This week on Masters in Business, we speak with Aswath Damodaran of NYU Stern, author of 11 books on investing, including the upcoming Narrative and Numbers: The Value of Stories in Business.
He describes the challenges confronting investors trying to objectively evaluate the valuation of companies, either public or private, including public firms such as Tesla and Amazon, and private firms like Uber and Theranos.
Damodaran states that “Good Will” is the most destructive accounting item ever created in history — its how accountants fess up they made a mistake— he calls it a “plug variable that artificially is used to make up for bad purchase prices.” He believes “Good Will” should be renamed “X” because its an unknown variable.
He also compares and contrasts CEOs like Elon Musk and Jeff Bezos and the value they create long term. Damodaran notes that Tesla has a delusional CEO, whose business narrative seems to change constantly. The company has some powerful strengths at its core with substantial relationships with loyal customers, but little focus to help deal with its distractions like Solar City acquisition, and Musk’s goal to retire on Mars.
Amazon’s CEO is the opposite of Elon Musk —Jeff Bezos laid out his vision in 1997, and has stayed true to that over the ensuing 20 years. Damodaran has called Amazon is a field of dreams company — if they build it, the customers come.
Next week, we speak with Bill Miller, former CIO and Chairman at Legg Mason.
Please send your comments and suggestions to MIBPodcast at Bloomberg dot net.