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Aswath Damodaran: This is how important a company’s key people can be

Can one person make a difference to the value of a company, Damodaran asks rhetorically? “Of course” is the answer. And with small businesses, especially those built around personal services (a doctor or craftsman), it’s part of the valuation process where the key person is valued or at least priced and incorporated into the valuation.

While this effect tends to disappear as businesses get bigger. Damodaran delves into the importance of management and key people in listed companies. It has become particularly interesting after the tumult of Open AI, where the board dismissed Sam Altman as CEO, which could have led to a close to meltdown of the company.

Another interesting case covered is Berkshire Hathaway after Charlie Munger’s death and what it will mean when neither Munger nor Buffett are at the helm anymore.

There are many canards about intrinsic valuation that are in wide circulation, and one is that intrinsic valuations do not reflect the value of people in a company. That is not true, since intrinsic valuations, done right, should incorporate the value of a key person or people in a business, reflecting that value in cash flows, growth or risk inputs.

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The above has been prepared by Børsgade ApS for information purposes and cannot be regarded as a solicitation or recommendation to buy or sell any security. Nor can the information etc. be regarded as recommendations or advice of a legal, accounting or tax nature. Børsgade cannot be held liable for losses caused by customers’/users’ actions – or lack thereof – based on the information in the above. We have made every effort to ensure that the information in the above is complete and accurate, but cannot guarantee this and accept no liability for errors or omissions.

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