3 brilliant quotes on the challenge of valuing companies 🧐

Plus a charted review of the macro crosscurrents 🔀

Aug 02, 2026

In a podcast taped in June, Sparkline Capital’s Kai Wu spoke with NYU Professor Aswath Damodaran about SpaceX and how to value such a company.

At the time, Damodaran, aka “The Dean of Valuation,” had concluded that SpaceX was worth about $1.3 trillion, significantly below the $1.77 trillion valuation set at its IPO. (As of Friday, SpaceX was worth about $1.4 trillion.)

The conversation is interesting and wonky. If you want to nerd out a little, check it out on Spotify, Apple Podcasts, or YouTube.

While they focused on SpaceX, I thought Damodaran had some great quotes that spoke to the challenges of valuing any company.

“‘That’s a lot of assumptions you’re making.’ Yeah, absolutely. What choice do I have?”

In theory, a company is worth the present value of all its future cash flows. To put it more crudely, it’s all the money you expect the company to make after some adjustments for the fact that you won’t get much of that money until some time in the future.

The equations involved aren’t too complicated. It requires some understanding of accounting and how discount rates work.

What’s hard is getting all the inputs right.

You need to know exactly how much product the company will sell and what the costs will be. And you need to know what those numbers look like every year for the rest of the company’s existence, which means knowing if that company will last forever or when that company will eventually shut down.

Additionally, you have to know what the company’s capital structure (e.g., how much debt and equity financing it will use) will look like. Once you have that figured out, you have to know what interest rates for its debt will look like as well as what the premium to own its stock will look like — again, for the rest of the company’s existence.

If you get any of these assumptions wrong, you’ll have something that professional financial analysts call a “garbage in, garbage out” problem.

Now, the nature of these assumptions is arguably unusually uncertain with SpaceX and all of the speculative areas the company intends to explore. And Damodaran is aware.

“If your reaction as you look at my story and valuation is, ‘That’s a lot of assumptions you’re making.’ Yeah, absolutely,” he said. “What choice do I have?”

If you look back at history, I’m not sure you’ll find a single company whose future path was easily predictable, especially considering the swings in the economy, the shifts in consumer interests, and the direction of technology.

And by the way, when’s the last time you heard about an interest rate or stock market forecaster nailing it year in and year out?

But to Damodaran’s point, analysts aiming to derive the value of a company have no other choice but to make a ton of assumptions, many of which are likely to miss the mark by a wide margin.

“Do you know what the biggest intangible is? Future growth.”

Wu’s podcast is called “The Intangible Economy.”

Damodaran leaned into the wordplay.

“Do you know what the biggest intangible is?” he asked. “Future growth.”

A company’s assets can be divided into tangible assets (e.g., real estate, factories, machines, inventory, cash, and cash equivalents) and intangible assets (e.g., patents, copyrights, trade secrets, and goodwill).

Intangible assets are often the target of skeptics who aren’t convinced by the values companies attach to these items. To be fair, it’s just very hard to assign a dollar value to something you can’t really touch or sell for scrap.

In the context of valuing a company, it’s worth emphasizing that the bulk of the theoretical value usually doesn’t come from what’s earned this year or even next year. It comes from all the money it’s expected to earn many years in the future.

This is critical to understanding why unprofitable companies can boast massive valuations. Investors aren’t betting on how much these companies have already lost and how much they’ll lose in the near future. They’re betting on what they’ll make down the road.

“If you’re numbers-bound, I’ll tell you up front: SpaceX looks awful as an investment if all you can focus on is what they have in their books,” Damodaran said.

Unfortunately, what SpaceX could do in the future won’t be found on a balance sheet.

“My definition of intangible is you can’t see it,” Damodaran added.

It’s no wonder people struggle when investing in the stock market, especially when it comes to stocks in new industries.

“It’s like having a kindergartner’s report card and extrapolating from that what they’ll be doing in college.”

One of the first things Damodaran asks students taking his valuation class is, “What are you more comfortable with: working with numbers or telling stories?”

He’s observed that numbers-oriented students tend to become traditional financial professionals like bankers and value investors. Meanwhile, the storytellers go on to be venture capitalists and founders.

He doesn’t necessarily think one approach to finance is more right than the other. Rather, he believes if you’re too entrenched in one camp, you’ll miss a big part of what goes into a well-thought-out valuation.

For example, he noted that the numbers-oriented folks tend to overemphasize current financial statements to a fault.

“The analogy I would offer is this: It’s like having a kindergartner’s report card and extrapolating from that what they’ll be doing in college, which is essentially what you’re getting with the SpaceX financial statements,” he said.

By the way, nothing is stopping SpaceX from pivoting its business strategy in big ways as the business environment evolves.

And that wouldn’t be unprecedented. Almost every major successful company makes big changes that aren’t mapped out in any prospectus. Apple, Alphabet, Microsoft, Amazon, and Meta Platforms all earn billions every quarter from businesses almost no one imagined they would be in.

The big picture 🖼️

All of this speaks to the challenge of picking stocks.

It’s just not enough to know the ins and outs of a company’s flagship offerings and the customers it sells to.

You also need confidence that management will reallocate capital optimally as business opportunities evolve.

On top of all that, history also shows that most companies fail to evolve and execute in ways that generate worthwhile stock returns.

That said, I think it’s a worthwhile exercise to build financial models in an attempt to estimate a company’s valuation. Among other things, it helps you understand what the company’s current price implies about future expectations. But don’t be surprised to learn the assumptions you make in the modeling process prove to be way off.

Related from TKer:

Some thoughts on mega IPOs and market indices...🚀
Market forecasters face a ‘garbage in, garbage out’ problem 🗑️
The hardest part of valuing a company 🔮🧮
Apple after Cook, Allbirds after shoes 🍎🐦
Sometimes, the best business decision is to change businesses 💔
Berkshire’s new CEO makes clear what this business is really about 🎯

Review of the macro crosscurrents 🔀

📈The stock market climbed last week, with the S&P 500 adding 1.0% to end at 7,489.72. The index is now down 1.6% from its June 2 closing high of 7,609.78 and up 9.4% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

🏛️ Fed holds rates. On Wednesday, the Federal Reserve kept its benchmark interest rate target range at 3.5% to 3.75%.

Three members of the FOMC (Hammack, Kashkari, and Logan) dissented in favor of a 0.25% rate hike.

From the Fed’s policy statement: “Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East. Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little. Inflation remains elevated relative to the Committee’s 2% goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The Committee will deliver price stability.”

For more on what Fed policy could mean for markets, read: Does the stock market test new Fed chairs? 🏛️ and ‘When will the Fed cut rates?’ is not the right question for investors right now ✂️

🎈 Fed’s preferred inflation measure cooled, but remains elevated. The personal consumption expenditures (PCE) price index in June was up 3.7% from a year ago. The core PCE price index — the Federal Reserve’s preferred measure of inflation — was up 3.3% during the month, down from May’s 3.4% rate.

On a month-over-month basis, the core PCE price index was up 0.13%. If you annualize the three-month trend in the monthly figures — a reflection of the short-term trend in prices — core PCE climbed 2.9%.

While inflation rates remain above the Federal Reserve’s 2% target, they are down considerably from peak levels just a few years ago. Nevertheless, how price trends evolve in the near term bears watching.

For more on the Fed’s impact on markets, read: ‘When will the Fed cut rates?’ is not the right question for investors right now ✂️

⛽️ Gas prices remain above $4. From AAA: “The national average for a gallon of regular gasoline is the same as it was last week: $4.09. Crude oil prices remain in the $80 per barrel range as instability lingers along the Strait of Hormuz. Gas prices are nearly a dollar higher than they were this time last year. Typically, August brings some relief at the pump as road trips wind down and fall routines get underway for many families. But elevated crude oil prices could prevent that seasonal shift from starting just yet.”

Here’s a longer-term look at the trajectory of gas and diesel prices, as tracked by the EIA.

For more on energy prices, read: Our love-hate relationship with rising oil prices in charts 💔🛢️📊

🛍️ Consumer spending ticks higher. According to BEA data, personal consumption expenditures increased 0.7% month-over-month in June to an annual rate of $22.06 trillion, an all-time high.

Adjusted for inflation, real personal consumption expenditures increased 0.3% from the prior month to another all-time high.

Here’s a breakdown of spending growth by category.

💰The personal saving rate is low, but that’s not obviously a bad sign. Personal saving — disposable personal income less personal consumption — has been shrinking over the past two years, causing the personal saving rate — personal saving as a percentage of disposable personal income — to trend lower. In June, the saving rate stood at 2.7%, the lowest level since June 2022.

All else equal, this is not great. The implication is that more people are drawing from their savings to support their spending amid inflationary pressures. However, the saving rate tends to decline when net worths are rising. And net worths have been rising, driven by record-high home prices and elevated stock prices.

For more on this dynamic, read: A contrarian note about the falling personal saving rate 💸

💳 Card spending data is holding up. From BofA: “Total card spending per HH was up 4.1% y/y in the week ending Jul 25, according to BAC aggregated credit & debit card data. The pickup from last week was partly driven by higher gas prices following the re-escalation of the US-Iran conflict. Ex-gas spending rose a more modest but healthy 3.3% y/y. Dept. stores spending growth saw the biggest increase vs last week.”

Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Household finances are both ‘worse’ and ‘good’ 🌦️

💼 New unemployment insurance claims, total ongoing claims remain low. Initial claims for unemployment benefits rose to 197,000 during the week ending July 18, up from 188,000 the week prior. This metric remains at levels historically associated with economic growth.

Insured unemployment, which captures those who continue to claim unemployment benefits, ticked down to 1.782 million during the week ending July 18.

For more on the labor market, read: Why mass tech layoffs have little effect on total employment 💾

🤔 Recent private job growth is cooling. According to payroll processor ADP, private U.S. employers added 15,000 jobs in the four weeks ending July 11.

For more on the labor market, read: Things are looking up in the labor market 👍

💵 Key labor costs metric was stable. The employment cost index in Q2 was up 0.9% from the prior quarter.

For more on why policymakers are watching wage growth, read: Revisiting the key chart to watch amid the Fed's war on inflation 📈

🏭 Business investment activity ticks lower. Orders for nondefense capital goods excluding aircraft — a.k.a. core capex or business investment — rose 0.9% to a record $85.1 billion in June.

Core capex orders are a leading indicator, meaning they foretell economic activity down the road.

👎 Consumer vibes deteriorate. The Conference Board’s Consumer Confidence Index declined by 1.4 points in July. From the report: “The Present Situation Index was less positive for a third consecutive month while the Expectations Index remained in negative territory. Consumer appraisals of current business conditions and, to a lesser extent, perceptions of the current labor market both softened. Looking ahead, consumers anticipate little improvement in business conditions over the next six months, but expectations for the labor market were slightly less negative. Expectations for household incomes moderated but remained optimistic overall.”

More from the report: “On a six-month moving average basis, by age, confidence for consumers under 35 remained the highest, while confidence among those aged 35-54 showed the greatest improvement. By income, confidence was mixed, but generally higher-income groups were more optimistic. By generation, confidence for Gen Z and Millennials remained the highest, while confidence fell the most for the Silent Generation on a six-month moving average basis. By political affiliation, confidence among Independents and Democrats softened while Republicans were somewhat more positive.

Meanwhile, the University of Michigan’s Surveys of Consumers showed that while sentiment improved in July, it remains weak. From the survey: “Broad-based improvements were seen across all groups by income, education, wealth, age, and political party. Five-year expected business conditions reached a 12-month high, though it remains well under its historical average. Despite recent gains, sentiment is 11% below a year ago, reflecting a generally somber view of the economy amid five years of elevated inflation and persistent high prices. Consumers remain focused on pocketbook issues like purchasing power, while political or military developments remain more in the background.”

For more on consumer sentiment, read: What consumers do > what consumers say 🙊 and The economy may not be working for everyone right now, but it’s at least working for stock market investors 🎭

👎 Consumers don’t feel good about the labor market. From The Conference Board: “On net, consumers’ views of the labor market continued to soften in July. 24.6% of consumers said jobs were ‘plentiful,’ down from 25.5% in June. Conversely, 21.5% of consumers said jobs were ‘hard to get,’ down slightly from 21.7%.”

Many economists monitor the spread between these two percentages (a.k.a., the labor market differential). The direction of the spread reflects a cooling sentiment toward the labor market.

More from The Conference Board: “In July, consumers were less negative about the labor market outlook. 16.7% of consumers expected more jobs to be available in July, up from 15.6% in June. Additionally, 25.3% anticipated fewer jobs, down slightly from 25.5%.“

For more on the labor market, read: Things are looking up in the labor market 👍

🏠 Mortgage rates tick higher. According to Freddie Mac, the average 30-year fixed-rate mortgage rose to 6.66%, up from 6.58% last week. From Freddie Mac: “The housing market continues to benefit from more available inventory, providing prospective homebuyers with additional options and helping support buyer activity as mortgage rates fluctuate.“

As of Q2, there were 149.5 million housing units in the U.S., of which 87.0 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the weekly movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖

🏠 Home prices cool. According to the S&P CoreLogic Case-Shiller index, home prices were up 1.1% year-over-year in May but declined 0.05% month-over-month. From S&P Dow Jones Indices’ Rebecca Kaufman: “Affordability remains a significant headwind for the housing market. Thirty-year mortgage rates increased to 6.5% in May, leaving the ultra-low 3% borrowing costs a distant memory. At the same time, stubbornly high inflation rates are keeping both the cost of home financing and the cost of living high for prospective buyers. Against this backdrop, housing demand remains constrained, elevated borrowing costs continue to discourage potential homebuyers, and housing values decline in real terms for existing homeowners.”

For more on how home prices and how they may be affecting saving, read: A contrarian note about the falling personal saving rate...💸

🐇 GDP growth cooled in Q2. U.S. GDP grew at a 1.5% rate in Q2, down from 2.1% in Q1. Consumption and investment led growth, more than offsetting the drag from a wider trade deficit.

Because the GDP calculation has several quirks, economists often point to “real final sales to private domestic purchasers” to better understand the economy's underlying health. Sometimes referred to as “core” GDP, this metric excludes net exports, inventory adjustments, and government spending. That metric grew at a 3.9% rate in Q2.

For more on how GDP relates to the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️

📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 5.0% rate in Q3.

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

Putting it all together 📋

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Personal spending activity remains at record levels. Core capex orders, which are a leading indicator of business spending, have been trending higher.

Growth rates have cooled: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like job openings and excess savings have faded. Job creation, while positive, is not as hot as it used to be. It has become harder to argue that growth is destiny.

Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.

Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyber attacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.

Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.

Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t overcome. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.

For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »

Key insights about the stock market 📈

Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.

10 truths about the stock market 📈

The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.

The makeup of the S&P 500 is constantly changing 🔀

Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.

(Source: S&P Dow Jones indices via TKer)

The key driver of stock prices: Earnings💰

For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.

Stomach-churning stock market sell-offs are normal🎢

Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.

How the stock market performed around recessions 📉📈

Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.

In the stock market, time pays ⏳

Since 1928, the S&P 500 has generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.

What a strong dollar means for stocks 👑

While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.

Stanley Druckenmiller’s No. 1 piece of advice for novice investors 🧐

…you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.

Peter Lynch made a remarkably prescient market observation in 1994 🎯

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That’s all there is to it.

Warren Buffett’s ‘fourth law of motion’ 📉

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

Most pros can’t beat the market 🥊

According to S&P Dow Jones Indices (SPDJI), 79% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2025. As you stretch the time horizon, the numbers get even more dismal. Over three years, 67% underperformed. Over 5 years, 89% underperformed. And over 20 years, 93% underperformed. This 2025 performance was the 16th consecutive year in which the majority of fund managers in this category have lagged the index.

Proof that ‘past performance is no guarantee of future results’ 📊

Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, of the 334 large-cap equity funds in the top half of performance in 2021, 58.7% remained at the top half in 2022. However, just 6.9% remained on top through 2023. Only 4.5% stayed on top in the five consecutive years through 2025.

It’s much more dismal when you raise the bar. Of the 164 large-cap equity funds in the top quartile in 2021, just 20.1% remained in that category in 2022. That percentage fell to literally 0.0% in 2023.

The odds are stacked against stock pickers 🎲

Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of the stocks in the S&P 500 outperformed the average stock’s return from 2001 to 2025. Over this period, the average return on an S&P 500 stock was 452%, while the median stock rose by just 59%.

📈 TKer by Sam Ro

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