aswath Damodaran has conducted for different units that are online.
|What is it?PodcastGetting Started||Detail||MBA CllassExecutive Version||Corporate FinanceApplied Corporate Finance||Spreadsheets|
|What is it?PodcastGetting Started||Detail||Full Semester MBA Executive Version||Damodaran on ValuationInvestment ValuationThe Dark Side of Valuation||Spreadsheets|
|What is it?PodcastGetting Started||Detail||MBA Class||Investment ManagementInvestment PhilosophiesInvestment Fables|
|Seminar Location||Date||Seminar Topic||Contact Entity|
|Santiago, Chile||September 12,13||Valuation: Art, Craft & Magic (Day and a half)||Octogon|
|Setting||Topic of Presentation||Date||Material that can be downloaded|
|New York (Bankseta)||Corporate finance in two hours: A South African perspective||July 24, 2013|
|Belgrade, Serbia||A one-day valuation seminar||July 8, 2013|
|New York||A three-day valuation seminar||June 3-5, 2013|
|Singapore||A two-day valuation seminar||May 2013||Presentation|
|Singapore – Temasek||Noise: Dealing with uncertainty in valuation (the short version)||May 2013||Presentation|
|New York||Macro Inputs in Valuation: Hubris and Happenstance||April 5, 2013||Presentation|
|Philadelphia||Noise: Dealing with uncertainty in valuation||Dec 6, 2012||Presentation|
|New York||Corporate Finance: The New World Order||Dec 4, 2012||Presentation|
|New York||A three-day valuation seminar||June 4-6, 2012|
|Delhi||Valuing Young Companies||May 2012||Presentation|
|Mumbai||Valuation: A two-day session||May 2012||PresentationImplied equity risk premium for IndiaDr. Reddy’s Labs: A valuation|
|Omaha||Is there “value” in “value investing”?||May 2012||Presentation|
|San Francisco||Fair Value Accounting: Visionary Thinking or Oxymoron||April 2012||Presentation|
|Toronto||Valuation across sections and the life cycle||February 2012||Presentation|
|New York||The Dark Side of Valuation: Valuing difficult-to-value companies||November 2011||Presentation|
|Las Vegas||The Discount Trifecta in Private Company Valuation: Lack of diversification, Illiquidity and Control (or lack of it)||November 2011||Presentation|
|New York||Risk Premiums: Looking Backwards and Forwards||October 2011||Presentation|
|Fortaleza, Brazil||Dante meets DCF: The Brazilian edition||April 2011||Presentation|
|Mumbai, India||Dante meets DCF: The Indian edition||January 2011||Presentation|
|Lima, Peru||Market Frictions: Liquidity, Diversification and other issues||August 2010||Presentation|
|Lima, Peru||Dealing with Risk: Definition, Measures and Tools||August 2010||Presentation|
|Bogota, Colombia||Valuation in a day||August 2010||Presentation Valuation of Isagen and Capital StructureImplied Premium for Colombia|
|Pune, India||Valuation and Corporate Finance in a Family-run Corporate Group: The Tata Group||May 2010||PresentationValuation of Tata Chemicals and Capital StuctureValuation of Tata Steel and Capital StructureValuation of Tata Motors and Capital StructureValuation of TCS and Capital Structure|
|Slovenia & Croatia||Value: Not just a number||May 2010||PresentationValuation of KRKA and KRKA Capital Structure Valuation of Adris Grupa and Adris Grupa Capital Structure|
|Bogota, Colombia||Danger and Opportunity: Ruminations on Risk||March 2010||Presentation|
|Rio & Sao Paulo||Market Revelations: Lessons learned, unlearned and relearned from a crisis||August 2009||PresentationValuation of Embraer (2009)|
|Lima, Peru||Valuation in Emerging Markets||August 2009||PresentationImplied Premium for Peru (2009) Valuation of Cementos PacasmayoValuation of Sociedad Minera|
|Zurich, Switzerland Firenze, Italy||Dante meets DCF & Ten Lessons from Valuation Hell||May 2009||PresentationA pre-session test|
|Stamford, Connecticut||Valuation: DCF, Relative and Real Options Webcasts of the sessions: 1: Introduction and DCF Big Picture 2: DCF Details 3: Value Enhancement and Loose Ends, Intro to Relative Valuation 4: Relative valuation continued and Real Options||March 2009||Presentation Valuation of Hyundai Heavy IndustriesValuation of Kristin KandyValuation of Wells FargoValuation of Amazon – 2000Valuation of Amazon – 2001Hyundai Optimal Capital structureValuation of Hyundai restructuredImplied Premium for Korea|
|New York, NY||One day valuation session||March 2009||Presentation|
|New York, NY||Fair Value Accounting: Visionary Thinking or Oxymoron||February 2009||Presentation|
|New York, NY||Valuation: DCF, Relative and Real Options Webcasts of the sessions: 1: Introduction and DCF Big Picture 2: DCF Details 3: Value Enhancement and Loose Ends, Intro to Relative Valuation 4: Relative valuation continued and Real Options||October 2008||Presentation Valuation of Hyundai Heavy IndustriesValuation of Kristin KandyValuation of Wells FargoValuation of Amazon – 2000Valuation of Amazon – 2001Hyundai Optimal Capital structureValuation of Hyundai restructuredImplied Premium for Korea|
|New York, NY||Six Weeks from Hell – 9/12-10/16: Valuation Consequences||October 2008||Presentation Implied Premiums & other data: 9/12-10/16Valuation of 3M: 9/12Valuation of 3M: 10/16|
|Seoul, Korea||Valuation: DCF, Relative and Real Options||July 2008||PresentationValuation of Hyundai Heavy IndustriesHyundai Optimal Capital structureValuation of Hyundai restructuredImplied Premium for Korea|
|Rio & Sao Paulo, Brazil||Top Valuation Mistakes and Loose Ends||June 2008||PresentationEmbraer ValuationImplied Premium for Brazil – 2008|
|Stern Alumni Conference||Danger and Opportunity: Musings on Risk||May 2008||Presentation|
|Los Angeles, California||Anatomy of a Leveraged Buyout||December 2007||PresentationValuation of HamanOptimal Capital Structure: HarmanEnhanced Capital Structure: HarmanAPV Analysis: HarmanRestructured Valuation: Harman|
|Wichita, Kansas||Equity Risk Premiums||July 2007||PresentationHistorical Risk PremiumsImplied Equity Premiums (past)Implied Premium calculator (Try it out yourself)|
|Sao Paulo, Brazil||Valuation: First Principles and Loose Ends||June 2007||Presentation Valuation of Gerdau Steel|
|Rio, Brazil||The Value of Control and Corporate Governance||June 2007||PresentationGerdau optimal capital structure|
|Boston (MFS)||Valuation Seminar (1 day)||May 2007||PresentationValuation of Amgen|
|New York (PWC)||Valuation Seminar (2 days)||April 2007||Presentation|
|Dartmouth||Dante meets DCF: Ten Valuation Sins||February 2007||Presentation|
|UPenn Law Conference||The Value of Control||December 2006||Presentation|
|AIMR Conferenence||Leverage and Value (Expanded Versions)||December 2006||Presentation|
|AICPA Conference||The Cost of Illiquidity||December 2006||Presentation|
|Rio De Janeiro||Investment Philosophies||October 2006||Presentation|
|New York||Leverage and Value||September 2006||Presentation|
|GE (Connecticut)||Acquirer’s Anonymous: Seven Steps to Sobriety||October 2006||Presentation (updated from 2003)|
|Mexico||Valuation||June 2006||Presentation Valuations of Banorte and CemexImplied risk premium for Mexico|
|Brazil||Discounted Cash Flow Valuation Relative Valuation and Real Options||March 2006||DCF Presentation (ppt version) Relative Valuation & Real Options Presentation (ppt version)|
|Dartmouth||Loose Ends in Valuation||March 2006||Presentation (ppt version)Papers on loose ends|
|Chennai, India||Valuation: Ten Principles and Tying up Loose Ends||Feb 2006||Presentation (ppt or pdf versions) See 7/7/04 presentation for Tata Chemical and Wipro valuations|
|Amsterdam||Fair Value Accounting: Mission Impossible?||Jan 2006||Presentation|
|Las Vegas||The Value of Control||Nov 2005||PresentationRead the full paper Valuation of Blockbuster: status quo and optimal Valuation of SAP: status quo and optimal Valuation of Nintendo: status quo and optimal|
|Applied Corporate Finance||July 2005||PresentationProject DescriptionWeb site|
|Investment Analysis/ Capital Budgeting Valuation Advanced Valuation||June 2005 June 2005 June 2005||Presentation (Investment Analysis/Capital Budgeting)Presentation (Valuation) Presentation (Advanced Valuation) Valuation of Kristin KandyImplied Risk Premium for Brazil (2005) Ambev: Valuation, Capital Structure, RestructuredVale: Valuation, Capital StructureValuation of EmbraerValuation of Embraer restructured|
|Valuation||May 17, 18/05||Presentation SAP : Valuation, Optimal Capital Structure, RestructuredValuation of Kristin KandyImplied Risk Premium for GermanyRelative Valuation data for Germany (2005)|
|Valuation||May 19, 20/05||Presentation Titan Cement: Valuation, Optimal Capital Structure,Restructured Implied Risk Premium for GreeceRelative Valuation data for Greece (2005)|
New York, NY ( S & P)
|Valuation||Summer 2005||Presentation Titan Cement: Valuation, Optimal Capital Structure,Restructured Valuation of Kristin KandyImplied Risk Premium for GreeceImplied Risk Premium for US|
|Valuation||10/1, 10/2 /04||Presentation BMW: Valuation, Optimal Capital Structure,RestructuredImplied Risk Premium for Germany|
|Value Enhancement||7/9/04||Presentation Ducati: Valuation, Capital Structure, Restructured|
|Intrinsic and Relative Valuation||7/7/04||PresentationImplied Risk Premium for India Tata Chemicals: Valuation, Capital Structure,RestructuredWipro: Valuation, Capital StructureRelative valuation data for India|
Grace Kennedy, Jamaica
|Corporate Finance – Grace Kennedy||6/29/04||Presentation Optimal Capital Structure for Grace KennedyValuation of Grace Kennedy|
Rio De Janeiro, Brazil
|Estimating Cost of Capital, Acquisition Valuation and Real Options (short)||6/15/04||PresentationImplied Risk Premium for Brazil Ambev: Valuation, Capital Structure, Restructured Vale: Valuation, Capital StructureValuation of Aracruz|
Sponsors for Educational Opportunity
|Corporate Finance in a day||6/1/04||Presentation|
|Valuation||5/20/04||Valuation PresentationImplied Risk Premium for Greek market (xls)Valuation of Titan Cements (xls) Optimal Capital Structure for Titan Cements Titan Restructured Valuation|
M & A Conference
|Acquirer’s Anonymous: Seven Steps to Sobriety||11/11/03||Presentation|
Sao Paulo, Brazil
|Valuation in Brazil||10/24/03||Valuation PresentationImplied Risk Premium for BrazilValuation of EmbraerValuation of Embraer restructured|
FMA Meetings (Denver)
|Intrinsic Valuation in a Relative Valuation World||10/9/03||Intrinsic Value in a Relative Valuation World|
|Investment Philosophies: Seeing the Big Picture||9/25/03||Investment Philosophies|
|Value Enhancement||5/30/03||Value Enhancement|
|Valuation||5/22,5/23, 2003||Valuation PresentationImplied Risk Premium for Greek market (xls)Valuation of Titan Cements (xls) Optimal Capital Structure for Titan Cements Titan Restructured Valuation|
|Loose Ends in Valuation||12/05/02||Loose Ends PresentationClosed End Fund DiscountComplexity ScoreValuing SynergyValuing ControlValuing OptionsEstimating Probability of DistressValuing Illiquidity|
|The Value of Transparency||11/02||Value of Transparency|
Graduate Finance Association (Stern)
|Investment Philosophies||10/02||Investment Philosophies presentation|
|Valuing Distressed Companies||7/02||Valuation Presentation (pdf)Valuation of Global Crossing|
|Valuation||9/27,9/28, 2002||Valuation Presentation (pdf)Relative Valuation Presentation (pdf)Implied Risk Premium for Greek market (xls) Valuation of Titan Cements (xls) Optimal Capital Structure for Titan Cements Titan Restructured Valuation|
|Twleve Myths in Valuation (2 hours)||10/26/01||Valuation Presentation|
|Valuation ( 1-day)||7/2/01||Valuation PresentationValuation of Titan (in Euros)|
|Corporate Finance (2-day session)||Summer 2001||Corporate Finance PresentationSpreadsheets Data|
|Valuation (1-day seminar)||Summer 2001||Valuation Presentation|
|Relative Valuation (1/2 day)||Summer 2001||Relative Valuation Presentation|
|Real Options (1/2 day)||Summer 2001||Real Options Presentation|
|Corporate Finance||3/22/01||Corporate Finance PresentationOptimal Capital Structure – EmbraerOptimal Capital Structure – Aracruz|
|Valuation||3/23/01||Valuation PresentationImplied Risk Premium for BrazilValuation of EmbraerValuation of Embraer (restructured)|
|Valuation||4/14/00||Valuation Presentation (pdf)Implied Risk Premium for Brazil MarketValuation of BrahmaValuation of Brahma (restrctured)|
|Valuation||6/27/00||Valuation Presentation (pdf)Tube Investments valuationTube Investments capital structureParry’s valuationParry’s capital structure|
|Valuation||5/20/99||Valuation Presentation (pdf) Implied Risk Premium for Portuguese market (xls) Valuation of Portugal Telecom (xls) Optimal Capital Structure for Portugal Telecom|
|Valuation of Technology firms||March 2000||Valuation presentation Valuation of Amazon.com Valuation of CompaqOptimal Capital Structure: Compaq Optimal Capital Structure: AmazonValuation: Compaq Restructured|
|Value Enhancement||1/10/00||Value Enhancement Presentation (pdf) Implied Risk Premium for Milan Index (xls) Valuation of Telecom Italia (xls) Restructured Valuation of Telecom Italia Optimal Capital Structure for Telecom Italia|