Having passed the CFA levels I want to delve a bit deeper and build some valuation models. I found a couple of useful excel templates on the Damodaran website which I’m looking to use.
Should I buy the Damodaran Investment valuation to help with this? I don’t want just another CFA II book costing $50. Is it worth it, is it practical or theoretical?
Or should I look at the Wall street prep type of courses?
The Damodaran excel templates looks pretty self explanatory, is it a good idea to use them alone.
I don’t want another 80% theoretical reading assignment.
Extra info - I’m not working in the valuation industry (obviously)
Damodaran is the standard, hoever I find the CFA level II books more straight forward and helpful. Damodaran gets way too detailed sometimes to follow.
10%, Damodaran is a very academic approach to valuation. As we know, valuation results are only as good as the assumptions. I think what is in the Level 2 books sufices because choice of growth rate, discount rate etc can vastly change your valuation result, more than the minutia in the Damodaran book. Most fund portfolio managers I have talked to use very general approaches to valuation, sometimes not even using FCFE or FCFF, but rather EPS, and arbitrary discount rates and normalized growth rates or just using market based valuations such as relative P/E, P/B, P/S, EV/EBITDA, etc. . I think Damodaran is way beyond what any stock picker would need. His approach is very academic and probably only suitable for the graduate level classroom…in my humble and underqualified opinion.
Why not take the most practical aspects of both McKinsey and Damodaran? Both sources are good and I think one of the best things you can do as an analyst is to develop the most rigorous view on valuation that you can.
The issue is that most buy side managers don’t seem to do that. They tend to take a more generalistic approach to valuation and also focus on the qualitative aspects of a company as well. Stock picking should not be made into a science.
If stockpicking were an exact science, it would be as meaningless as asking 10 phyisicists to calcualte the trajectory of a baseball and expecting different answers…i guess it is just the general scientific approach or framework that matters, the rest is a combination of intuition,common sense and timing
I find that I regain insights every time I go back and reread Damodaran. He does seem excessively academic and detailed at first, but if you are trying to figure out what valuation method gives the most likely result for your situation, those little details can help you make that choice, which is really useful when different valuation methods give you different results.
Which Damodaran are you guys referring to? Investment Valuation or Damodaran on Valuation?
An old professor recommended Shannon Pratt. I have Pratt’s “Valuing a Business” as well as Damodaran’s “Investment Valuation”. I found them both at a used bookstore, but have found no use for either, since I don’t do valuations. (I hope to someday.)
I have Investment Valuation by Damodaran…I reference it from time to time, but then I always end up looking at Analysis of Equity Investments. It is simpler and more straight forward.
If and when I ever start doing business valuations, it will be mostly for small, closely-held companies. For example–Dad has a business (an S-Corp) and wants to sell to Junior and I need to perform a valuation for tax reasons. (Death and divorce are also reasons why I’d do a valuation.)
This being said–is there one book that is better than another? I assume the “Analysis of Equity Investments” as described above would only be good for valuing publicly-traded stocks–not Dad’s Tire Shop.
The purpose of this is so that I can educate myself in the practical aspects of valuation to help make me more employable in the equity research industry. I’ll use the models to valuate the stocks in my portfolio and after that try and write a research report. Then I’ll call Numi.
I’ll go with Damodaran’s Investment Valuation, I think it will help me build valuation models (or use templates and understand the inputs very well)
Pratt is best for that. I would assume there are some classes required to earn the ABV designation, so they will likely require you to purchase a text.
You can watch Damodaran’s MBA classes online, for both Corporate Finance and Valuation - it follows his books, but sometimes it’s most memorable to watch it, and he’s a great teacher. You can download the audio-only classes and play it at your car or whatever.
There are also a bunch of easier reads from great investors or teachers that can help you with stock picking, like Lynch and Greenblatt.
Personally, I think it’s much better to start with the more structured reads, such as Damodaran. Then reading other books will not only be easier and quicker, but you’ll have a framework to decide what makes sense to you and what doesn’t.
When you start developing your research reports you may benchmark yourself against whatever you think it’s good at valueinvestingclub.com.
For learning how to model, most people say Benninga’s book is pretty good. I can’t vouch for it since it’s still on my to-be-read pile, but it seems to be the main modeling reference: