Aswath Damodaran discusses the impact of politics on investing and the need to adapt to uncertainty.
From Nasdaq: 2025-04-16 10:33:00
Aswath Damodaran, a professor at NYU, discusses the intersection of politics and investing. He talks about valuations, taxes, and the role of uncertainty in investing. Damodaran emphasizes the global nature of uncertainty and the need to adapt to changing environments for successful investing.
Damodaran shares insights on investing $1,000 and the importance of considering value versus price dynamics. He highlights Stock Advisor’s 10 best stock picks for investors to buy now, with an average return of 818% compared to the S&P 500’s 156%. He stresses the need for investors to be adaptable in uncertain times.
In a conversation with Ricky Mulvey, Damodaran discusses the current uncertainty in the US and globally. He reflects on the historical stability of the US market and the impact of global events on investing decisions. Damodaran emphasizes the need for investors to adjust their strategies to navigate uncertainty effectively.
Damodaran delves into the evolving relationship between politics and investing, noting the increasing overlap in recent times. He explores the implications of this merger for valuation and equity premium estimation. Damodaran highlights the shifting global order and its impact on investment strategies in a changing world. Investors are feeling unsettled as global events shake up markets. Analysts advise to step back, gain perspective, and focus on basics like cash flows, growth, and risk. Political connections are now a factor in company valuation, as seen with Tesla’s ties to the government affecting consumer behavior and revenue growth. It’s crucial to factor these influences into valuation before it’s too late. In the US, it’s uncommon to value companies based on politics, but it’s necessary. The Mag 7 stocks, including Tesla, have dropped around 20% from their highs, with Tesla down almost 40%. Despite this, companies like Microsoft and Apple are well-positioned to navigate uncertainty due to their online nature.
Owning six of the seven Mag 7 stocks, Aswath Damodaran believes these companies, like Apple and Google, will continue to dominate their industries and generate strong earnings. While regulatory concerns loom for Amazon, he remains comfortable with his investments, factoring in taxes as a key consideration when deciding to sell. The Mag 7 companies have collectively accounted for 15% of the increase in market cap of all US stocks in the last 15 years. Aswath Damodaran emphasizes the importance of technology companies in the market, which now make up 30% of the market. Passive investing is on the rise, with ETFs and index funds now comprising over 50% of all investing in the market. This trend is likely to continue due to the history of underperformance by active investors and the ease of switching to passive vehicles. Passive investing is becoming more popular, leading to an increase in money flowing into large-cap stocks, potentially driving market trends. Technology and disruption have turned many industries into winner-take-all markets, affecting stock prices. Investors should consider the uncertainty of value and price adjustments when deciding on concentrated or diversified portfolios. Market dynamics are changing, requiring a shift in investment strategies to adapt to uncertainty and market conditions. Individual investors should carefully consider their risk tolerance and investment goals when deciding between active or passive investing strategies. Investors are advised to diversify their portfolios with at least 25 stocks to mitigate risk, as valuation certainty can change over time. Dividend policies should be flexible, tied to factors like oil prices or regulatory capital ratios, to avoid paying dividends companies can’t afford. Buybacks can create value transfers but neither dividends nor buybacks create value. Flexible dividend policies are crucial in today’s unpredictable market. Randi Zuckerberg and John Mackey are both members of The Motley Fool’s board of directors, with positions in various companies including Alphabet, Amazon, Tesla, and Walt Disney. The Motley Fool also has positions in and recommends other major companies like Meta Platforms, Microsoft, and Tesla. Their disclosure policy is available on their website. The views expressed are the author’s own and not necessarily those of Nasdaq, Inc.
Read more at Nasdaq: Aswath Damodaran on Investing in Uncertainty