How A Storyteller Understands Investing

This lyrical piece was inspired by the aphorisms and lessons I gathered while auditing the lectures of (the one and only) Professor Aswath Damodaran. I consider Professor Damodaran a philosopher of Finance—one of the most original thinkers in academia as well as one of the greatest minds in the financial world today. As a ninth grade student in India, I read his ‘Little Book Of Valuation’ and was immediately inspired to apply to Stern. Though I went in as a freshman thinking I would become an investment banker after graduation, four years later I see myself taking the path of the entrepreneur. I will be graduating more as a philosopher, poet, or psychologist than banker, but the lessons taught in finance classes are not lost on me. Writing or poetry is just a different way of processing things. The first draft of this piece was composed real-time during his insightful lecture on Biases in Investing, and the piece was finished a good one month later (thanks to the forces of procrastination). I urge you to check out Professor Damodaran’s work if you are interested in learning more about finance and valuation. Enjoy, and try to think critically about each part of this piece. Find your own style.

On Valuation

Written by Karan Magu, Class of 2017

Going where it’s darkest

you must bring the light,

Oh, the kinds of things

you are likely to find.

You stand at the very brink

of the unknown,

A lemming with a life vest,

struggling to stay afloat.

.

In this sea of volatility,

know that sometimes you will sink,

At times it won’t work out,

it’s more difficult than you think.

Valuation is based on growth, risk and cash flow

It’s neither Art nor Science

but a Craft you can learn to know.

.

In your search for the Holy Grail

the world will oft remark

that You naïvely seek

in the wrong direction.

They will call you delusional,

they will call you misguided,

they will say that your path needs correction.

.

But you must keep on swimming.

.

There’s so much deception

mixed in with all these projections.

But you must stay ever steady on your course,

and look beyond the discouraging façade.

You must venture beneath,

wipe all the mist clean,

and discover

the intrinsic value that lays underneath.

.

Because when you signed up for this,

you made your claim,

learning to live with uncertainty

That is the game.

This craft isn’t clean,

there will never be surety

If you value something,

be ready to act on it;

know that it’s about pragmatism, not purity.

.

The more uncomfortable the valuation,

the more rewarding it will get.

Trust yourself, reach out for the hidden gems

You shall catch them

if you cast a wide enough net.

Don’t tread the beaten path,

don’t fall for an easy sell

What’s the point of finding value

where everyone else can as well?

.

Remember that there is no right answer,

ask yourself if you could live with that.

Your best judgments might fail

And you might have to pay the toll

To learn how to value,

you must make some risky choices,

learn to give up some control.

.

Because think as you may,

in all your intellectual hubris

There will be some things

Beyond your power.

Sometimes in business

reality it hits you,

like the dagger-stream

of an ice-cold shower.

.

So be bold, prepare,

Be ready to take on any situation

If you dare.

Because inevitably, after some time

in this black box of business

your mind will get caught up

in the market’s momentum.

.

You will lose yourself

somewhere along the winding way,

when you are desperately searching for a clue.

You will try to wage a war, build a DCF,

build that model,

Only to realize that its not you

who runs the model,

the model’s running you.

.

So accept that there is no safe shelter anymore

and venture beyond those concerns,

move forward with caution,

especially when sweet smell of success is near, 

but most of all,

you must move forward without any fear.

.

Who cares if

the pillars of the past have crumbled?

You’re out in the open,

don’t rest on your laurels,

distraction shall see your ambitions humbled.

.

So Beware, stay aware, and keep up the vigil

You must stay on your feet

and remember to keep on questioning.

Logical thinking must be inspired in its direction

by the ancient faculties of instinct and gut.

Trust, but verify,

try to eliminate indecision,

try to never fall in a rut.

.

You see, Value, it needs some kind of imagination,

It is implied and inferred and induced.

Try to know your delusions, try to

believe that your biases can be reduced.

.

The nature of markets is constant change,

If you don’t stand for something,

you will fall for the many traps

that find you in range.

.

In the markets, as in life,

there is no single way,

there is no ideal or no platonic form.

Everyone makes their own assumptions,

but few can back them up with reason

Or change their mind when reality deviates

from what they thought was norm.

.

There is no norm, no equilibrium

In the long run, we see that there is no steady state.

.

It’s all a game of volatility and chaos and tumult,

it’s cycles of expansion, and bursts of recession.

Hamsters on the wheel,

most of us chase the tail of this mischievous market,

some of us long enough to call it our profession.

.

But a few of us, we are made of Sterner stuff.

We step out of that hamster wheel.

We dissociate, we call an offensive

with reason as our war machine,

seeking to infiltrate the walls of the market,

diving deeper to uncover its mysteries.

.

If push comes to shove,

The idea is not to be the best,

It is to beat the rest.

And to remember not to cling on

all too much to our ego and pride.

Reality, it’s simple,

it’s mainly about protecting the downside.

At the end of the day,

Things don’t have to be elaborate,

you just need to know the right default rate.

.

So try not to think like a lemming,

be above it all

like a bird.

There’s only folly and loss

if you follow

the herd.

.

And with that, we have come to an end, my friend.

In parting, this I will say:

.

If you can keep your head about you

When all others are losing theirs

You’ll be able to beat the financial markets

And be the master of your financial affairs.