The 7 most dangerous words in investing

Aswath Damodaran is an NYU finance professor and an expert on corporate valuation. His blog, Musings on Markets, has become an important resource for value investors, especially on the big headline stocks like Facebook ('Hoodies, Hubris and Hoopla') and Apple ('Know when to fold 'em').

In a recent MBA valuation class, covered by Business Insider's Max Nisen, Damodaran shared this nugget:

"They Must Know Something That I Don't." Remember those seven words, they're the seven most deadly words in investing and valuation. They Must Know Something That I Don't. You know when you learn? You value a company.... You value it when the stock is at $640, you come up with a value of $200. What's your rational side saying? Don't buy that stock, right? Then you hear this voice… they must know something that you don't.... And when you hear that voice, magical things start happening to your valuation. Your cash flows start to go up, your discount rates start to go down, your growth rates start to expand. $200 becomes $300 becomes $400. You will not stop until you get to $640.

 

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