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Aswath Damodaran Profile picture
@AswathDamodaran
Jul 3, 2021 • 8 tweets • 6 min read • Read on X
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As investors & companies globalize, we recognize that risk varies across countries for many reasons, and the need to incorporate that "country risk" into decisions. My seventh annual update on country risk is here: bit.ly/3ylZ8dK, with data here: bit.ly/3jEHP3m
1. Corruption: The roots of corruption don't lie in cultures, but in systems (over regulated regimes, with underpaid rule enforcers), but corruption is an implicit tax, and its effects varies widely across the world. Paper: bit.ly/3ylZ8dK & data: bit.ly/3jEHP3m Image
2. Violence: Operating a business in the midst of violence, from within or outside, is riskier than in peace. The threat of that violence is higher in some parts of world than others. Paper: bit.ly/3ylZ8dK & data: bit.ly/3jEHP3m Image
3. Property rights: For businesses to survive and thrive, property rights need to be enforced, and they are more strongly in some parts of the world than others. Paper: bit.ly/3ylZ8dK & data: bit.ly/3jEHP3m Image
Measuring country risk is complex, but entities do try. I use @PRS_Group measure of composite country risk to capture differences across the world. Paper: bit.ly/3ylZ8dK & data: bit.ly/3jEHP3m Image
Market measures of country risk are narrowly focused on lenders & investors, but they are correlated with other risk measures. My updated equity and country risk premiums from July 2021, with Moody's ratings. Paper: bit.ly/3ylZ8dK & data: bit.ly/3jEHP3m Image
Company exposure to country risk comes from where it operates. It is lazy & dangerous to assume that a company is only exposed to the risk of its country of incorporation. Paper: bit.ly/3ylZ8dK & data: bit.ly/3jEHP3m
Currencies are more reflections of underlying risk, than sources of risk. Ultimately, it is inflation & real growth differentials that drive currency levels, changes over time and volatility. Paper: bit.ly/3ylZ8dK & data: bit.ly/3jEHP3m Image

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More from @AswathDamodaran

Aswath Damodaran Profile picture
Aug 5
Imitation may be the best form of flattery, but not if it is used in a scam. In response to an Instagram scam, where I (allegedly) invite people to invest with me, I cycled through surprise, anger and frustration, before settling on curiosity & graded it. bit.ly/4mtKKcgImage
I start by describing why I leave material on open access (not altruism, but selfishness) and how you can find any content I have created (written, spoken) online on one of four platforms. bit.ly/4mtKKcg
The first is my webpage, where you can find all material related to my teaching (my two regular and four ancillary classes), data (industry averages), spreadsheets/tools, books and papers. bit.ly/4mxqvKR
Read 15 tweets
Aswath Damodaran Profile picture
Jul 18
In the last few years, MicroStrategy has become a Bitcoin SPAC, with investors attributing savant-like status to Michael Saylor. Its success has led some to push companies to shift their cash into bitcoin. As a general principle, this is a bad idea, but there are four carveouts. bit.ly/40TEjXGImage
The reasons for holding cash vary depending on where a company is in the life cycle from survival for young growth firms to youth serum for mature firms to liquidation manager for declining firms. bit.ly/40TEjXGImage
For all of these reasons, publicly traded firms held more than $11 trillion in cash as of June 2025; US firms held about $2.5 trillion in cash. Much of that cash is invested in close-to-riskless and liquid investments, earning low returns. bit.ly/40TEjXGImage
Read 12 tweets
Aswath Damodaran Profile picture
Jun 18
Most investment lessons are directed at long-only investors in publicly traded stocks & bonds, with cash as a buffer. It ignores vast swathes of the investing universe, including private businesses, short strategies & non-traded assets. bit.ly/4l6DOSpImage
These ignored investments are what comprise the alternative investing universe, and in the last two decades, they have been sold relentlessly to portfolio managers, on the promise that they will yield better risk/return trade offs. bit.ly/4l6DOSpImage
The first pitch for alternative investing is based on "low" correlations with traded stocks and bonds, where adding them on to a primarily stock/bond portfolio will generate diversification benefits. bit.ly/4l6DOSpImage
Read 11 tweets
Aswath Damodaran Profile picture
Feb 24
In my eighth data update, I look at the use of debt at businesses in 2024 to fund operations, with fictional, real and frictional reasons all causing differences in debt usage across sectors and regions. bit.ly/3D5jnnR
The debt versus equity choice begins with an understanding of the criteria that separate them - contractual vs residual cash flows, tax benefits and control of management. bit.ly/3D5jnnRImage
The illusory reasons for borrowing money include increasing ROE and debt being cheaper than equity, and for not borrowing are lower net income, lower bond ratings and debt's higher explicit costs. bit.ly/3D5jnnRImage
Read 14 tweets
Aswath Damodaran Profile picture
Feb 8
In my sixth data update for 2025, I move from macro topics (interest rates, risk premiums) to micro and look at why hurdle rates matter, what goes into them and how to estimate them, using my estimates of costs of capital across global firms to illustrate. bit.ly/4hOFmy3
If you own or run a business, you need hurdle rates to decide whether and how much to invest, how best to fund yourself and how much cash you can take out of the business. That is corporate finance in a nutshell, and the cost of capital is everywhere, bit.ly/4hOFmy3Image
In investing and valuation, the cost of capital reenters the stage, as the risk adjusted discount rate you use in valuing a business, based on its cash flows, or in the background, when you price companies. bit.ly/4hOFmy3Image
Read 14 tweets
Aswath Damodaran Profile picture
Jan 31
In my valuation writing/teaching, I argue that a good valuation is a bridge between story and numbers, and how stories can change overnight. DeepSeek's entry into the AI business has changed the AI story, but is it a break, a change or a shift? aswathdamodaran.blogspot.com/2025/01/deepse…
The AI story, pre-DeepSeek, was built around a lucrative end market for AI products/services, and high entry costs (investments in computing power & data), leading to a profitable, big business, with a (few) winners collection huge spoils. aswathdamodaran.blogspot.com/2025/01/deepse…Image
The pre-DeepSeek AI story played out in markets, pushing up the pricing of players in the space, from firms building the architecture (chips, power) to firms aiming for the product/service market (from Palantir to big tech). aswathdamodaran.blogspot.com/2025/01/deepse…Image
Read 13 tweets

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