When Jayalalithaa Ruined My Birthday

As the Babri Masjid was being brought down, I celebrated.

I had come up with this line a few years ago, and said that whenever I write my autobiography, I’m going to begin it this way. And while I’m not as certain nowadays that I’ll write an autobiography, in case I write one I’ll still use this line to open it.

This line could also be used in a logic class, the kind of lectures I delivered fairly frequently between 2012 and 2016, illustrating logical fallacies. For this one might induce the correlation-is-causation fallacy in your head, and you might think that if I celebrated while the Babri Masjid was being brought down, I must be a Muslim-hating bigot. So here is what will be the second line in my autobiography, whenever I write it:

It was my tenth birthday, and there was a party at home.

There is something special about your birthday falling on Sundays. The first time that happened, in 1987, was also the first time that my parents organised a birthday party for me. I’m too young to know how many people came, but there were a lot of people filling our house that evening. We had professional catering and I got so many gifts that I got to using some of them (such as Enid Blyton story books) several years later.

Maybe I read some of the books around the time my birthday fell on a Sunday once again, which happened in 1992. That also happened to be the next time I had a party at home, and this one was different, with less than ten guests, with all of them being my classmates in school.

My mother had done the cooking that day. We played cricket and hide-and-seek, and some other party games (which I don’t remember now). And then later that evening, news on television told us that the Babri Masjid had been brought down that day and riots had started.

 

The only thing that registered in my head then was that there would be no school the next day, and I didn’t know when I would distribute the chocolates I had bought for the customary school distribution.

The long term impact, though, was that my birthday got inextricably linked to the Babri Masjid demolition.

So over the years, when people have searched for an anchor to remember my birthday, they’ve inevitably used news of the anniversary of the Babri Masjid demolition. This morning, for example, I got a message that said “Happy birthday. Babri Masjid article came up somewhere ­čÖé “. Another friend messaged me to remind me of what I’ve written to being this post.

A couple of years back, a friend messaged me later in December apologising for missing my birthday, adding that he had missed it because there wasn’t much news about the Babri Masjid anniversary. This must have been in 2016, which was among my worst birthdays because beyond close family, hardly anyone wished me that day.

And I blame former Tamil Nadu chief minister Jayalalithaa for that, for after a rather prolonged illness, she had passed away the previous night. And that meant that the news waves in India on the 6th of December 2016 were filled with news of Jayalalithaa’s demise, with any Babri Masjid anniversary stuff being pushed to the backburner.

The situation got rectified last year with it being the 25th anniversary of the Babri Masjid demolition, so the number of people who wished me went back to “normal levels”. And perhaps with elections being round the corner again, and without an important death to distract the news, I’m guessing that Babri Masjid has made enough news today for enough people to remember my birthday!

I must also take this opportunity to thank certain entities who unfailingly wish me on every birthday.

Oh, and I discovered this morning that today is 6/12/18. And my wife helpfully added that I turned 36 today.

Now I feel really old!

Damodaran on Uber’s Valuation

It is fascinating to watch this backandforth between NYU Prof Aswath Damodaran and Uber board member Bill Gurley on the taxi company’s valuation.

To set the context, when the latest funding round for Uber was announced, valuing it at USD 17 billion, Damodaran – a guru in valuation – wrote his own analysis which valued the company at about a third of that value. While it was a typical Damodaran post – long, detailed and making and stating lots of assumptions – it was probably intended as an academic exercise (the way I see it).

Instead it seems to have really caught the fancy of the silicon valley investment community, and led to a response by Gurley (I admit I haven’t read his full response – it seemed to attack straw men in places). And Damodaran has responded to the response. Now that the Three Way Handshake is complete I don’t expect any more backs and forths, but I won’t rule it out either (it’s possible but not plausible, to use Damodaran’s terminology).

What fascinates me is why an academic’s academic post on valuation of a company has created so much of a flutter – so much to merit a long-winded response from the board member. I’m reminded of two things that my valuation professor had told me some 10 years back when I was in business school.

1. Valuation is always wrong
2.┬áValue of a company is what the market thinks it’s valued at

The first of these is a bit of a motherhood statement and adds no value to this particular discussion so let’s not take that into account. It’s the second reason that has got the investors’ knickers in a twist.

In the past, I’ve seen Damodaran publish valuations of companies that are about to go public, or are already public – Tesla┬áand Twitter for example. It is usually an academic exercise, and Damodaran’s valuations value these companies at lower than what the market values. However, given that these posts have appeared after there has been a broad consensus of a company’s valuation, it has not really impacted a company’s valuation, and thus have been treated as an academic exercise.

The problem with Uber is that it is a private company, and unlikely to go public for a very long time. The problem with a private company is that it is difficult for investors to agree on its valuation – there are very few trades and the stock is illiquid (by definition). And illiquidity means extremely high bid-ask spreads (to put a technical spin on it) and widely varying valuations.

Sometimes, when nobody knows what something is valued at (like Uber – which is creating a new category which no one has any experience in valuing), what people look for is some kind of a peg, or an “anchor”. When they see what they think is a reasonable and broadly reliable valuation, they tend to use that valuation as an “anchor” and if a large number of investors agree on one such anchor, the anchor┬áends up being the company’s valuation itself.

To reiterate, value of a company is what the market thinks it’s valued at. Nobody knows what Uber is valued at. Investors and existing shareholders agreed at a particular valuation, and did a deal at that valuation. However, this valuation is not “deep” – not too many people agree to this valuation.

It is in this context that an (very well renowned) academic’s valuation, which values the company at far less than the last transacted price, can act as an anchor. Damodaran is extremely widely respected in investing circles, and hence his valuation is likely to have received much attention. It might even be possible that his valuation becomes an “anchor” in investors’ minds of Uber’s valuation. And this is where the problem lies.

Even if you were to account for the consistent downward bias in Damodaran’s valuations and adjust Uber’s valuation accordingly, it is likely to lead ┬áto a much lower anchor┬ácompared to the last transacted price. And this is not likely to be good for existing investors. Hence, they need to take steps to quickly debunk Damodaran’s valuation, to make sure it doesn’t end up as an anchor! And hence the long response by Gurley, and the silicon valley investor community in general!

To summarize, all that this entire brouhaha on Uber’s valuation shows is that its price discovery so far has been rather shallow.