Narrative and Numbers: The Value of Stories in Business (Columbia Business School Publishing)

Como profesionales nos vemos muchas veces enfrentados a analizar inversiones/negocios y dar nuestra opinión/recomendación. El profesor Damodaran nos da un marco de referencia para contar mejores historias y hacernos entender mejor con nuestros stakeholders. No es solo la calidad de los argumentos, sino como los contamos es lo que importa.

A very good book indeed. Perhaps there is no better book for anyone wanting to learn or perfect their skills as a financial analyst. Damodaran is an apostle of the DCF method for valuing companies and stocks, and shuns P/Es and other relative valuations. The book is excellent at describing the process from A to Z of understanding a company and framing a numerical analysis within a comprehensive story of what the company is and where it is headed. The author provides many and very good examples of how to approach this, and offers a very good framework for understanding most types of company: start-ups, mature companies, cos. in the commodity industry. The only ones he does not include are banks, which he covers in other books. He explains how to create a narrative around a company, and also provides detailed examples of how to go about the numerical analysis of cash-flows correctly and avoid unrealistic or implausible scenarios.

The procedure of valuing a stock through is rather simple once it has been learnt. And when looking in retrospect on why old valuations turn out to be incorrect it is rarely due to getting the mechanics of the valuation tool wrong. Instead it is almost always because the sales or profits turned out very differently from what was forecasted since the company, its strategy or business environment developed in an unanticipated way – the narrative was wrong. This is a book on how to combine the numbers of the valuation tools with a narrative that brings life, understanding and, by this, increased precision into the valuation made. The author is a well-known finance professor at NYU who has written a large number of finance books.As I understand it the book started with the author posting and updating the narratives and subsequent valuations for a number of stocks like Uber, Amazon, Apple, Alibaba etc. online. They now feature as case studies throughout the book. Taking a step back, Narrative and Numbers is also a personal journey for Damodaran as he over time has developed from a pure number cruncher to taking a more holistic approach. I find that when a reader is invited to share an author’s personal development the result is often very likable. This book is no exception and it is evident that the author has enjoyed writing it.The structure of the text is very, well… structured. Damodaran tells you that he will combine narratives and numbers, he describes the basics of one of those, then he describes the basics of the other one, he merges them and finally discusses the consequences. The author who describes himself as a “teacher first” gives us short but thorough accounts of the two components before merging them into a greater whole. And to clarify, the narrative referred to in this book is the fundamental story of long-term value creation drivers for the company, not the flimsy, often biased and constantly shifting stories that always surround listed companies on the stock exchange. All the way through the book we get to follow the described process through the case studies and there are further several illuminating pictures giving good oversights of the reasoning.The advocated valuation process is to:1. develop a narrative for the business,2. test the narrative to see if it is possible, plausible and probable,3. convert the narrative into drivers of value,4. connect the drivers of value to a valuation and5. keep the feedback loop open.Interestingly the author calculates one value of the company as a going concern and one liquidation value and then estimates the probabilities of each life-or-death scenario. I very much appreciate the 3P test in stage 2 and the openness for change in stage 5 importantly tries to ensure that the narratives are reasonable and don’t becomes stale and outdated in the light of changes. Damodaran’s arguing for the importance of having enough humility to alter ones opinion brings to mind similar arguments from George Soros.My main caveat is that the process doesn’t explicitly enough ensure a combination of an inside view and an outside view when developing the story. When forming a narrative it is very easy to focus on the uniqueness and thrill of the situation at hand and extrapolate from the recent history. Often this leads to too high expectations and bottom-up sell side analyst estimates are partly due to this almost always too optimistic. The outside view treats the situation statistically and takes into account the outcome of many similar historical situations. In business where success is governed by both skill and luck both viewpoints have merit.To make good forecasts narratives must meet numbers. Without the verbal structuring of the fundamental business story of a company it isn’t even possible to understand the numbers to start with. Damodaran shows that good decisions benefit from several points of view such as the numerical and the verbal and I fully agree.This is a review by investingbythebooks.com

This book provides a great framework for avoiding "garbage-in, garbage-out" when approaching the valuation of a business. Professor Damodaran hits on the key points, but does leave the reader with some work to do in terms of implementation. The included examples are indeed helpful, but referring to his website helps to fill in the gaps between idea and practice.I think this book will be particularly helpful for one 'dark side' of the valuation game - trying to close in on the possible value for a startup or early-stage business tackling a potentially new market. The iterative process of revisiting key inputs (the fewer the better) is also emphasized, something which is a helpful thought exercise to evaluate a change in a company's story/narrative and what that means to the value of the business.

No staggering insights. But how to formulate a compelling first story impress was helpful

As a career-long equity research analyst, I can attest to the valuable lessons and insights Professor Damodaran so enjoyably illustrates in this book. I only wish I had taken his class BEFORE my career started!

Aswath Damodaran is one of the great givers in our modern world. Having learnt so much from his numerous lectures on You Tube and the course he freely makes available to anyone interested, I was relieved to have the opportunity to actually pay him for something!This book is fabulous. He takes potentially dry subjects and brings them alive with a phenomenal capacity to inject common sense insights. His writing is clear and although he apologises for being a numbers man rather than a storyteller, his approach is incredibly strong on the behavioural side.A great book and an absolute necessity for any Valuers bookshelf.

I am a fan of Dr. Damodaran. He knows he's on a different plane than the rest of us, yet manages to write, explain clearly.I received the title only today, so have only skimmed it. In the book, the font is very small (smaller for examples) and not very dark or well spaced. Perhaps the spacing is due to wanting to keep the number of pages low. If you have good eyes, this may not be a problem for you. Getting through this title may be difficult for me.Only four stars because of what I just mentioned. I am sure the content is worthy of five stars.

I loved the book. The first chapter irritated but the whole book is a package.If you are an entrepreneur and getting into the valuation.This book is where you take your first step.Not too technical.Not too simple.Also, the case study is a great way to understand. Aswath has done a phenomenal job.

Excellent book. This book is essential for everyone studying valuation.

Un texto útil y bien logrado, una clase de Damodaran sobre la forma correcta de combinar los números con las historias de negocios. Disfruté cada página.

Prof. Damodaran un gigante della valutazione di azienda. Si va oltre il numero e evidenzia l’importanza di coniugare numeri e storytelling per cogliere appieno la dimensione del valore oggetto della valutazione. Spiega come i due approcci debbano essere integrati.

Very nice