Valuation: Considering Country Risk, Inflation, and Operations

Timestamped Summary

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  00:00

  Valuation should focus on the big picture and starting/ending points, not small details; Amgen was undervalued, Tata Motors underwent changes and aims to be a global auto company; speaker discusses valuation of Tata Motors in Indian rupees, including growth rate, cash flows, and cost of capital; challenges of valuing cross holdings in family group companies; country risk is important for valuing emerging market companies.
• 📊
  20:47

  Breaking out default risk allows for more accurate valuation of companies based on their specific operations and revenue sources, while the Russian invasion of Ukraine has impacted BASF's growth and increased costs, and Turkish companies have seized opportunities created by EU sanctions on Russia.
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  37:25

  The company's long-term revenue growth is projected, but margins will decrease and negative free cash flows are expected for the first five years; valuing a company in a higher inflation currency like the Turkish Lira can impact the cost of debt and equity, but despite the challenges, the speaker is interested in buying the company; country risk is important to consider in valuation as it can affect revenues and business models, and taking on debt in a risky country can amplify risk; ensure accounting earnings used for valuation are up-to-date and normalized, and lease commitments are now treated as debt.
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  52:39

  When valuing Netflix, it is important to consider their content commitments as debt, as it affects financial calculations, and treating leases as assets can change the perspective on a company's profitability and reinvestment.
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  1:13:50

  Capitalizing R&D expenses can lower a company's value, while goodwill is meaningless in valuation; BSF struggles with declining margins, Anka's success is tied to political factors; valuation in accounting terms differs from working capital valuation; net capex is important; government bond rates may not be risk-free due to default risk, but AAA-rated entities are considered risk-free.
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  1:42:56

  Risk-free rates vary across currencies due to inflation, so it's important to consider currency when valuing a company to avoid overvaluation; negative risk-free rates indicate low inflation and low growth, emphasizing the need for consistency in valuations; beta from regression is unreliable, and comparing companies against a global index is more accurate for estimating betas.
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  2:14:19

  The S&P 500 is a good choice for a diversified portfolio, high beta companies can lower their beta by adjusting their product/service and cost structure, calculating average unlevered beta for industry groups is important for valuation, analyzing multi-business companies and expanding sample size across geographies is crucial for accurate betas, and alternative methods are needed for estimating equity risk premiums.
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  2:42:18

  Valuing stocks and bonds involves calculating the yield to maturity and equity risk premium, considering factors like cash flows, growth rates, and interest rates, rather than relying solely on historical data or high multiples.