The world of investing is changing rapidly. Artificial intelligence (AI) is transforming businesses, financial markets and even the way people work. While some investors see AI as the biggest investment opportunity of our time, others are becoming cautious about the money flowing into this new technology.
One person who has an interesting perspective on this situation is Professor Aswath Damodaran, a professor of finance at New York University’s Stern School of Business. Known for his expertise in company valuation and investing, Damodaran recently shared his thoughts on AI, stock markets, India’s economic future and the importance of making independent investment decisions.
One of the most interesting things about his investment strategy is that he is currently holding a historically high amount of cash in his personal portfolio.
So, why is he being cautious when so many investors are excited about AI?
Let’s explore some of the biggest lessons from his interview.
1. The Sleep Test: A Simple Way to Think About Investing
One of the most interesting ideas Damodaran discusses is what he calls the Sleep Test.
The concept is very simple.
If you are lying awake at night worrying about your investments, checking stock prices and wondering whether your portfolio is losing money, you may be taking more risk than you are comfortable with.
According to Damodaran, investing should not make your life stressful.
This is one of the reasons he is keeping a significant amount of his wealth in cash. After a strong run in the stock market, he feels uncomfortable putting every dollar into equities.
He believes investors should be able to sleep peacefully without constantly worrying about their portfolios.
The lesson: Your investment strategy should match your risk tolerance. Making money is important, but protecting your peace of mind is important too.
2. AI Is Changing Almost Everything
Artificial intelligence is no longer just a technology trend. It is becoming part of everyday life.
Damodaran believes AI is a major disruption that will affect businesses, professions, education and employment.
He explains that AI is different from traditional machine learning.
Earlier computer systems were designed to perform specific tasks using large amounts of data. Modern AI systems can learn from human behaviour, process information and make decisions in ways that resemble human reasoning.
This creates both opportunities and challenges.
AI can make businesses more productive, reduce costs and improve efficiency. However, it can also replace certain types of work that people currently perform.
The important question is not whether AI will change the world. It is how people will adapt to that change.
3. Are Your Skills at Risk Because of AI?
One of the most important points in the interview concerns the future of jobs.
Damodaran suggests that people should honestly examine their professional strengths and weaknesses.
Ask yourself:
- How much of my work is repetitive?
- How much of my work involves mechanical tasks?
- Do I simply follow instructions?
- What do I bring to the table that a machine cannot easily replicate?
For example, if most of someone’s work involves preparing spreadsheets, building financial models or performing repetitive calculations, AI may eventually become capable of doing much of that work.
Skills that once gave people a competitive advantage could become less valuable.
This means professionals need to develop new strengths.
Instead of depending entirely on technical or mechanical skills, people should develop their ability to think independently, solve unfamiliar problems and make decisions when information is incomplete.
The lesson: Do not build your entire career around tasks that AI can easily perform. Develop skills that help you think, create and solve problems.
4. Why Is Damodaran Holding So Much Cash?
Damodaran explains that his decision to hold more cash is not based on predicting an upcoming market crash.
His reasoning is relatively simple.
Stock markets have experienced a strong rally, and he believes investors should think carefully about whether they are becoming too greedy.
He also feels uncomfortable having every dollar invested in stocks when uncertainty around AI and company valuations is increasing.
However, he makes an important distinction: his personal investment decisions should not automatically become advice for other investors.
He believes every investor should take responsibility for their own decisions.
You should not buy a stock simply because a famous investor owns it. Similarly, you should not sell a company simply because another investor is worried about the market.
Understand the business, study its value and make your own decision.
5. Are AI Stocks Becoming Too Expensive?
Companies such as Nvidia, Microsoft, Alphabet and Meta have benefited from the growing interest in artificial intelligence.
However, Damodaran raises an important concern about the huge amounts of money technology companies are investing in AI infrastructure.
Companies are spending enormous amounts on data centres, computing power and other infrastructure.
The problem is that the returns from these investments are not always clear.
He worries that some companies may be investing because they are afraid of missing out on the AI opportunity.
This behaviour is known as FOMO (Fear of Missing Out).
When one company makes a large investment, competitors may feel pressure to do the same, even when they have not fully understood the potential financial returns.
Damodaran also explains that he purchased several major technology stocks years before the current AI boom.
For example, he bought Microsoft in 2014 and Meta after its difficulties with the metaverse strategy.
His investments were based on his assessment of the companies at the prices available at that time, not on predicting the AI boom.
This highlights an important principle of value investing:
A good company is not necessarily a good investment at every price.
Even an excellent business can become a poor investment if you pay too much for its shares.
6. Is It Too Late to Invest in AI Companies?
Many investors experience FOMO when they see stocks such as Nvidia and other technology companies rising rapidly.
They worry that they have missed an opportunity and want to enter the market before prices increase further.
Damodaran believes this is not a healthy reason to invest.
If you are buying a company simply because its stock price has increased significantly, you may be acting out of regret rather than making a rational investment decision.
He also makes an interesting observation about the purpose of investing.
Investing should be about preserving and growing wealth, not becoming rich overnight.
Social media has changed the way many people think about investing. People frequently share stories about how much money they have made from particular stocks.
This creates pressure on others to chase the same opportunities.
Instead of following the crowd, investors should focus on the value of businesses and what those companies are actually delivering.
For many investors, a diversified index fund may be a more suitable approach than constantly trying to identify the next big technology stock.
7. Why Is India Struggling to Build Global Technology Giants?
One of the most interesting parts of the interview focuses on India’s position in the global technology industry.
Damodaran believes India has significant economic strengths, but it has struggled to produce breakthrough technology companies on the scale of those emerging from the United States.
He points out that many successful Indian technology businesses have built their models around existing technologies rather than creating entirely new technologies.
For example, companies in the IT outsourcing industry have traditionally benefited from India’s lower labour costs and ability to perform technical and repetitive tasks efficiently.
However, AI could challenge this business model.
If AI can perform many of these tasks at a lower cost, companies that depend heavily on traditional outsourcing services may face pressure.
This raises a bigger question: Why has India not produced more globally important companies in areas such as artificial intelligence, robotics and advanced technology?
8. The Biggest Problem: India’s Fear of Failure
Damodaran believes one important reason behind India’s limited success in breakthrough technology is its attitude towards failure.
He compares the startup culture in Silicon Valley with the environment in many other countries.
In Silicon Valley, it is common to meet entrepreneurs who have started several businesses before finally succeeding.
They openly discuss their previous failures and continue trying new ideas.
Failure is treated as part of the learning process.
However, in many other environments, failing at a business can damage an entrepreneur’s reputation and make it difficult to attract investors or start another company.
This discourages people from taking big risks.
Damodaran believes India needs to become more accepting of entrepreneurial failure.
If founders are afraid that one failed business will destroy their future opportunities, they will naturally avoid taking risks.
But breakthrough technologies often require experimentation, uncertainty and the willingness to fail.
The lesson: If India wants to build world-class technology companies, it needs an environment where entrepreneurs can experiment, fail, learn and try again.
9. Can We Protect Our Jobs From AI?
When asked how students and professionals should protect themselves from AI disruption, Damodaran gives an interesting answer.
He says that we cannot completely protect ourselves from such a major technological change. Instead, we need to become adaptable.
He also shares an interesting example from his own teaching career.
He plans to develop five AI agents trained on his publicly available work, including his books, lectures and other material.
These AI agents can perform many tasks that he previously handled himself.
For example, they can remember the content of his books and help with technical financial calculations.
Therefore, simply remembering information or knowing how to perform calculations may no longer provide a strong competitive advantage.
He wants to identify the things he can do that these AI agents cannot yet replicate.
His approach is to understand AI, experiment with it and continuously adapt.
This is an important lesson for students and working professionals.
Instead of being afraid of AI, learn how it works and discover how to use it effectively.
10. Are We Losing Our Ability to Think Because of AI?
Perhaps the most thought-provoking part of the interview is Damodaran’s discussion about human intelligence and reasoning.
He believes that people are becoming too dependent on technology for answers.
Whenever we have a question, we immediately turn to ChatGPT, Google or another AI tool.
While these tools save time, they may also reduce our willingness to think independently.
He explains that the more we stop using a particular skill, the weaker that skill can become.
For example, smartphones and GPS have reduced the need for many people to read physical maps and navigate independently.
Similarly, if students always use AI to solve their problems, they may gradually lose the habit of reasoning through difficult questions.
Damodaran believes that human beings should not focus only on getting the correct answer.
The process of reaching the answer is equally important.
Parents and teachers should encourage children to think through problems rather than immediately giving them solutions.
This helps develop independent thinking and problem-solving abilities.
11. Why Human Thinking Will Still Matter
According to Damodaran, being human is about much more than remembering information or learning technical skills.
It involves:
- Connecting ideas that appear unrelated.
- Thinking independently.
- Making decisions with incomplete information.
- Being creative and curious.
- Exploring different possibilities.
- Developing your own opinions.
These abilities are important because AI is becoming increasingly capable of performing tasks that were previously considered specialised human work.
If we depend on AI for every small decision, we may gradually stop developing these abilities.
The challenge is to use AI without becoming completely dependent on it.
Technology should help us think better, not stop us from thinking.
Conclusion: Adapt to AI, But Don’t Stop Thinking
Professor Aswath Damodaran’s interview offers several important lessons about investing, technology and the future of work.
His investment philosophy reminds us that we should not take unnecessary risks simply because everyone else is making money.
His views on AI highlight that traditional professional skills may become less valuable as technology improves.
His observations about India raise an important question about why the country needs a stronger culture of innovation and greater acceptance of failure.
But perhaps his most important message is about human reasoning.
AI can provide information, perform calculations and solve many problems. However, we should continue developing our ability to think independently, question information and form our own conclusions.
The future will not simply belong to people who know how to use AI. It will also belong to people who know how to think beyond what AI tells them.
The biggest lesson is simple: Adapt to technology, but never stop using your own mind.