Aswath Damodaran: The 3 Sins Of Data Analysis

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During his recent Data Update 1 for 2023, Aswath Damodaran discusses the 3 sins of data analysis. Here’s an excerpt from the update:

Q4 2022 hedge fund letters, conferences and more

Aswath DamodaranAs I noted in my posts on data disclosure last year, this has led to at least three unhealthy developments.
  1. Data distractions: Faced with massive amounts of data, quantitative as well as qualitative, many investors and analysts find themselves distracted by immaterial, irrelevant and sometimes misleading data points along the way.
  2. Data as a crutch: At the other extreme, there are some who believe that the answer to every question lies in the data, and that when seeking an input for valuation and corporate financial analysis, the data will provide it. Rather than make their best judgments or reason their way, when faced with estimation challenges, these investors and analysts embark on a search for more data, and if they do not find that data, they give up.
  3. Data bias: There is the canard that data is objective, as opposed to estimates or judgments, which are considered subjective. That is not true! In my experience, data is malleable, and if there is enough of it at your disposal, you can screen it and selectively choose the data to support whatever viewpoint you want to advance.
During the course of my corporate finance and valuation journey, I have been guilty of all three of these sins.

You can read the entire data update here:

Data Update 1 for 2023

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Article by The Acquirer’s Multiple.

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Tobias Carlisle is the founder of The Acquirer’s Multiple®. He is also the founder of Acquirers Funds®. The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates.