Musings on Markets
JANUARY 9, 2021
Challenge rules of thumb and conventional wisdom : Investing has always had rules of thumb on how and when to invest, ranging from using historical PE or CAPE ratios to decide if markets are over valued, to simplistic rules (eg. buy stocks that trade at less than book value or trade at PEG ratios less than one) for individual stocks.
Musings on Markets
FEBRUARY 27, 2023
An Optimizing Tool In my second and third data posts for this year, I chronicled the effects of rising interest rates and risk premiums on costs of equity and capital. The market debt ratio, in contrast, uses the market's estimate of the value of equity, i.e., its market capitalization, as the value of equity.
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Musings on Markets
JANUARY 5, 2024
In my corporate finance class, I describe all decisions that companies make as falling into one of three buckets – investing decisions, financing decision and dividend decisions. Equity Risk Premiums 2. Financing Flows 5. Standard Deviation in Equity/Firm Value 2. Book Value Multiples 3.
Musings on Markets
JANUARY 6, 2023
Check rules of thumb : Investing and corporate finance are full of rules of thumb, many of long standing. For example, I have seen it asserted that a stock that trades at less than book value is cheap or that a stock that trades at more than twenty times EBITDA is expensive. Debt breakdown 2. Non-cash Working Capital 3.
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.
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