Heikki Keskiväli

Heikki Keskiväli



1/🧵 When Aswath Damodaran speaks, investors should listen. His recent podcast episode in “Invest Like the Best” is one of the best ones I’ve heard in years. To save you time, here's curated notes of key insights from this spectacular 90-min episode. Best served with cup of 🫖

2/🧵 @AswathDamodaran appearance was on “Invest Like the Best” by @patrick_oshag. Transcript and audio of this magnificent episode below. The following notes cover the following topics: inflation, discretionary spending, ROIC, narratives, ESG.

3/🧵 INFLATION “When we first started talking about inflation in 2021, I found it disconcerting that people are so quick to dismiss it” Expected inflation = we can build into our models Unexpected inflation = inflation coming in higher or lower than expected = deadly

4/🧵 INFLATION “The reality is most people entering the market, the only inflation they've known is low and stable inflation. It takes a while, and this is the behavioral component, for people to adjust their expectations."

5/🧵 INFLATION “The problem is when inflation becomes higher, it also becomes volatile, which means that when inflation is 10%, it's far more likely to be swinging from 4% to 16% than inflation is 2%. What kills companies is the uncertainty about inflation.”

6/🧵 INFLATION “Even if you believe that inflation was transitory, the thing to do was to act as if it was not and act quickly. To break the back of inflation, there's only one path, and it's a painful one, which is you got to put your economy into a deep and long recession.”

7/🧵 INFLATION “FED has limited power, and that's the other thing to recognize. The only power FED has is to make things so painful that the economy, in a sense, shuts down. That's the power it has. It's not the power to change inflation rates or change interest rates.”

8/🧵 INFLATION “Spread your bets across geographies. European stocks might not have done as well as US stocks in the last decade, but they might be the place to be if inflation is coming back more in the US than in Europe.”

9/🧵 INFLATION “I think inflation is a much tougher test than COVID because inflation brings in the uncertainty about the future that makes it much more difficult to start new businesses. I think we're going to see risk capital become much scarcer.”

10/🧵 DISCRETIONARY SPENDING “We don't know how discretionary or non-discretionary your Netflix subscription is. This is going to be the real test. So much of our market cap comes from companies that provide products and services that weren't around 30 or 40 years ago.”

11/🧵 DISCRETIONARY SPENDING “Are you far less likely to upgrade your iPhone if the prices are going up 15 or 20% a year than if they're going up 5% a year? We're going to find those things out if inflation is here to stay.”

12/🧵 ROIC “[ROIC has] become this magic bullet that people focus on. I'm intimately aware of what accountants can do to screw up that number. Computing the return on invested capital for a company that grows through acquisitions is a nightmare.”

13/🧵 ROIC “I can make a really bad company have a high return on capital if you give me enough accounting discretion to play that game.”

14/🧵 ROIC “The problem with ROIC, it's designed for mature or declining companies. You can be a great growth company. Its ROIC can be rather meaningless. The ROIC of Apple is negative. Why? Because the cash actually exceeds a book value of equity and debt.”

15/🧵 ROIC “What you're capturing with ROIC is your past, that this company used to have great investments. Kraft Heinz has a great return investment capital. It's not because of the new projects it's taking. ROIC is a backward-looking accounting number”

16/🧵 NARRATIVES “I think that Netflix has a bad storyline, but for the first time, the price is getting to a point where even with that bad storyline, I might be interested in investing. At the right price, I will buy any company.”

17/🧵 NARRATIVES “Silicon Valley is training founders to tell stories. The problem is those stories are fairy tales. Uber went public, said TAM was $5.2 tln. How they came up with that number? They added up everything spent on transportation. No way Uber's market is $5.2 tln.”

18/🧵 EDGE “What makes you think that running [stock] screens is going to give you a differential advantage? I am shocked at how much of traditional value investing is just running screens. Maybe one in 100 actually value companies.”

19/🧵 MOMENTUM “Momentum is the strongest force in markets, much bigger than earnings or cash flows or growth. So as a trader, you live on momentum, but you die on momentum, which means that you make money when momentum is in your favor.”

20/🧵 MOMENTUM “The problem is there are many people who claim to be investors, but they're really playing the momentum game. It's amazing how their top 10 stocks happen to be the 10 stocks that have gone up the most over the last two years.”

21/🧵 INTEREST RATES “Discount rates and interest rates are not alternatives, interest rates are a part of discount rates. Interest rates ultimately are not set by FED, and this is I think the delusion that's driven a lot of bad investing choice over the last 14 years.”

22/🧵 ESG “You had these consultants going around claiming ESG would make them more valuable companies, and I looked for evidence and I couldn't find any. Their entire outperformance came from a lot of tech companies in their portfolio, not because they had good companies.”

23/🧵 ESG “I also heard talk about how ESG is making the world a better play, and looked at the percentage of energy we're getting from fossil fuels, and guess what? It's not changed much over the last decade. You're making all these claims, there seems to be no basis for it."

24/🧵 ESG “The reason it's taken off is become a money machine for the people involved. You have consultants, experts, running around charging companies for ESG advice."

25/🧵 ESG “Engine one was activist fund that essentially got Exxon to divest themselves of some of their fossil fuel reserves. Who do they sell it to? They sold it to private equity. In the last decade, private equity funds have invested $1.2 tln in fossil fuel reserves.”

26/🧵 ESG “[Forced] disclosure is double-edged sword. Have you read the risk section in any prospectus? 50 pages of garbage. I'll predict that 10 years from now, you're going to have 300 pages on carbon footprint at every company and that nobody's going to read those pages.”

27/🧵 ESG “And this is the problem, companies have learned to play the game. They've discovered that if you disclose everything, it's like disclosing nothing, you lose perspective. Sometimes less is more.”

28/🧵 If you enjoyed this thread, please help others find it too by liking or retweeting the first post below! For more tweets and threads on investing, hit a follow @hkeskiva. There will be more 🙂

29/🧵 And for the biggest investment thread fans out there, these great accounts offer some stellar content: @buccocapital @frankinvesting @MnkeDaniel @10kdiver @macroalf @TrungTPhan @franchisewolf @AliTheCFO Can’t believe it’s all free!

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