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Musings on Markets
AUGUST 5, 2023
If you have been reading my posts, you know that I have an obsession with equity risk premiums, which I believe lie at the center of almost every substantive debate in markets and investing. That said, I don't blame you, if are confused not only about how I estimate this premium, but what it measures.
Musings on Markets
JANUARY 10, 2025
Thus, as you peruse my historical data on implied equity risk premiums or PE ratios for the S&P 500 over time, you may be tempted to compute averages and use them in your investment strategies, or use my industry averages for debt ratios and pricing multiples as the target for every company in the peer group, but you should hold back.
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Musings on Markets
JANUARY 21, 2023
The first is the dividends you receive, while you hold stocks, a cash flow stream that provides a measure of stability to investors who seek it. It too requires estimate for inputs, but the range of error is magnitudes smaller than with historical premiums. Actual Returns Your returns on equities come in one of two forms.
Musings on Markets
JANUARY 17, 2024
To capture the market's mood, I back out the expected return (and equity risk premium) that investors are pricing in, through an implied equity risk premium: Put simply, the expected return is an internal rate of return derived from the pricing of stocks, and the expected cash flows from holding them, and is akin to a yield to maturity on bonds.
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.
Musings on Markets
FEBRUARY 8, 2025
In the first five posts, I have looked at the macro numbers that drive global markets, from interest rates to risk premiums, but it is not my preferred habitat. The second set of inputs are prices of risk, in both the equity and debt markets, with the former measured by equity risk premiums , and the latter by default spreads.
Musings on Markets
JANUARY 5, 2024
I have also developed a practice in the last decade of spending much of January exploring what the data tells us, and does not tell us, about the investing, financing and dividend choices that companies made during the most recent year. Beta & Risk 1. Dividends and Potential Dividends (FCFE) 1. Equity Risk Premiums 2.
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