Musings on Markets

JANUARY 19, 2022

If equity markets surprised us with their resilience in 2020, not just weathering a pandemic for the ages, but prospering in its midst, US equity markets, in particular, managed to find light even in the darkest news stories, and continued their rise through 2021. The year that was.

Risk Premium 80

Risk Premium Risk-free Rate Start-ups Equity 80

Musings on Markets

SEPTEMBER 27, 2022

In a third post on July 1, 2022 , I pointed to inflation as a key culprit in the retreat of risk capital, i.e., capital invested in the riskiest segments of every market, and presented evidence of the impact on risk premiums (bond default spreads and equity risk premiums) in markets.

Risk Premium 74

Risk Premium Treasury Start-ups Equity 74

Musings on Markets

JANUARY 21, 2023

In this post, I will begin by chronicling the damage done to equities during 2022, before putting the year in historical context, and then examine how developments during the year have affected expectations for the future. Actual Returns Your returns on equities come in one of two forms. Stocks: The What?

Equity 70

Equity Risk Premium Start-ups Dividends 70

Musings on Markets

FEBRUARY 27, 2023

In this post, I will focus on corporate debt in 2023, keeping in mind that it was a year where the tradeoffs changed, as interest rates rose to pre-2008 levels, and putting at risk those firms that had borrowed to capacity, or even beyond, at low interest rates.

Equity 52

Equity EBITDA Start-ups Net Debt 52

Musings on Markets

JULY 17, 2023

I am just not good at it, and the first six months of 2023 illustrate why market timing is often the impossible dream, something that every investor aspires to be successful at, but very few succeed on a consistent basis. Markets, as is their wont, live to surprise, and the first six months of 2023 has wrong-footed the experts (again).

Marketability 95

Marketability Risk Premium Start-ups Treasury 95

Musings on Markets

JANUARY 8, 2022

Risk Premiums : You cannot make informed financial decisions, without having measures of the price of risk in markets, and I report my estimates for these values for both debt and equity markets. I am not, and have no desire to be, a data service, and will not be updating until the start of 2023.

Risk Premium 91

Risk Premium Start-ups Market Capitalization Corporate Finance 91

Simply Treasury

AUGUST 2, 2022

DEBRA Proposal (« Debt-Equity Bias Reduction Allowance). In early May, the European Commission unveiled its proposal for a "DEBRA" (Debt-equity bias reduction allowance) Directive, aimed at encouraging companies to finance their investments with equity and capital contributions, instead of resorting to loans (bank or other).

Equity 52

Equity Risk Premium Banking Finance 52

Musings on Markets

JANUARY 17, 2024

Heading into 2023, US equities looked like they were heading into a sea of troubles, with inflation out of control and a recession on the horizon. In that post, I noted that if inflation subsided quickly, and the economy stayed out of a recession, stocks had upside, and that is the scenario that played out in 2023.

Risk Premium 77

Risk Premium Start-ups Equity Treasury 77

Musings on Markets

JANUARY 6, 2023

When valuing or analyzing a company, I find myself looking for and using macro data (risk premiums, default spreads, tax rates) and industry-level data on profitability, risk and leverage. In January 2023, I ended up with 47,913 publicly traded firms in my sample , with the pie chart below providing a geographic breakdown.

Risk Premium 52

Risk Premium Dividends EBITDA Start-ups 52

Musings on Markets

AUGUST 15, 2023

Expected returns for Risky Investments : The risk-free rate becomes the base on which you build to estimate expected returns on all other investments. For instance, if you read my last post on equity risk premiums , I described the equity risk premium as the additional return you would demand, over and above the risk free rate.

Risk-free Rate 80

Risk-free Rate Treasury Risk Premium Start-ups 80

Musings on Markets

JANUARY 5, 2024

Beta & Risk 1. Return on Equity 1. Equity Risk Premiums 2. Costs of equity & capital 4. Valuation Pricing Growth & Reinvestment Profitability Risk Multiple s 1. Valuation Pricing Growth & Reinvestment Profitability Risk Multiple s 1. Costs of equity & capital 1.

Dividends 98

Dividends Risk Premium Equity Book Value 98

Musings on Markets

JANUARY 26, 2023

In its early years, Tesla was dependent on equity issuances for funding growth investments, and its liberal use of options to reward management (and especially Elon Musk) opened it up to criticism. The Market : The US equity market in January 2023 looks very different from the market at the start of 2022. per share in 2022.

Start-ups 80

Start-ups Marketability Risk Premium Equity 80

Musings on Markets

JANUARY 31, 2024

In my last three posts, I looked at the macro (equity risk premiums, default spreads, risk free rates) and micro (company risk measures) that feed into the expected returns we demand on investments, and argued that these expected returns become hurdle rates for businesses, in the form of costs of equity and capital.

Equity 79

Equity Book Value Start-ups Corporate Finance 79

Musings on Markets

FEBRUARY 16, 2024

Minuses : As in the last approach, you still have to estimate a probability that a catastrophe will occur, and in addition, and there can be challenges in estimating the value of a business, if the company fails in the face of catastrophic risk. 4 & 5 Uninsurable Risk. Note that these higher discount rates apply in both scenarios.

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Risk Premium Start-ups Beta Marketability 74

Musings on Markets

JULY 25, 2023

For three decades, China has won this battle, but in 2023, the battleground seems to be shifting in favor of India, but it is still too early to make a judgment on whether this is a long term change, or just a hiccup.

Risk Premium 52

Risk Premium Equity Start-ups Risk-free Rate 52

Musings on Markets

FEBRUARY 2, 2023

Finally, my starting cost of capital of 10.15% reflects the reality that the riskfree rate and equity risk premiums have risen over 2022, and my ending number of 9% is an indication that I expect Tesla to become less risky over time. and 10.9%.

Start-ups 99

Start-ups Risk-free Rate Market Capitalization Marketability 99