Successful Investing in a Disrupted World ft. Aswath Damodaran

[00:00:00] Aswath

That’s really your biggest potential differential advantage over the AI machines that are going to be coming that will replicate a Warren Buffett mindset. There is a bot out there with your name on it that’s coming for you, and your job is to find things to do that your bot can’t do. Think of that as your 10-year mission, is you have about a decade to play this out because if all you do is mechanical stuff, a bot will do it much better than you can.

[00:00:39] Intro

Imagine spending an hour with the world’s greatest traders. Imagine learning from their experiences, their successes, and their failures. Imagine no more.

Welcome to Top Traders Unplugged, the place where you can learn from the best hedge fund managers in the world, so you can take your manager due diligence or investment career to the next level. Before we begin today’s conversation, remember to keep two things in mind. All the discussion we’ll have about investment performance is about the past, and past performance does not guarantee or even infer anything about future performance.

Also understand that there’s a significant risk of financial loss with all investment strategies, and you need to request and understand the specific risks from the investment manager about their products before you make investment decisions. Here’s your host, veteran hedge fund manager Niels Kaastrup-Larsen.

[00:01:33] Niels

Welcome, and welcome back to another conversation in our series of episodes that focuses on markets and investing from a global macro perspective. This is a series that I not only find incredibly interesting, as well as intellectually challenging, but also very important, given where we are in the global economy and the geopolitical cycle. We want to dig deep into the minds of some of the most prominent experts to help us better understand what this new global macro-driven world may look like.

We want to explore their perspectives on a host of game-changing issues, and hopefully dig out nuances in their work through meaningful conversations. Please enjoy today’s episode, hosted by Alan Dunne.

[00:02:16] Alan

Thanks for that introduction, Niels. Today, I’m delighted to be joined by Aswath Damodaran. Aswath is professor of finance at Stern School of Business at NYU, where he teaches corporate finance and valuation.

For anybody who’s studied finance or the CFA, he is well-known as an expert in all things valuation, and he has written multiple books on valuation, corporate finance, portfolio management, and investing in general. He’s also had papers published in multiple finance journals, including the Journal of Finance and Journal of Financial Economics. Aswath, it’s great to have you with us today.

How are you doing?

[00:02:53] Aswath

I’m doing well. Glad to be on.

[00:02:54] Alan

Great stuff. Well, we always like to get a bit of an insight into our guest’s background, and what, in your case, got you interested in focusing on corporate finance and valuation in particular.

[00:03:07] Aswath

No, not really. I’m really interested in teaching. I happen to teach corporate finance and valuation. My first passion is teaching, and I do find corporate finance and valuation interesting because it’s at the intersection of numbers and stories, people and businesses. It’s a combination of psychology and statistics and data and economics that I think that mixes what makes it fascinating.

[00:03:32] Alan

Interesting. Well, it’s a very timely time to be speaking to you in terms of valuation and stories and numbers and all of that because, obviously, we’ve had this unprecedented run up in technology stocks and MAG-7 and NVIDIA, et cetera, and I saw recently, I think you reported in an interview saying that you had been bullish on NVIDIA and then suddenly it got to a point where…

[00:03:57] Aswath

I bought NVIDIA six years ago, so I’m not sure what bullish and bearish even mean. You either hold the stock or you don’t. I mean, I think this notion of bullish and bearish is a fancy way of saying I can’t make a decision, so I’ll tell you what I would do if I actually could make a decision.

So, I do own NVIDIA. I wouldn’t buy it at today’s price, but I bought it at the 2018 price, and I would say that about pretty much every investment in my portfolio, which is at the time that I bought it, it was cheap, at least based on my valuation, and that’s all you can do. You cannot look at everything you have in your portfolio today and say… So, I think that bullish and bearish are words I tend not to use for that reason.

If I’m really bullish in something, I should own. If I don’t own it and claim to be bullish on it, you should be skeptical about what I’m bullish on.

[00:04:49] Alan

Okay, fair enough. So, tell us, I mean, with something like NVIDIA, where it’s such a, you know, there’s such wide expectations around what AI can do for the economy or not. So, for example, I was reading a report from Goldman Sachs where somebody was suggesting that the total improvement to productivity from AI might be 0.5% over a decade, whereas there are other estimates where it might be 1% per annum over a decade. So, it’s obviously something that divides opinion. When you’re translating that type of a scenario into an evaluation for a stock, how can you form something that you have conviction around, given that kind of wide variety of potential outcomes?

[00:05:28] Aswath

I mean, first, I mean, what Goldman Sachs is saying is completely irrelevant. I don’t think that AI or any other buzzword adds 0.5% or 1% to GDP on net basis. It might on a gross basis, but it does so by destroying other businesses that contribute to the GDP as well.

In fact, if you go back and you look at PCs and you look at the internet, you look at social media, each was stated to be, “This will make the economy grow faster.” Then we look at the growth in GDP, the 80s, the 90s, the 2000 to 2010, you look at those decades, the growth of GDP is actually lower than it was before any of these buzzwords made it. So, you’re saying, but how do you then explain the fact that these businesses, and the businesses that came out of these buzzwords, grew as much as they did?

They did, but they came at the expense of other businesses that shrunk and went away. The net effect of AI is going to be close to zero. That doesn’t mean they’re going to be no winners and losers.

They’re going to be winners and losers, obviously, but the net effect on the economy is not going to be positive. I’ll make that prediction. So, if anybody’s sitting there saying GDP is going to grow at 5% a year because AI is here, I think you need to get your head screwed on straight, which is if AI does something better than somebody else, that somebody else now loses a job.

So, there is always that… I mean, we talk about disruptors a great deal. We don’t talk about the disrupted along the way. So, I think this notion that AI is somehow going to carry the entire economy and the market upwards is a delusion.

But AI is clearly here to stay. I think it is. In my lifetime, I’ve seen three big revolutionary changes, the PC coming out and changing the way we worked and we lived, and that’s key.

The revolutionary changes are not just in business, they change the way we live. So, the PC business in the 1980s, the internet in the 1990s, clearly. The smartphone in the decade after and social media, all four changed the way we work and live.

All four created winners. The PC business’ business winners, biggest winner is Microsoft. The internet’s biggest winner is Amazon. The smartphone’s biggest winner is Apple. And social media, we’re still contesting it, but it might be Google and Facebook.

But the reality is, if you look at each of these big movements, those winners might have been worth tens, hundreds of billions, maybe even trillions of dollars, but the net effect on markets was surprisingly neutral because for those winners, there were dozens, even hundreds of losers.

So, Amazon might be worth two trillion, but think of the debris it’s left along the way of a brick and mortar retail. So, I’ll make a prediction about AI. It is going to change the way we work and live.

So that is, I think, the biggest thing about AI. This isn’t like the metaverse or the cloud, which were words you heard in the last decade. It’s going to change the way markets work because clearly, they didn’t have the staying power or the capacity to reach into our lives. AI has the capacity to do it. And if history is any guide, it will create winners. And the winners might not be the companies you think will win at the start of the move.

The start of the PC business, we thought IBM is going to walk away as the big winner. It wasn’t. And if you look at the winners from the PC business itself, Dell and Compaq, they’re gone pretty much as big businesses.

There will be winners from the AI business. Right now, we’ve anointed NVIDIA and Microsoft as the big winners. But will they? I’m not sure. If history is any guide, they’re not.

NVIDIA, to me, reminds me a great deal of Cisco. It is creating the architecture for AI, which is critical, right? And architecture businesses are the ones that monetize these big revolutionary changes the first.

Cisco started to make money well before Amazon started to make money because you need the architecture there. So, I think NVIDIA has the advantage of being one of the first companies that will monetize AI and be able to show profits and growth, and it already is. But the architecture part of a revolutionary change business is never going to be 50%, 30%, or even 20% of the business.

I mean, Cisco, once everything got played out, was not 50% of the internet, right? Because when you get the networking equipment, the other businesses have to grow. So even if you believe the Goldman Sachs numbers for AI being a $3 trillion business or a $4 trillion business, the architecture for AI, which is what NVIDIA provides, can’t be more than a half a trillion of that. And that’s actually larger than any of the predictions I’ve seen for how high the AI chip business has going.

So, we need to start to get specific. AI is a buzzword. It is clearly going to change the way businesses work and the way we live. But you can’t keep using that as a rationale for pushing up the prices of companies without getting specific about, hey, what part of AI is this company in? How does it plan to monetize that? And will it be able to withstand the competition that’s coming?

[00:10:49] Alan

So, I mean, you quoted the number $500 trillion there, $500 billion, sorry. I’m presuming, when you’re thinking about what’s a reasonable valuation for NVIDIA, that’s part of the thinking, the size of the market. And I guess the point I was going to make was it could be, presumably, $250 billion or a trillion. Would that be fair to say?

[00:11:13] Aswath

At the $3 trillion market cap, the market was building in an expectation that the AI chip market would be a trillion dollars, twice the largest number I’ve seen estimated out there. I call this the big market delusion, which is when you have a big market and people keep using the macro story to justify, here’s why I’m paying more for the company. It’s an AI company.

We don’t ask the right questions. So, in the process, we push up the pricing of companies to levels that cannot be sustained, even if our market story is right. So, even if you take the AI optimist at their word, concede the size of the market, then you work backwards and you say, I can’t explain what NVIDIA is trading at, even with your most optimistic story.

And then you’re stretching the story to the breaking point. But that’s what happens when you don’t ask specifics. You don’t deal with specifics here, pricing a company.

[00:12:07] Alan

Where we are at the moment, is that the case or do you think that the…?

[00:12:09] Aswath

I think you’re starting to see some cleaning up happening because, eventually, the delusion breaks. The delusion breaks because the numbers start to roll in.

You recognize that notwithstanding our upbeat and optimistic stories, there’s only so much you can do. And here’s what you’re going to see for the delusion breaking at the market level. People talk about how much companies will spend on AI. That’s what’s driving this. It’s a B2B business. It’s not what you and I will be spending on AI. It’s what companies will be spending on AI. That’s key, right?

But companies spending on AI is a cost item for them, which means that if you put in the AI business at three or four trillion, that’s a cost item for companies that are spending on it. So, look at the other side of the picture.

If companies are spending four trillion in AI, that’s going to come out of their profits. So, for the AI companies to become valuable, other companies will have to get less. It’s just the math of it has to be worked through. This isn’t a plus for everybody. It’s pluses for some, minuses for others.

And the sooner we’re clear-eyed about which companies will emerge from this as winners and which as losers, the better the questions we will ask.

[00:13:25] Alan

And would you say, I mean, as a market observer, that we are just pricing that first part of it at the moment; pricing the winners, we’re not pricing the losers? Is that… Would that be reasonable to say? I mean, that’s certainly, you know, the way it looks like, the way the market is trading.

[00:13:40] Aswath

At this stage, it’s lazy arguments. It’s arguments of AI is going to be big, so therefore I would push up the price. That’s it. That’s the entire pricing story. And when you’re pricing something, that’s all you need. Why are you pushing up the price? Because AI is big. Why are you pushing up even more? Because AI is big.

As long as you don’t say how big and what aspect of AI you’re talking about, there can’t be any pushback. But I’ve seen this movie before. This isn’t the first time we’ve seen this.

I remember at the early stage of the internet, you’d see companies getting pushed up. And the only argument was that the internet is going to be big. Okay, it turned out to be really big, but lots of companies that get pushed up in anticipation of the internet getting big never got big themselves.

“There’s many as slip between the cup and the lip.” And in this case, I think unless we ask the right questions, we could be right about the big story of AI being a revolutionary change and wrong about every investment story we create based on that.

[00:04:38] Alan

And you mentioned Cisco as a parallel, and obviously what people point to at Cisco is it is a company that proved to be a fantastic company in generating revenue, but not in terms of stock performance. You also touched on Amazon, which was obviously a company which had a big drawdown in terms of the stock price, but ultimately came back and has been a fantastic performer. I mean, how do you determine if NVIDIA is going to be more like Cisco or more like Amazon?

[00:15:01] Aswath

Well, I think the problem with architecture companies is you hit a ceiling, right? There’s only so much architecture. Cisco had a ceiling.

It overshot that ceiling in 1999 when it hit a $400 billion market cap. That was a peak of the dot-com boom. People acted like you’d keep spending money on infrastructure and never ask the question, who’s coming up with all this money to spend?

So I think NVIDIA is going to have a ceiling because of that. I’ll tell you one thing in favor of NVIDIA. I call it my opportunistic growth company. It’s a company that’s managed to find new markets and jump into them ahead of everybody else. It did it with gaming. It did it with crypto. It did it with AI.

The first time, you can call them lucky. The second time, you can call them really lucky. The third time around, there’s something the company is doing that’s allowing them to get ahead of their competition and big market.

So, if you’re an optimist in NVIDIA, it’s not because AI is going to carry you there, but because you think there is another big undiscovered market there for chips, where NVIDIA is going to get there. Is it plausible?

Yes. Given NVIDIA ‘s history, it’s a bet you could make. But be clear about the bet you’re making. It’s not AI that justifies the $3 trillion. It’s the expectation that NVIDIA will find another business out there that is big and be the first mover there.

And I think the other big question with NVIDIA, of course, has been how will they handle the competition that’s coming? AMD is coming. Intel is coming. And I think that’s one of the big unanswered questions here: how sticky is NVIDIA ‘s market share in the AI market going to be?

It had a dominant market share in 2023. Almost 75% of all AI chips were NVIDIA chips because it was there, first. And one of the questions I’m wrestling with (that only somebody who’s much more knowledgeable than I am about how these AI machines work) is, if you start an AI architecture with NVIDIA chips, and two years later, you want to expand the system, are you stuck using NVIDIA chips or can you bring in other chips?

That’s a big question that anybody investing in NVIDIA better be asking because the market is building in the expectation that the market share is going to be sticky; that even if AMD comes up with equivalent chips, people will be too locked in to their NVIDIA systems to be able to make that switch. And I think that’s something worth examining if you’re an NVIDIA bull, especially if you bought NVIDIA in the last year.

If you bought it 7, 10, 15 years ago, you got a lot of fat to burn off. You can afford the slack. But if you bought it in the last year, you’ve essentially built in massive expectations of the company. And, you know, buying an awesome company when everybody else thinks it’s awesome is not a great place to start if you’re an investor.

[00:18:00] Alan

I mean, those types of arguments about network effects… Basically, the MAG 7 companies having these moat businesses now and that they’re nearly different, but by virtue of their size and scale and the ability to protect their businesses, I mean, do you think they are valid arguments? Do you think they are now fundamentally different to other stocks that justify higher multiples and a premium valuation?

[00:18:27] Aswath

I think they’re valid. The question is how much stickiness is in built in already? I mean, it looks like the market is building in 100% stickiness and a $1 trillion market. Where’s the upside?

Even if NVIDIA does much better than people expect it to be, you’ve already priced it in. You price in perfection, which is what you’re pricing in. It’s very difficult to see where you get the upside.

[00:18:53] Alan

And do you think it’s the same with respect to Microsoft and Amazon?

[00:18:57] Aswath

I think those companies are in a different position. They’re not priced the way NVIDIA is. I mean, you can talk about 30 times earnings, but let’s face the market where everything’s priced at 22 times earnings, 20 times earnings is not a huge premium. It’s not as if Microsoft trades at a multiple five times the market or three times the market.

You’re buying money machines. You’re not buying expectations. You’re buying companies that are money machines.

And in a strange way, if you buy the AI story as being a big one, here’s I think a plausible scenario. AI after all is a word we’ve concocted for two big forces that have been in markets for the last two decades.

The one is more and more powerful computers. Our computers have become more and more powerful while becoming more miniature. They’re smaller and more powerful. And the other is data.

AI is just the combination of the two: powerful computing, but with immense amounts of data is what creates AI. AI wasn’t born the day people invented ChatGPT. In fact, ChatGPT is low tech AI, but it brought it to the consciousness. This has been going on for decades.

Remember Watson? Watson was the system IBM created to play chess. And if you remember, this was like 30 years ago, maybe even 35 years ago. It played the grandmasters, and it got better and better. And eventually it was beating the world champion. And chess in a sense is a perfect microcosm for where AI works the best. Because every chess move has already been made before.

And if you have the memory of a computer, it can remember every game ever played. Eventually, it’s going to be unbeatable. You could be the greatest chess master in the world.

So, I think in a sense, it’s lots of data and powerful computers. And in many ways, if you think about the companies that are at an advantage, in those two spaces, in terms of exploiting it, not in the architecture but in using it, it’s the big tech companies: it’s Google and Facebook and Amazon.

They have the data, and it’s proprietary data that they’ve collected because of our interactions with them. And I don’t want to hear the moaning of people complaining about their privacy being invaded, because this is data we gave up voluntarily because we got convenience in return. We wanted free GPS. And guess what? We got it in return for giving up location. So, they have the data.

They have the service, the cloud systems on which we store the data. And they have powerful computers. So, this is going to be a test of the Clayton Christensen hypothesis, which is that disruption always comes from the outsider.

They came up with it three decades ago, and it’s done very well, right? The big winners from the PC business were not IBM, but the people who came afterwards. Big winners from the Internet were not the AOLs and the companies that led in with advantages.

It was the companies that came later. And this is going to be a test of whether that hypothesis holds up, because this might be a disruption where the biggest players have an advantage. I mean, how does a young startup match the data power and the computing power of an Amazon?

So, I’m curious as to how this will play out, because what the market, I think, is building in, the expectation of AI is taking off, and these companies are going to be better positioned.

[00:22:46] Alan

Taking all that together, what’s an investor to do? Even professional fund managers, if you’re managing a long active equity US?

[00:22:49] Aswath

This is the strangest business on the face of the earth, right? Because in any business, professionals do better than amateurs.

[00:22:57] Alan

Yeah, I’m not saying to do, I’m just saying that’s one of them.

[00:23:00] Aswath

I think that to begin with, professional money managers have been losing this war for four decades. What difference is this particular war going to have, right?

[00:23:10] Alan

What is any investor to do? Anybody who’s, say, benchmarking their performance against the S&P, you have to make a call on…

[00:23:14] Aswath

I think the lesson here, and this has been true before AI, is for the last 20 years we’ve noticed that we’ve had markets that are dominated, not just by the top 50, 30 stocks. That’s always been true; we have repeat winners, right?

So, if you look at the 2010 to 2019 decade, 15% of the increase in market capital, all US stocks, came from six companies. Facebook, Amazon, Netflix, Google, Apple, and Microsoft, FANGAM stocks, 15%; 15% came.

So, while it’s always been true that if you miss the top 15 or 20 stocks, you get out of the market. What’s been different about the last 20 years is these same companies keep repeating. Which also leads to a very interesting implication.

If you are an active investor in the last decade, and you did not own any of these stocks during the entire decade, you put yourself at a tremendous disadvantage in beating the market, right? Leaving the winners out of the market, the consequences have been much greater in this century than in the last one. Which effectively means that whatever your investment strategy is, if it’s focused and concentrated, which is what all-time value investing is: be focused and concentrated. It comes with a huge red flag.

If you’re focused and concentrated, and you manage to get one of these winners, that’ll be great. But if you focus and concentrate, but your investment philosophy leads you away from these winners, how the heck are you going to win as an active investor? And here’s the problem. There are investment philosophies out there which will lead you away from these winners because of the way they’re structured.

All-time value investing, buy stocks, low P/E ratios, you will never buy the FANGAM stocks. They will not meet your criteria. Small cap investors, you’re not going to buy these winners.

[00:25:18] Alan

Are those styles dead and buried, or are we just in a long period where they’re not…?

[00:25:23] Aswath

Any style that’s not dynamic and allows you to stretch across the market is a style I would avoid. So, if you can find me a philosophy that’s dynamic; so you move from small to large, depending on the market, then I’m willing to listen.

But if you say, I buy only small stocks, I buy only low P/E stocks, I’m not even listening now because the consequences of that strategy, well, you might win a couple of years, but over a decade, you’re going to be facing a hole.

So, if you’re an active investor, you can’t be rigid. Your philosophy has to be flexible enough to allow you to invest across sectors, across small and large companies, across growth and value companies. You cannot be in a philosophy that’s so rigid that it shuts out entire segments of the market from you.

That’s part of the reason Warren Buffett, in the last decade at Berkshire Hathaway, said that if he had advice to give an investor, he said, buy an index fund. I think the implicit message you are sending is my style, my strategy worked in the last century.

I could buy value stocks and essentially ride mean reversion, which is what a lot of active investing was, right? Buy low P/E stocks. But he said, I don’t think that works.

He might not have used those words, but that’s the message you were sending to people who were trying to imitate his strategy from the last century in this one.

[00:26:57] Alan

And what’s changed?

[00:26:58] Aswath

I think the market has changed. I think the economy has changed. I think that if you look across businesses, more and more businesses have become winner-take-all businesses.

I’ll give you a couple of examples. The hospitality business. You go back 20 years. Splintered, right? No hotel company had more than a 6% market share of the entire market. Small hotels, big hotels, hotel chains. What did Airbnb do? Essentially with a platform, effectively it is able to become 20% of the business without really having to build hotels.

The car service business prior to 2008. Hopelessly splintered, right? The largest cab company in the world probably controlled 0.1% market share because you are constrained by geography, by localization. What does Ride Sharing do? It effectively means that you can have three or four companies dominate the entire business.

In business after business, even businesses where we never thought this would happen, you’re seeing these splintered markets where you had 3%, 4% market shares be replaced by platforms where you have networking benefits that, as you get bigger, it gets easier to get bigger.

If you’re in a winner-take-all economy, why are we surprised that the winners keep winning? Why are we surprised when the biggest winners in the market happen to be the biggest companies, not the smallest ones?

People who keep expecting us to revert back to the 20th century, in terms of this too shall pass. When? Why? The world has shifted under us. That’s the first stage.

The other is, let’s go back 70 years to Ben Graham’s security analysis, circa 1952. He actually came up with 12 screens you could come up with to find cheap companies. He said, find companies with low P/E ratios where the current assets were great. So, basically, you can go through that list.

In 1952, think of what you’d have had to go through to find companies based on that list. You’d be sitting there with a ledger sheet. You’d have to physically hand write in every company’s data. Every ratio and multiple would have to be hand calculated. So, let’s say first, your universe already is restricted. You couldn’t do this with 2,000 companies. You’d have to be at 50, 100 companies.

So, let’s say you did every single ratio. Price, earnings, current ratio for every company. Then you’d have to sort them; in 1952 that would have to be physical. So, in 1952, just coming up with the screens, running the screens was a huge exercise. And you needed access to annual reports. Already that meant that if you were in Iowa or you were in Denver, you were at a disadvantage.

There was somebody in New York who was able to walk into the SEC offices, which were physical offices then, and pull the data. Think of what’s happened over the last four decades. The investment world has become flatter.

Find me one advantage that active investors had in the 1980s that they still do. Their data, I have data. I might have to pay $500 for it. Their computers, I have computers. They can screen, I can screen.

I mean, you can run the Ben Graham screens in two minutes now. You go to these data sites, you can run the screens, find the seven companies fitted. I can almost guarantee that if you can run screens in two minutes, you’re not going to win with those screens consistently, because everybody can do it.

The investment world has become flatter, and much of old-time value investing was lazy. It was built upon screening for companies. It was never built on valuation. It was built on screening for companies, finding companies with low P/E and high growth; low price to book, and high return equity. And that might have been difficult to do 40 years ago, but it’s become trivial to do now. So, I think the world has changed in both dimensions.

[00:31:11] Alan

I mean, my impression is that part of the challenge of being a value investor is behavioral as well. I would have thought that you’re buying stocks that happen to be doing well.

[00:31:19] Aswath

Behavioral can affect only the pricing part of the equation. Value is value. All of behavioral finance is about why price deviates from value. Having a good grasp of behavioral knowledge will allow you to buy the companies with the values higher than the price, but where the price has a chance of adjusting to value much sooner.

I completely accept that we need to be more serious about behavioral finance, but not because it’s going to give us a better assessment of value, but because it’s going to give us a better assessment of what companies the price will adjust. Because remember, value investing is built on the presumption that you can estimate value and that price adjusts to that value.

[00:31:58] Alan

Flipping it around, obviously when people see NVIDIA stock price going up repeatedly, price influences the sentiment and behavior.

[00:32:04] Aswath

But that’s lazy value investing because you’re going to be betting against every momentum stock. It’s almost logical if you say, look, when something gets pushed up too much, it must be craziness. I’m going to sell. That is the strategy that has destroyed value investing over the last 20 years.

Because they did this. I saw them do this with the FANGAM stocks in 2012, 2013, 2014, they’re still doing it and they’re still wondering why they keep losing money. Maybe the problem is just betting against momentum doesn’t make you a value investor.

That’s what I mean by lazy value investing. If you want to actually value these companies that are at the height of momentum and say, don’t tell me the price earnings ratio is too high at 35, tell me what it needs to be given the growth and the big story that NVIDIA has. And that’s what I don’t see happening with value investing.

I think I will shed no tears for the burial of value investing, as it existed, because it’s time we put it to rest. It became, I think, the problem with old time value investing, and it’s one reason I’ve never gone to the Berkshire Hathaway meetings themselves. I’ve gone to Omaha, and I’ve talked to the people who come to those meetings but have never been inside that room is because I found that it had become … It was almost righteous and very ritualistic, which is to be a value investor, you had to go through the ritual. You read Ben Graham’s security or told people you did. You read every newsletter that Warren Buffett sent to shareholders.

You worshipped at the altar of Buffett and Munger. Don’t get me wrong. They were amazing investors.

And it was righteous, which is we’re the chosen ones. We do the hard work. We’re the grownups. That’s basically what I heard from value investors. We’re the grownups. These traders, they’re shallow. These tech investors, they’re shallow. And the problem with being righteous is you think you deserve to be rewarded for doing the right things. And that’s a terrible place to start investing. Once you think you deserve to be rewarded because you are the righteous group, and when you don’t get rewarded, you get really pissed off and then you double down.

And I see that, in value investing, where they double down. I’m going to show the market how wrong it is in NVIDIA. I’m going to sell short even more NVIDIA. Think of how many people have gone bankrupt selling short Tesla and selling short NVIDIA.

Tesla is my favorite example. It’s a company I value and I agree with you. It gets pushed up, but I’ve actually tried to value the company, which means there are three times in the last 12 years where I found it cheap. So, anybody who claims these stocks are always expensive, because they’re bought by momentum investors, doesn’t understand the meaning of the word bad.

Every single company you see out there, and you say, that’s a momentum stock, at some point in time… Every one of the max seven stocks in the last 15 years has been cheap at least two or three times. I mean, that’s how they’ve ended up in my… I own all of the MAG 7. I didn’t buy them in 2023, thank God, but they were all cheap at a point in time, and I chose to buy them then.

I think the words you should avoid in investing are ‘never’, when you say, I will never buy that stock, you’ve drawn a line in the sand. At the right price, you should be willing to buy any stock. And I think I want investment philosophies that start with that premise and then build on that premise.

[00:35:50] Alan

So just moving away from just valuing individual stocks to the market in general and the equity risk premium. And it’s something that I think can be confusing for people in some instances. Obviously, you can take a backward looking and a forward-looking perspective. So, I mean, how would you explain the equity risk premium to your students?

[00:35:55] Aswath

Basically, when investing in any risky asset, if you’re sensible, rational, and both those words might be overused, then you should demand more than the risk-free rate for investing it.

This started that question, is that a reasonable proposition? And they all agree, they all agree, if you invest in something risky, and I say, okay, think of equities as your risky asset class.

You’re putting your money in equity. So basically, you have a million dollars in savings, you’re deciding to invest something in equity. You can make 4.1% gain on a T bond. And let’s, for the moment, assume the T bond is risk-free. I mean, we can debate whether the US treasury is port free. Let’s say you can make 4.1%. I said, would you settle for 4.1%? They said, of course not. If I can make 4.1% guaranteed, I need more. Tell me how much more.

I actually start by surveying people. And as you go around the room, there are some people who say, I’ll take six and none. And because you have risk aversion that varies across individuals, some are born more risk averse than others.

I said, if this were the entire market and I took the average of what you demanded as a premium over the risk-free rate, that is the equity risk premium for the market. That’s our challenge in valuation is trying to figure out what that number is.

Well, one way people have answered it for decades, and this is what every valuation textbook does, is they look backwards. And usually at the US market. And they say, over the last century, how much would you have made investing in stocks as opposed to T bonds? And the answer is about 5%.

And then they make a leap of faith, and it has to be a leap of faith, which is if that’s what you made historically, that’s what you can expect to make in the future. And here again, the question I have is, if that was the 20th century, where the US was the most successful equity market in the world. It was a very different economy, a manufacturing centered economy. Or, in the 21st century, even if you believe that historical risk premium is the right premium for the last century, why would you believe that’s the right premium going forward? It’s the basis for why, 30 years ago, I started saying, look, I can’t use a historical premium because that’s backward looking.

I want a forward-looking number. But what I’m trying to estimate is what I tried to do in my room, I’m trying to do for the entire market. The problem is, I can’t send an email to every person in the market saying, can you tell me what your risk premium is, but I can see what they pay.

So, my approach to estimating equity risk premiums is, don’t tell me what your risk premium is. I want to look at what you pay. If you’re feeling good and you want a lower premium, you’re going to pay more for stocks upfront.

So, every month I take the S&P 500, I know what people pay. I look at the expected cash flows from investing in the S&P 500 companies. And that’s actually a number that’s pretty easy to estimate.

These are the 500 largest market cap companies, so look at the dividends and buybacks. And then I compute an internal rate of return. I basically say, you tell me how much you paid. I can see what your expected cash flows are. I can then reverse engineer what your return has to be. And I don’t care what you hope to make, what you prayed you would make. This is what you can expect to make. It’s very grounded in reality. It’s completely model agnostic. I’m not assuming the cap and the arbitrage. There’s no theory involved. I’m looking at what you pay, your expected cash flows, and I’m backing in.

Start of July of 2023, that number was 4.11%. That’s the lowest it’s been since before the 2008 crisis. Since 2008, equity risk premiums have been elevated. Why?

We can talk about all the things, crises that we’ve rolled through, globalization, and we’re starting to look. And if you’re a market timer, this then becomes the way you market time. You say, is 4.11%, too low?

If your answer is yes, it’s too low. You’re saying stocks are overpriced. You’re going to reduce your equity holdings overall, or if you’re daring, you’d sell short in stock, but you better hope you’re right on the judgment then. But the equity risk premium becomes a number around which we can debate. Are stocks correctly priced, overpriced, underpriced? Because the equity risk premium is a number that basically the market delivers to you. This is what it is, and we can ask, is it too high or too low?

[00:40:30] Alan

But is it fair to say then that the reasonable expectation for your total return is 8.2% for stocks?

[00:40:31] Aswath

It’s not a theory. It’s basically based on what you paid.

And whenever people think they can make more than that, I’ll give you an example. I have this equity risk premium computed historically, but based on data then, so, at the end of 1999. The equity risk premium is 2%.

The T bond rate was 6.5%. 6.5% plus 2% is 8.5%. But if you surveyed investors, at the peak of the dot-com boom, and you asked them, what do you think you can make on stocks going forward? You know what the answer you’re getting?

[00:41:14] Alan

18%.

[00:41:15] Aswath

15%, 16%.

[00:41:16] Alan

Okay, yeah, yeah.

[00:41:17] Aswath

When you’re telling me you expect to make 16%, but you’re pricing stocks to an 8.5%, you’ve got a disconnect made in hell. And reality is not going to adjust. Your expectations have to adjust. And what that effectively is, what the definition of a correction is, is when those numbers are forced to converge.

So, an interesting question is how many people are coming into the equity market expecting to make 14%, 15%, 16% because of what’s happened in the last 3, 5, 10 years? Because if you have a lot of those people coming in, then we have an expectations problem. It’s mismatched with the reality of what they pay.

I’m not sure we have the kind of disconnect we had at the end of ‘99. The surveys that I see, especially (remember these have to be evaluated) the surveys in 99, it was evaluated. The big portfolio managers thought they could make 15%. You’re getting numbers closer to 9%, 9.5%.

So, basically, the disconnect is not large enough that I’m looking and saying there’s something incredibly bad going on. I would ask you to think about that disconnect. If you tell me 8.5% is not enough for you, and I get people saying, well, that’s not enough for me. It’s your choice. You don’t have to invest in equities.

[00:42:35] Alan

I would have said 8.5% seems like a pretty reasonable number. There are people in the fund management side, I don’t know if you know managers like AQR or GMO, obviously GMO is a value house and you’ve given your thoughts of GMO.

[00:42:46] Aswath

Eight and a half percent is not unreasonable. And part of the reason it’s not reasonable is the T bond rate has gone up.

[00:42:51] Alan

Exactly.

But still, I mean, there are forecasters that are forecasting a lot less and I think maybe, pointing to reversion to the mean on margin and things like that.

[00:43:04] Aswath

They’re going to be history guide them, right?

If history is any guide and use the P/E ratio as your starting point, if you look at markets at this P/E ratio, this is the basis for people who’ve been predicting a crash for the last decade, and this is why I use equity risk premium. The P/E ratio is a blunt instrument. It doesn’t factor in the level of rates, it doesn’t factor in growth, it doesn’t factor in cash flows.

So, my replacement for the P/E ratio is the equity risk premium. So, I think that if those people are predicting big negative returns, it’s almost entirely based on P/E ratios reverting back to means. It doesn’t take a mad genius to figure out that your P/E ratio is going to go from 23 to 15. Bad things lie ahead of you in terms of returns.

[00:43:56] Alan

And I mean, obviously inherent in that forecasting process for the ERP is the cash flows.

[00:44:02] Aswath

It’s actually very easy, right?

[00:44:03] Alan

I mean, does that not get carried away at the top of a bull market and become excessively bullish?

[00:44:09] Aswath

Yeah.

I think, you know, they’re tied to earnings. And again, you look at S&P 500 earnings. So, these are top-down forecasts for the aggregate earnings of the S&P. Remember, you don’t have to be right in individual companies. What you will miss are macro shocks like COVID. But the reality is that’s not an analyst problem, that’s a market problem.

When something like that happens, of course, markets are going to correct. And I think that that’s why we demand an equity risk premium is because things like that can happen. So, it’s, in a sense, unrealistic to look back and say, well, you promised me 8.5%. How come I made only 3% last year? Nobody promised you 8.5%. That’s an expected return. You’re going to make 3% one year, and 15% in another year. This is a long-term, compounded annual return. It’s not a guarantee you’re going to make 8.5% next year. In fact, there are no guarantees. That’s why it’s equity.

[00:45:09] Alan

You mentioned macro shocks there, and obviously COVID was a temporary macro shock, and you’ve talked about how the economy is different.

[00:45:18] Aswath

Recessions.

Recessions are the classic macro shock.

[00:45:22] Alan

But I was going to ask you about maybe more secular macro shifts and, you know, which are unknowable, but we’ve lived through, say, 40 years of declining interest rates, declining inflation, a very good environment for, you know, neoliberalism, free markets, et cetera. A lot of macro commentators come on here saying we’re moving into a more challenging period.

Do you just ignore all of that when thinking?

[00:45:45] Aswath

You know, challenge is such a weak word. You know what? I’ve been in this market… I’ve been in markets 40 years. Every year is a challenging year.

[00:45:46] Alan

Say, taking something as simple as inflation, say inflation volatility is going to be higher going forward. Would that impact your valuation in any regards?

[00:46:05] Aswath

Inflation volatility, being higher, is going to affect businesses. The question is pricing power; if you have pricing power in the sense you can insulate it. That’s part of the reason I think 2022 was a big adjustment year because it went off a decade of historically low inflation to normal inflation.

Let’s be very clear. The inflation we’re seeing in 2023 and 2024 (not 2022) is actually inflation which was normal pre-2008. And the question you’ve got to ask is what is the abnormality? Is it what we’ve seen since 2022, or what we saw between 2010 and 2020? I would argue that we lived off an abnormal decade.

That people would keep saying, when are rates going to go back to 2%? And investing on that basis might be looking for something that might never come back again.

[00:47:02] Alan

Well, exactly. But if that’s correct, and say we’re heading back to something more like the 90s and the 10-year rate is going to settle at say 6%, would that, in the process of getting there, would we see an adjustment of valuations?

[00:47:18] Aswath

There’s no place to hide. There’s no place to hide, right?

All financial assets will be affected. Moving money out of stocks into bonds is not going to help you. Maybe you’re holding cash. And I think unless you can … I mean, it’s … I actually did a paper on the Shiller P/E where I looked at these macro adjustments.

I said, look, not only do you have to get the macro shift right, you’ve got to get it right in a timely way or what you lose by holding cash, waiting for that macro shift, the money you lose will be greater than the money you make because you avoided the macro shift. It’s a history of market timing.

Market timing done right is an incredibly successful moneymaker done right. And if you look back in time and you say, why are there so few successful market timers? There are very few. We can look at stock pickers over the last centuries and say that guy was an incredible stock picker. But market timers are like shooting stars. They succeed during one market cycle, but then you follow them up and by the next cycle they’ve gone from heroes to dogs.

It’s almost like market timing is that you got lucky, and then you convince yourself you were just skillful and then you put out this market timing strategy and it never seems to work. I’m still waiting for a market timer.

I still hear these gurus. They call 2008. It’s amazing how many people call 2008 in hindsight and we’re listening to them because they got 2008 right.
Come on, guys. I mean, they’ve had 15 years to try it and they’ve been wrong so often. How much credit can we give for one big market call before we decide, hey, that guy got lucky or that person got lucky?

A lot of market timing is just that you got lucky, you are at the right place at the right time, but then you convince yourself you’re a market timer. I am not a market timer. I’m a terrible market timer. I know it. I don’t try. And when somebody claims to be a market timer, I listen and say, good, you invest your own money on that and I’m not giving you my money because I know my history and my history suggests that market timing is the impossible dream.

[00:49:28] Alan

And you mentioned the CAPE, Robert Shiller’s, specifically adjusted price earnings ratio. Is that just…

[00:49:36] Aswath

It’s just fancy P/E. I mean, you would graph out P/E, Shiller, P/E, CAPE, they all look alike.

[00:49:41] Alan

P/E is too simplified is your perspective.

[00:49:43] Aswath

Yeah, it’s patina of sophistication. You adjust for inflation, big deal. You’d put the three graphs together. You call one, you called the other two. So, it’s just a patina of sophistication on a regular P/E ratio.

[00:49:56] Alan

Okay. So, for all of the shortcomings of P/E, that applies to the CAPE as well.

[00:50:02] Aswath

On the CAPE as well, right.

[00:50:03] Alan

In terms of valuations and going back to the 10-year yield, obviously 10-year yield went from, I mean, it touched as low as 50 basis points or something, but it was around 1% or so in…

[00:50:15] Aswath

During 2020.

But it was around 2% for the bulk of that decade. And you had that jump to 4%, and 2% to 4% is a much, much bigger adjustment than 6% to 8%.

[00:50:25] Alan

Okay. Yeah.

[00:50:27] Aswath

That’s what made 2020 the worst year in bond market history; the worst year in bond market history. That 2% to 4% made everything implode.

[00:50:37] Alan

Are we surprised we didn’t see a bigger adjustment in stocks given that size of that increase?

[00:50:41] Aswath

No, I’m surprised that we adjusted as well.

So, in a sense, it was a bad year. It was 20% drop in stocks, but we also discovered that the stocks that carried us through 2022 were the company’s pricing part. That’s again, why the winners kept winning is not only were they the winners, they were the companies that were able to pass inflation through.

Because remember, inflation can be a neutral variable for stocks. Rates go up, required return goes up. But if you can also push up your profits by the inflation rate, everything evens out.

Historically, stocks have been negatively affected by inflation because it’s tough to pass through everything. And in 2022, you saw the effects of inflation being negative for the entire market. But individual companies were able to kind of show us pricing power.

And that’s why, in 2023, you saw the comeback of the, of the MAG 7, the FANGAM, and as they said, hey, we can raise our prices. Look at the price of your Amazon primary and Netflix subscription, and you’re seeing how these companies are able to pass inflation through. And if you can pass inflation through, you can at least partially insulate yourself against inflation.

[00:51:53] Alan

Yeah. And I mean, moving away just from a US perspective to a global perspective (and I know you do the risk premium across the world for all the different countries). I mean, there has been this constant kind of recommendation from more value oriented investors to say, down with the US, go into emerging markets. It’s cheap. There’s value there. So, it’s the same shortcomings you’re talking about. Is that right? That the growth story isn’t there?

[00:52:17] Aswath

If you tell me, see, you got to work through the numbers, right? So, if you’re telling me that African stocks are cheap, don’t just say they’re cheap because the P/E ratio is lower. Show me. Value some African companies.

Value Dangote Cement and show me that it’s cheaper than buying a cement company in Europe, Asia. Work through the cash flows, work through the reality of country risk in those cash flows and the corporate governance being effectively dead in the water. And then I’m willing to listen.

But I think that when I hear people say a market is cheap, I mean, if I use P/E ratio as a definition, I should be loading up on East European and Russian stocks. They’re trading at low P/E ratios, but there’s a reason for that. So, I’d like to see some substance behind the word ‘cheap’ rather than just say, hey, they’re cheap because the P/E ratio is low.

[00:53:09] Alan

Another thing you get some confusion around is the link between GDP and earnings. Some people say there is a link, and there is not. You would think that if the economy is strong, earnings potential are better, but then it’s a weak link or how do you think about that?

[00:53:29] Aswath

There is a link, but it’s a global link, right?

The reason the S&P 500 earnings have disconnected from the US GDP, 60% of the S&P 500 revenues now come from outside the US. I would say it’s the same thing across European markets. I would wager that if you took the German market, the French market, and you look at the 20 biggest companies, they’re not German companies and French companies, they’re multinationals that through the accident of history happened to be German or French. We live in a world where the largest companies, even in many emerging markets, are multinationals.

So, I would say if there’s a link, it’s to global GDP, not local, which is one reason you can have stock prices go up even when your economy is in a recession. I mean, we had a more abundant economy for a decade. In the US, in the last decade, markets did well because companies found a way to show earnings growth even in the face of…

[00:54:28] Alan

Yeah. But obviously we saw multiple expansion in that period as well. That’s fair to say. Yeah.

Looking ahead, I mean, when you’re doing that analysis and if you were advising or helping somebody think about global allocation, I mean, your starting point, I guess, is the calculation of the equity risk premium in different worlds, or different parts of the world.

[00:54:49] Aswath

No, my starting point is draw a pie chart of the market caps of every company in the world. And then look at your portfolio. And the further away your portfolio is from that pie chart, the more you’ve already taken an active investing choice.

We’ll establish that we have a local bias. Investors all have a local bias. Irish investors probably have less of a local bias than German investors do, but German investors all invest in German stocks and US investors are perhaps the most local biased.

What’s bailed them out is the biggest U companies happen to be global companies. So, I think when you have a portfolio, which is out of sync with that global pie chart, the question I always ask is, am I making an active investing choice here or am I doing it without even knowing I’m doing it? Because when I deviate from that, I mean, right now the US is almost 50% of the global equity market.

That’s what the rise in US equities, over the last few years, has done. That’s much higher than it was. China has dropped from being about 30% down to less than 20%. India has risen. I mean, I think whether you like it or not, you need to have companies with Indian and Chinese exposure in your portfolio. I didn’t say Indian or Chinese companies. I said companies with Indian and Chinese exposure. And I think that is just a sensible thing to do for the long term.

[00:56:14] Alan

So, a reasonable starting point is the MSCI world cap weighted.

[00:56:20] Aswath

Actually, the problem with the MSCI, it’s a strange index. Obviously it has a history. Because I have access to S&P cap, like every publicly traded company in the world, I create my own pie chart, and I’ve put it out on my website, basically where I add the market cap of every company in the world. Not just the companies in indices, not just big companies because the MSCI is more large company pie chart than all company pie chart because it picks and chooses companies.

So, I would say having a global pie chart as your starting point and have a global pie chart of sectors as well and ask yourself, you know, if you’re 60% in technology or you’re 12% or 2% in technology, either way, you’re undershooting. Technology is now about 26% of the global market. It’s about 30% of the US market.

So, I think if you’re a 2% technology, I have some questions for you. I don’t care how great your value investing skills are, say, what are you doing? How can you be that?

Now, and if you tell me, I think technology is collectively overpriced, then you’re not picking companies. You’re making sector pricing judgments. And I’d love to see the backing for that.

Are you valuing entire sectors or just avoiding them because of high P/E ratios?

[00:57:36] Alan

Just conscious of that we’re coming up against time. So, I have a couple of quick things. I mean, what about assets with no cash flows?

Is there any reasonable valuation?

[00:57:45] Aswath

Not assets. They’re investments.

You can have investments. Okay, Picasso.

[00:57:48] Alan

So, okay.

So, gold or Bitcoin is.

[00:57:51] Aswath

You can only price them. You can’t value them.

[00:57:54] Alan

You can’t value them.

[00:57:55] Aswath

Right. You can price them. Based on demand and supply. And then you can ask, you know, if you want to, you can dig deeper and say, what determines a good currency? What determines a good collectable? And I think there are sensible ways you can price them, but you can’t value them.

So, when somebody says gold is undervalued or Bitcoin is undervalued, what I learned from that is they have no sense of what value really means. It can be overpriced or underpriced, but then you got to give me a rationale for it. But investments with no cash flows cannot be valued. They can only be priced. So, currencies cannot be valued. Collectibles cannot be valued. Even commodities cannot be valued.

[00:58:29] Alan

And in terms of risk and risk measures, how do you think about that? I mean, obviously you mentioned, obviously equities are riskier than bonds. Is that riskier from a volatility perspective or from what perspective?

Because I mean, some people would say…

[00:58:45] Aswath

There are multiple measures of risk. Ultimately, the way risk shows up is how much your portfolio moves from year to year.

That’s the bottom line, right? Everything else…

[00:58:53] Alan

So that is a volatility measure. A lot of people, a lot of people don’t like that equating risk and volatility.

[00:59:01] Aswath

Or it could be a downside measure, right? If you don’t like volatility, you can tell me the most you’re willing to lose in your portfolio, and I can reverse engineer from that what your asset allocation has to be. It doesn’t have to be volatility. It doesn’t have to be day to day. What people don’t like is day to day volatility where you’re reacting to your portfolio going up 3% in a day or dropping 2%. I agree with that.

That’s a pricing effect. The problem with intrinsic volatility measures, like focusing on earnings volatility or cash flow volatility, is it’s a piece of the value puzzle, right? Earnings is not what drives that – earnings growth, cash flows.

You can truly know I do Monte Carlo simulations of my intrinsic values for companies. And guess what? It’s a volatile number because things can happen. There’s a COVID in the future, or a COVID-like thing.

So, the reason I do Monte Carlo simulations, when I value companies, is to make myself aware that there is not a value number, but a distribution of value. All investment decisions are based on comparing those distributions.

[01:00:09] Alan

So, I mean, yeah, if we’re saying that the equity risk premium is 4.1%, so that means 8.2%, say, over the next 10 years, but when standard deviation is probably, it could be flatter up to 16% or maybe not that much, but it’s of that order. Is that fair to say?

[01:00:26] Aswath

If you compounded return over the next year, if you’re looking at a decade long annual return, it could be anywhere from 4% to 12%.

[01:00:33] Alan

4% to 12%, okay. That’s a huge difference.

[01:00:35] Aswath

Dramatically large out, because the way to think about it is 4% to 12% doesn’t sound that bad. And you put in a $100,000 right now, and you think about how much money you’ll have in 10 years with 4% as opposed to 12%.

And if you’re setting aside money for pension, this is an abstraction. This could mean the difference between you living in a poor house and living comfortably. So those are big variations.

So that’s why as you approach decision days, retirement, you need to bring your variation down. The only way you can bring it down is by having less money in equities. There’s no way around it. Less money in equities.

So, it depends on how much you’re counting on that end number. So, it’s not really the standard deviation in returns from your deal, but the end number you think you will have as a result of you saving money and investing it that you should be thinking about.

[01:01:39] Alan

I mean, from that perspective, obviously, then people with multi-generational kind of portfolios, they can just ride it out. Is that fair to say?

[01:01:43] Aswath

Yeah. And I think if your income stream remains healthy, then you can ride things out. I mean, there are lots of things you can do to insulate yourself from your tier of volatility if you consciously plan for it, right?

[01:01:59] Alan

We always like to ask our guests for some advice for people starting in the industry. Obviously, you’re teaching a lot of students. I’m sure you’re giving them a lot of advice all the time, and there’s a whole lot of books you’ve written yourself that we could point people to.

I mean, anything that you would suggest to people as they go through their investing journey, or if they want to get better at investing, any things that have been influential for you or that you would strongly suggest people do?

[01:02:24] Aswath

Read less, think more. I think we’re in a world where we’re surrounded by so many opportunities to go look things up, read what other people think that we’re drowning in other people’s opinions. We’re drowning in…

It’s a Google search word, right? You can read every single Warren Buffett letter to his shareholders in an afternoon, and we’re not giving our minds enough time to think, to create our own… You need to come up…

I can give you my framework for thinking, but you need to come up with your own. That’s part of the investing journey is developing your own original way of thinking that reflects who you are as a person, what makes you think, your investment philosophy. For that, you’ve got to give your…

You’ve got to allow your mind some idle time. We live in a world where we don’t really have that idle time anymore. We are surrounded by technology and devices where we’re reading, we’re looking up things.

We have data, we have charts, we don’t have that space and nothing to do. I think that’s really your biggest potential differential advantage over the AI machines that are going to be coming that will replicate a Warren Buffett mindset.

There is a bot out there with your name on it that’s coming for you, and your job is to find things to do that your bot can’t do. Think of that as your 10-year mission, is you have about a decade to play this out because if all you do is mechanical stuff, a bot will do it much better than you can.

[01:04:07] Alan

Very interesting. So, Aswath, thanks very much for doing this today. It’s been a fantastic conversation. I really enjoyed getting your perspective on all things markets, investing, and valuation.

So, make sure to follow Aswad’s work because as you can tell from today’s conversation, we live in a fascinating global macro and valuation-driven world. So, from all of us here at Top Traders Unplugged, thanks for tuning in and we’ll be back soon with more exciting episodes.

[01:04:10] Ending

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