Musings on Markets

MAY 6, 2022

Equity Risk Premium Path : The equity risk premium of 5.24%, estimated at the start of May 2022, is at the high end of historical equity risk premiums , but we have seen higher premiums, either in crises (end of 2008, first quarter of 2020) or when inflation has been high (the late 1970s).

Risk Premium 92

Risk Premium Treasury Start-ups Equity 92

Musings on Markets

JANUARY 8, 2022

Most of the variables that I report are micro variables, relating to company choices on investing, financing and dividend policies, or to data that may be needed to value these companies. I extend my equity risk premium approach to cover other countries, using sovereign default spreads as my starting point, at this link.

Risk Premium 91

Risk Premium Start-ups Market Capitalization Corporate Finance 91

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.

Equity 70

Equity Risk Premium Start-ups Dividends 70

Andrew Stolz

MARCH 20, 2020

The formula implies the return an investor expects from a risk-free investment plus the return from the stock in relation to market volatility. The market risk premium is calculated from a market rate of return less a risk-free rate. The formula is expressed in the following.

Beta 52

Beta Capital Structure Risk-free Rate Weighted Average Cost of Capital 52

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.

Risk Premium 77

Risk Premium Start-ups Equity Treasury 77

Musings on Markets

JANUARY 20, 2021

Note that nothing that I have said so far is premised on modern portfolio theory, or any academic view of risk premiums. It is true that economists have researched risk aversion for centuries and concluded that investors are collectively risk averse, and that the level of risk aversion varies across age groups, income levels and time.

Risk Premium 52

Risk Premium Risk-free Rate Equity Dividends 52

Musings on Markets

JANUARY 9, 2021

The macro variables that I track on my site relate to the price of risk, a key input into valuation, in both equity and debt markets: US Equity Risk Premiums : The equity risk premium is the price of risk in equity markets.

Risk Premium 52

Risk Premium Market Capitalization Equity Start-ups 52

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.

Dividends 98

Dividends Risk Premium Equity Book Value 98

Musings on Markets

NOVEMBER 9, 2021

In this post , I argued that one of the key dividing lines between the two groups was flexibility , with companies with more flexible investing, financing and dividend policies winning out over companies with more rigidity on those dimensions. for mature markets.

Start-ups 99

Start-ups Dividends Marketability Market Capitalization 99

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. I do report on a few market-wide data items especially on risk premiums for both equity and debt. Goodwill & Impairment 4.

Risk Premium 52

Risk Premium Dividends EBITDA Start-ups 52

Musings on Markets

FEBRUARY 8, 2022

Relative Risk Measures Before we embark on how to measure relative risk, where there can be substantial disagreement, let me start with a statement on which there should be agreement. By the same token, Embraer and TCS are global firms that happen to be incorporated in Brazil and India, respectively.

Risk Premium 67

Risk Premium Beta Start-ups Equity 67

Musings on Markets

JULY 17, 2023

Exacerbating the pain, corporate default spreads rose during the course of 2022: While default spreads rose across ratings classes, the rise was much more pronounced for the lowest ratings classes, part of a bigger story about risk capital that spilled across markets and asset classes.

Marketability 95

Marketability Risk Premium Start-ups Treasury 95

Equilest

MARCH 17, 2022

We note that the higher the expected rate (in other words, the greater the risk is perceived as necessary, to the point of requiring a substantial "risk premium"), the lower the multiple that will apply and therefore the lower valuation: we buy cheaper which is less safe. 11% per year. 10% per year. around 1.5%). -

Business Valuation 40

Business Valuation EBIT EBITDA Discounted Cash Flow 40

Musings on Markets

JANUARY 12, 2021

Thus, you and I can disagree about whether beta is a good measure of risk, but not on the principle that no matter what definition of risk you ultimately choose, riskier investments need higher hurdles than safer investments.

Corporate Finance 52

Corporate Finance Start-ups Finance Marketability 52

Musings on Markets

MAY 11, 2021

The Taxation of Investment Income In much of the world, income from investments (interest, dividends) is treated differently than earned income (salary, wages), by the tax code, and the reasons for the divergence are both practical and political: 1.

Dividends 52

Dividends Start-ups Risk Premium Treasury 52

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