A big thank you to the Institute of Chartered Accountants of Scotland ('ICAS') courtesy of which Mrs F and I enjoyed a cruise down the Thames last night on the PS Waverley (the last seagoing passenger-carrying paddle steamer in the world). Starting from Tower Pier and cruising down to the Thames Barrage, the opening of Tower Bridge make a spectacular start and finish to the trip.
It’s often said that valuation is neither an art nor a science but a little of both. I’m sure I’ve said something along those lines myself. Clearly it’s based on some hard data, but then the art is in building a convincing defensible case often based upon a number of judgements. So I was interested to read a recent blog post by valuation guru Aswath Damodaran (Professor of Finance at the Stern School of Business at New York University where he teaches corporate finance and equity valuation).
He takes the line that valuation is neither an art nor a science but a craft. As he puts in unlike, say, Mathematics valuation has principles but not at the level of precision to be a science. It’s not an art he says because you can’t just let your creative juices flow and make things up. He reckons it’s more like a craft, more akin to cooking or making things with wood. It has rules, but requires adjusting and “crafting” for each set of circumstances.
His other key points, which bear repeating, are that a valuation must have a narrative. I’ve blogged on this before – but as he puts it Valuation = Story + Numbers. Also valuing an asset is different from pricing it – “much of what passes for valuation, in practice, is really pricing, sometimes disguised as valuation and sometimes not”. I've certainly seen a few technology company valuations around Cambridge which are at the "pricing disguised as valuation" end of the spectrum.
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