How to think about financial crises, markets, and investing with Aswath Damodaran

Executive overview

The 2020 COVID crisis is the first time in history the entire global economy was shut down simultaneously — making all prior crisis playbooks obsolete. Companies with cash and low debt will survive and emerge more powerful; those with debt and no cushion face extinction.

Liquidity is survival. The winners of this crisis are already determined by their balance sheets — not by what happens next.

Teaching craft and reasoning frameworks

• Energy, empathy, and enthusiasm are the three foundations of good teaching.
• Empathy means thinking like a beginner — putting yourself back in the shoes of someone seeing the material for the first time.
• The question "will this be on the exam?" signals the teacher has not explained why the material matters.
• Good students connect what they're learning to life beyond the classroom.
• Writing and posting publicly forces clarity — Damodaran writes to get clarity, not to give it.
• Tools and frameworks matter more than answers; the goal is to help people reason their way to their own conclusions.

Why this crisis is unlike any before

• Every prior crisis was regional — 2008 hit the US and Europe but left Asia relatively unaffected. This one shut down the entire global economy simultaneously.
• No historical precedent exists for restarting a fully stopped global economy; no one knows how quickly it cranks back.
• China is the leading indicator — four to six weeks ahead of the curve, and how quickly it restarts signals what's possible for the rest of the world.
• Experts claiming they've seen this before are lying.
• Banks are structurally different from this crisis vs. 2008: in 2008, damaged banks were the engine of the crisis; here, banks are casualties of broader economic damage, not the cause.

The balance-sheet test for survival

• Liquidity is the game: companies with little debt and large cash reserves will not only survive but dominate post-crisis.
• Apple has enough cash to pay all employees without selling a single product for 16 months.
• FANG stocks and Microsoft were powerful before the crisis; they will be more powerful after it, as weaker competition gets wiped out.
• Bed Bath & Beyond, Best Buy face serious danger; Amazon does not.
• Cruise lines are unlikely to recover — the petri-dish image is now front-page news and permanently changes consumer behaviour.
• Airlines will survive as a category, but Spirit is at higher risk than United or American; Southwest is the structural winner due to its low fixed-cost model.
• Southwest survived 9/11 profitably while every other airline teetered on bankruptcy — the same logic applies now.

Four groups of companies to consider

• Bargain basements: marked-down companies in distressed sectors with no real failure risk — Expedia, Conoco, Exxon Mobil. The sector deserved a markdown; the company will survive.
• Risky bets: boom-or-bust plays — United Airlines, Spirit, Occidental. Invest in five, expect three to go to zero, hope two return 10x.
• Safety compounders: cash-rich, low-debt giants that will control the post-crisis landscape — Facebook, Apple, Microsoft, Google, Berkshire Hathaway. Not 10-baggers, but reliable.
• Behavioural-change beneficiaries: companies positioned for permanent shifts in how people work, learn, and consume. Chegg (online tutoring), Cisco/WebEx (undervalued relative to Zoom). Look for under-the-radar names the market hasn't rewarded yet.

Behavioural changes that will define winners and losers

• People who never used video conferencing are now comfortable with it — business travel will structurally decline.
• Delivery services (Uber Eats, Amazon Fresh) gained new users who will stick.
• Online education received a forced adoption push.
• Ask: what am I doing differently right now that will permanently stay? Then find the companies best positioned for that shift.

Sectors: banks and real estate

• Banks were already under pressure pre-crisis: FinTech was stripping their easiest revenue (e.g. wire transfer fees), leaving only the harder, riskier lending business.
• The crisis hits banks doubly: their loan portfolios (assets) have dropped in value ~25%, while deposits (liabilities) remain fixed.
• Real estate corrections are coming, especially in overheated markets like the Bay Area and California broadly. In 2009, California saw 50% housing price markdowns.
• Real estate corrections are not purely bad — they return prices to levels people can actually afford on earned income.
• If you are buying a house and can hold your job, waiting a year likely puts you in a better position.

The sleep test and investing discipline

• The sleep test: if you're lying awake worrying about your portfolio, you're holding more risk than suits you. Hold enough liquidity to sleep.
• Less trading = better returns. Historically, the more active the investor, the worse the outcome.
• Turn off the stock ticker on your phone — more feedback produces worse decisions, not better ones.
• Never try to time the bottom. In 2009, people didn't recognise the bottom until two years later.
• People who sold everything in 2008 often never got back in — the psychology of re-entry is harder than holding.
• Don't buy because markets are down; buy when you're comfortable enough to hold.
• Invest proactively. By the time the crisis visibly ends, the market has already priced in the recovery.

On Bitcoin and cryptocurrencies

• Bitcoin was born in October 2008, out of distrust in governments and banks.
• Its design — no central authority, 21 million coin cap, thousands of miners required per transaction — makes it structurally inefficient as a currency.
• A fixed money supply causes deflation as economies grow; no healthy currency in history has had a hard cap.
• Most Bitcoin conversation centres on price appreciation, not on how many transactions people actually conduct with it — a sign it's not functioning as a currency.
• The alternative framing: Bitcoin as "millennial gold." The problem is gold has thousands of years of track record; Bitcoin has twenty.

On government stimulus and inflation risk

• Printing $6 trillion into a partially shut-down economy is analogous to increasing output in a factory running at half capacity — it absorbs the money without immediately causing inflation.
• The risk is not the injection itself but failing to stop in time. The 1970s oil crisis ended in 10% inflation because the Fed kept pumping money after the immediate crisis passed.
• Watch the end-game conditions on stimulus payments: three months vs. six months vs. open-ended changes the inflation calculus entirely.

What to do if you've lost your job or want to start a business

• 90% of most jobs — including high-paying banking and consulting — is mechanical. Machines will always outperform humans on mechanical tasks.
• The right question: what can I do that a machine cannot easily replicate? Build around that.
• The crisis will accelerate automation of jobs that were already moving in that direction.
• Every person has a gift; the goal is to discover it and orient your next role or business around it.

On valuation vs. pricing

• Two distinct games: pricing (buy and hope someone pays more later) vs. valuation (estimating what a business is actually worth based on its cash flows and story).
• Valuation requires only addition, subtraction, multiplication, division, and common sense — not advanced mathematics.
• Your investment philosophy must fit your personality: patience, risk tolerance, reaction to peer pressure, time horizon. No single framework is right for everyone.
• Your biggest enemy as an investor is yourself — evolution hardwired reactive, emotional decision-making that is the opposite of good investing.
• Give it three hours a month and you have enough time to manage a portfolio well.

On founder-dependent companies

• Companies where the founder and the company cannot be separated require you to bet on a person as much as a business.
• Jeff Bezos deliberately built Amazon so that most people didn't even know his name for most of the company's growth — the business was the brand.
• Tesla is a "corporate teenager": enormous potential, but the same founder who built it can damage it with a single tweet or off-script action.
• Buying Tesla means accepting the full package — visionary genius and occasional juvenile behaviour included.