Damodaran's cure for market fever

Summary: With Jerome Powell calling markets “fairly highly valued” and Aswath Damodaran showing why they may be 12–13 per cent overpriced, investor anxiety is understandable. This story breaks down Damodaran’s reasoning and the one strategy he believes most investors should actually follow. When US Federal Reserve Chair Jerome Powell recently remarked that markets looked ‘fairly highly valued’, it triggered a familiar echo. In the mid-1990s, Alan Greenspan, Fed Chair at the time, warned of ‘irrational exuberance’ just before the dot-com bubble swelled and burst. Both comments came from central bankers watching markets inflate faster than fundamentals justified. In a recent talk, Aswath Damodaran, known to many as the ‘Dean of Valuation’, took Powell’s observation seriously but calmly. Markets, he agreed, are richly priced. Yet, his stance was strikingly measured: “I’m not going to do much about it”. So, what’s behind his composure and what, according to him, ordinary investors should – and should not do now? We dissect it below. How yields reveal market overpricing To demonstrate overpricing, Damodaran asks a basic question: Are stocks paying you enough for the risk you’re taking? One way to check is to compare what you earn from stocks versus what you can earn safely from government bonds. For years, bonds paid almost nothing. So, even pricey stocks loo

This article was originally published on December 01, 2025.