Professor of finance
Includes shares in Volkswagen AG, Valeant Pharmaceuticals International Inc., Apple Inc. and Yahoo Inc.
Aswath Damodaran is best known as the author of several books on investing and equity valuation. One of his more popular publications is The Little Book of Valuation: How to Value a Company, Pick a Stock and Profit (2011).
How he invests
Being a leading expert on value investing, it's not surprising Dr. Damodaran is a value investor in his own portfolio. But his version is somewhat different than most other value investors.
In his view, it is difficult to have an edge in an environment of certainty. For companies "with profit-making histories and a well-established business model in a mature market," it's easy to build valuation models – but this ease also means many more investors are in the hunt, making it hard to find true bargains before they are captured by others.
The edge is to be gained in an environment of uncertainty, which includes unknowns such as delayed financial reports, busted business models and heightened political risks. In this environment, it's difficult to do valuations and many investors prefer to wait on the sidelines until more information arrives. So real bargains are more likely to be found by those who can deal with the uncertainty, Dr. Damodaran suggests.
It's possible investing during uncertain periods may lead to more valuation errors. Dr. Damodaran addresses this risk by having a diversified portfolio.
He bought Volkswagen stock in early October after the scandal over falsified emissions tests had knocked 40 per cent off its price. There was a lot of uncertainty over the cost of regulatory fines, lawsuits and other matters, but he didn't wait for estimates to come in. Instead, he developed his own estimates, based on precedents such as Toyota's scandal with faulty gas pedals in 2010.
He invested in Valeant Pharmaceuticals in April. Instead of waiting for the company's delayed financial reports, he went ahead with a revision to his valuation model that allowed for restatements of past financial results, debt default risk, a much lower growth rate and other variables.
Buying Apple's stock in the late 1990s.
Buying shares in Brazilian mining giant, Vale SA, at $10 (U.S.) and selling for $5 last year.