Session 6B: Monte Carlo Simulations in Finance & Investing

Monte Carlo simulations allow us to face up to uncertainty, rather than hide from it. In this session, I describe the steps in a simulation, starting with choosing the input variables that you will be using probability distributions (rather than point estimates), moving on to choosing the right distributions & parameters for these variables, ending with a reading of what the simulation output tells us about the output variable. I use a valuation of Apple from 2016 to illustrate the process.
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Post class test: www.stern.nyu.e...
Post class test solution: www.stern.nyu.e...
Webpage for statistics class: people.stern.ny...
CZcams Playlist for this class: • Statistics 101

[@chetangk5799]

Crisp and clear delivery! This series is really awesome. No words to explain my joy..

[@Prasadavajjhala]

Prof Damodaran, Thank you so much for this series, it has been extremely beneficial. The clarity of explanations and in bite chunks was perfect, as was your reference list. I am going to do your valuation series next. Receiving lectures from someone with your reputation and caliber is an incredible opportunity. As an idea and subject to demand, would you consider a workshop or series for future Phd (finance) students or people outside academia who want to learn how to publish finance papers in peer reviewed journals. Thank you so much your content on youtube. 🙏

[@MrBumbo90]

I am so proud to have finished this course. I love your videos prof. I have so far done the accounting course and this one. Moving on to finance after reviewing all my notes.

[@royb9113]

Thanks! Your courses are so valuable. I really appreciate what you do. You have changed my outlook on stocks and the proper education required to become truly successful.

[@nicolaguida5612]

Thank you Prof. Damodaran for sharing your wisdom!
Referring to Apple, I would just add that, based on iPhone segment considerations, the analysis would have predicted the valuation range quite correctly. In 2016 it was probably not already possible (at least for everyone) to predict that Services would become such a significant part of revenues, and, most importantly, that it would sport a gross margin of 70%! which of course is raising the company gross margin by some points.

[@titodlt25]

You're a Genius. Bought your book today after watching this video!

[@desmondwong5851]

Thanks much this - super clear explanation of applying Monte Carlo simulations, helped me at work today!

[@dolevmazker736]

Thank you so much for this, just completed stat 02 and going to start econometrics in the next course of months. This was a great starter to understand the connection between statistics and economics in a group.

[@DaniloCosta01]

What a great course! Thank you so much, professor! God bless you!

[@mitulkotadia5969]

Awesome 🙌
Thank you professor ! It is helpful.

[@sogaita]

Your channel is trully inspirational.

[@arkabratapaul]

Thanks for sharing the knowledge with so much clearity.

[@brainskull98]

Kinda amazing how Apple turned out closer to the best case scenario

[@felixjoncar9614]

Enlightening as always! Thank you professor damodaran

[@snehilmishra393]

Extremely helpful. Thank you professor.

[@marsaetos9610]

Great coverage. Classic model.

[@hamidjamshidi7846]

Thanks a lot for your informing and amazing videos Professor

[@Guilherme-fd2bw]

You are amazing professor

[@fkolev7700]

I wanted ask, at end the professor said, you can program correlation between the variables in the Monte Carlo Simulation (he gave an example of revenue growth and margins). Does that mean to construct a correlation matrix and use those weights?

[@DevanshAsawa]

cheers to the man !

[@alstendsouza]

Thank You Professor

[@dleeuss1997]

Professor, how did you get negative values for the lognormal distribution?

[@yknga]

As good as always

[@6toolbaseball]

Now at $172 over 90th percentile haha

[@taylorblack9038]

The prices shown in the video were pre split that happened in 2021 (4 - 1 split). That means adjusted for split the price would be $680 today ($170 x 4 shares). Far beyond even his 100 percentile estimation. As someone mentioned above, margins have been much higher on the services side and low interest rates have pushed valuation multiples up but return has been incredible since 2016 for Apple.