The Importance of Being Your Own Architect in Investment Valuation
Value companies for "an audience of one"
In the world of investing, there's a fundamental principle that all serious investors should internalize: you must be the architect of your own investment theses and valuation work.
This approach isn't just a suggestion—it's a necessity if you want to achieve consistent, long-term success in the stock market.
„Conviction is a lot like love and trust, it can only be built over time.“
Inspiration from Aswath Damodaran: The Dean of Valuation
Recently, I was listening to a podcast episode featuring Aswath Damodaran, often referred to as the "Dean of Valuation," on The Investor’s Podcast Network.
Damodaran is a well-respected figure in the investing community, especially known for his expertise in company valuation. His insights during the podcast inspired me to share my take on this topic with you.
In the podcast, Damodaran discussed the concept of valuing companies "for an audience of one"—himself.
This idea is powerful because it underscores the importance of personal responsibility and independent thinking in investing. While it's valuable to learn from books, fellow investors, and experts and consider their insights, relying solely on someone else's valuation can be a perilous path!
Building Your Own Investment Framework
If you're serious about investing, developing your own investment framework is essential.
In a previous blog post (“Framework First! The Power of an Investment Framework & Why It’s Essential for Long-Term Success“), I emphasized the importance of having a clear, personalized, and well-structured investment strategy – an investment framework that guides you through the world of volatile markets.
A critical component of any robust investment framework is the ability to accurately value the businesses you're considering. It’s a fundamental pillar in my investment framework:
To be able to determine whether a stock is attractively valued requires being equipped with more than just one valuation method but rather having a diverse toolkit of valuation techniques.
Each investment case, each business is unique, and the appropriate valuation method depends on various factors, including: