Aswath Damodaran – Session 5: Risk & Return Models & The Marginal Investor

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In this session, we address the question of what risks get rewarded and which ones do not, by looking diversifiable versus non-diversifiable risk. The best way to understand diversifiable and non-diversifiable risk is to take a company and consider all of the risks that it is exposed to and then categorize these risks into whether they are likely to affect just the company, the company and a few competitors, the entire sector or the overall market. The marginal investor, if diversified, cares and prices in only the last type of risk. In the last part of the class, we introduced the notion of a risk free investment and how to measure the risk free rate.

Slides: http://www.stern.nyu.edu/~adamodar/po…

Post class test: http://www.stern.nyu.edu/~adamodar/pd…

Seth Klarman’s 2021 Letter: Baupost’s “Never-Ending” Hunt For Information

Baupost's investment process involves "never-ending" gleaning of facts to help support investment ideas Seth Klarman writes in his end-of-year letter to investors. In the letter, a copy of which ValueWalk has been able to review, the value investor describes the Baupost Group's process to identify ideas and answer the most critical questions about its potential Read More

Post class test solution: http://www.stern.nyu.edu/~adamodar/pd…

Risk & Return Models

Risk & Return Models & The Marginal Investor

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