Five Friday Finds-Valuation Topics to Talk About
July 13, 2018, Curated valuation content from around the web…
1. Hidden Gem From Damodaran on Story-Telling with Numbers
According to our friends at BVR, too few people have watched a YouTube video of Dr. Aswath Damodaran (Stern School of Business, New York University) talking about the dangers of using numbers without any narrative when constructing valuations. The video is from a continuing education presentation he gave to CFA Switzerland this past November in Zürich. This video should have a lot more views because it’s a crucial topic. Damodaran thought it so important he wrote a book on it, Narrative and Numbers: The Value of Stories in Business.
2. Damodaran’s New App for That
Now that you’re a fan of Damadaran, or very nearly one, we thought you also might be interested to know that his website has been converted into an app for the iPad and the iPhone (download it here). Valuation geeks will find a treasure trove of valuation data (updated annually), tools, and the classes he teaches. There’s even a YouTube video where he talks about the new app, welcoming any and all feedback.
3. Beware Pie-in-the-Sky Valuations in Delaware
“Market evidence matters” is one lesson from a string of appraisal decisions in which Delaware courts have rejected claims brought by merger dissenters that the fair value of a company’s stock is higher than the price paid in the transaction. In an article, partners at Wachtell, Lipton, Rosen & Katz say, “[T]he courts will not readily accept pie-in-the-sky valuations prepared by hired litigation experts that do not correspond to the price investors and buyers with actual money were prepared to put at risk.” On the other hand, the authors point out that for “strategic transactions—which may include synergy value to which dissenting stockholders are not entitled under the appraisal statute—Delaware has made clear that the appraised value may well be less than the deal price.”
4. Global News: AI Shouldn’t Replace Judgment
In an interview Martin Brühl, chief investment officer and member of the management board at Union Investment Real Estate, a Hamburg-based investor, was asked how he would like to see the valuation profession evolve over the next few years. “I would like to see a continued focus on the human element of valuations,” says Brühl. “While technology and access to new data is certainly helping to enhance valuations, I am concerned about too much automation, report-writing generated through algorithms without necessarily reflecting the complexity and uniqueness of real property assets.” He goes on to say that skill and judgment should be aided, not replaced by, tools and technology such as artificial intelligence (AI) and algorithms. “After all, valuations are hypothetical prices being paid in a transaction between two entities, two human beings, and to anticipate what the price would have been if that transaction had occurred on the valuation date is something which I don’t see machines doing.”
5. Valuing Cryptoassets
It’s tricky, and the science is still emerging for valuing cryptoassets, says an article in MIT Technology Review. One pioneer is Chris Burniske, a co-founder of Placeholder Ventures, a New York firm that specializes in cryptoassets. He and other financial analysts are starting to get their hands on real tools for determining the underlying value of blockchain networks. The metric that has emerged as the most common way to determine what a given network is worth is called the “network value-to-transactions ratio,” he says. Burniske is the author of a new book, Cryptoassets: The Innovative Investor’s Guide to Bitcoin and Beyond.
Five Friday Finds Content is curated and edited by Alina Niculita, Director of Valuation Services at Morones Analytics