Musings on Markets

MARCH 25, 2021

for the year are at war with its concurrent promise to keep rates low; after all, adding those numbers up yields a intrinsic risk free rate of 8.7%. The Stocks Story As treasury rates have risen in 2021, equity markets have been surprisingly resilient, with stocks up during the first three months.

Equity 52

Equity Risk-free Rate Treasury Start-ups 52

Andrew Stolz

JANUARY 28, 2022

Download the full report as a PDF. Russia has a massively high risk-free rate of 10%. Download the full report as a PDF. Highlights: Bright future of natural gas as a transition fuel. If Europe holds back Gazprom expansion, pivot to Asia. Domestic market still not fully penetrated yet. Value estimate – Gazprom.

Risk-free Rate 52

Risk-free Rate Net Debt Start-ups Marketability 52

Musings on Markets

OCTOBER 4, 2023

Thus, the equity risk premium of 4.84% on October 1, 2023, when added to the ten-year T.Bond rate of 4.58% on that day yields an expected return on equity of 9.42%, up from 8.81% on July 1, 2023. below the actual index level of 4288, making it close to fairly valued.

Marketability 104

Marketability Start-ups Risk Premium Treasury 104

Musings on Markets

FEBRUARY 15, 2023

the returns you can make on investments of equivalent risk, and that game became a lot more difficult to win in 2022. To explore differences in profit margins across industry groups, I broke stocks down into 94 industry groups, and sorted industries, based upon operating margin, from highest to lowest.

Equity 52

Equity Start-ups Risk Premium Risk-free Rate 52

Musings on Markets

JANUARY 28, 2024

Using the updated numbers for the risk free rate (in US dollars), the equity risk premiums (for the US and the rest of the world) and the default spreads for debt in different ratings classes, I computed the cost of capital for the 47,698 companies in my data universe, at the start of 2024.

Risk Premium 93

Risk Premium Beta Start-ups Equity 93

Musings on Markets

JANUARY 20, 2021

If, on the other hand, investors are risk neutral, the price of risk will be zero, and investors will buy risky business, stocks and other investments, and settle for the risk free rate as the expected return. So, at 4.72%, is the equity risk premium too low and is the market in a bubble?

Risk Premium 52

Risk Premium Risk-free Rate Equity Dividends 52

Musings on Markets

JANUARY 8, 2022

Risk free Rates : While the US treasury bond rate is widely reported, I contrast its actual value with what I call an intrinsic measure of the rate, computed by adding the inflation rate to real growth each year at this link. You can find the data to download on my website , at this link.

Risk Premium 91

Risk Premium Start-ups Market Capitalization Corporate Finance 91

Musings on Markets

MAY 6, 2022

Since 2020, though, inflation has become a key story line in almost every post that I write about the overall market, and I have had multiple posts just on the topic.

Risk Premium 92

Risk Premium Treasury Start-ups Equity 92

Musings on Markets

JULY 27, 2022

The effects of inflation show up first as higher risk free rates , across currencies, and next in higher risk premiums, with both equity risk premiums and default spreads rising.

Risk Premium 81

Risk Premium Start-ups Equity Marketability 81

Musings on Markets

FEBRUARY 11, 2023

The conventional practice, when estimating risk free rates, has been to use the government bond rate in the local currency, if available, as the riskfree rate in that currency, and that practice is wrong when markets perceive default risk in the sovereign and build that into the government bond rate.

Risk Premium 76

Risk Premium Start-ups Equity Marketability 76

Musings on Markets

NOVEMBER 9, 2021

Risk : When I valued Tesla last in early 2020, I used a cost of capital of 7%, reflecting a risk free rate of 1.75% and an equity risk premium of 5.2% for mature markets.

Start-ups 99

Start-ups Dividends Marketability Market Capitalization 99

Musings on Markets

AUGUST 5, 2023

In short, the expected return on a risky investment can be constructed as the sum of the returns you can expect on a guaranteed investment, i.e., a riskfree rate, and a risk premium, which will scale up as risk increases. The risk premium that you demand has different names in different markets.

Risk Premium 78

Risk Premium Equity Start-ups Treasury 78

Musings on Markets

JANUARY 21, 2023

That said, when investors buy equities, it would be both irrational and illogical to settle for expected returns that are less than what you can earn on risk free or guaranteed investments, though behavioral finance suggests that both irrationality and illogic are persistent human traits. Stocks: The What Next?

Equity 70

Equity Risk Premium Start-ups Dividends 70

Musings on Markets

JANUARY 12, 2021

Last week, was my data week, where I download and analyze data on all publicly traded companies, listed anywhere in the world, and I will post extensively on what the numbers look like after a most tumultuous year. Investors need to reassess their expected returns to reflect risk free rates & current ERP & default spreads.

Corporate Finance 52

Corporate Finance Start-ups Finance Marketability 52

Musings on Markets

JANUARY 5, 2024

This is a large dataset and can take a while to download) Data Timing & Currency Effects In computing the statistics for each of the variables, I have one overriding objective, which is to make sure that they reflect the most updated data that I have at the time that I compute them, which is usually the first week of January. Be patient.

Dividends 98

Dividends Risk Premium Equity Book Value 98

Musings on Markets

FEBRUARY 8, 2022

At the start of 2022, the ten sectors (US) with the highest and lowest relative risk (unlettered betas), are shown below. In my last two posts, I noted that the prices of risk have drifted down in markets, with both equity risk premiums and default spreads decreasing through 2021.

Risk Premium 67

Risk Premium Beta Start-ups Equity 67

Musings on Markets

JANUARY 26, 2023

As I noted in my last post , rising risk free rates and equity risk premiums have pushed up the costs of equity for all companies, and Tesla is not only no exception but is perhaps even more exposed as an above-average risk company.

Start-ups 80

Start-ups Marketability Risk Premium Equity 80

Musings on Markets

FEBRUARY 2, 2023

To fill in the missing pieces, I redid the valuation picture, adding the revenue growth rate, by year: Download spreadsheet As you look at the sheet, it is worth emphasizing a few estimation details that you may have missed in my original post: First, the revenue growth rate , at least for me, is a means to an end, not an end in itself.

Start-ups 99

Start-ups Risk-free Rate Market Capitalization Marketability 99

Musings on Markets

JULY 25, 2023

Suffice to say that if you are operating a business in a part of the world that is contested by two countries, your risk levels are in the danger zone, no matter where in the world you are.) Download spreadsheet with data You will notice that there are countries that are not rated (NR) that have equity risk premiums attached to them.

Risk Premium 52

Risk Premium Equity Start-ups Risk-free Rate 52