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. A few years ago, I wrote a paper for practitioners on the cost of capital , where I described the cost of capital as the Swiss Army knife of finance, because of its many uses.

Risk Premium

Musings on Markets

MARCH 15, 2025

I will start with a couple of confessions. Thus, my estimates of equity risk premiums, updated every month, are not designed to make big statements about markets but more to get inputs I need to value companies.

Start-ups

Musings on Markets

AUGUST 5, 2025

A few weeks ago, I started receiving a stream of message about an Instagram post that I was allegedly starring in, where after offering my views on Palantir's valuation, I was soliciting investors to invest with me (or with an investment entity that had ties to me). An Easy Target? and more by two other forces.

Start-ups

Global Finance

OCTOBER 29, 2024

Meghan Robson, head of US Credit Strategy for BNP Paribas, speaks to Global Finance about directional forecasts and what to expect post-election. Global Finance: What surprised you in 2024? Chairman Jerome Powell used his Jackson Hole speech in August to declare victory on inflation and ended up delivering that 50 basis point cut.

Start-ups

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.

Risk Premium

Musings on Markets

JANUARY 21, 2023

I will follow up by looking at the mechanics that connect stock prices to inflation, and examine why the damage from higher inflation can vary across companies and sectors. The Year in Review At the start of 2022, the S&P 500 was at 4766.18, up from 3756.07 at the start of that year. Stocks: The What?

Equity

Musings on Markets

FEBRUARY 8, 2022

In this post, I will start with a working definition of riskt that we can get some degree of agreement about, and then look at multiple measures of risk, both at the company and country level. In closing, I will talk about some of the more dangerous delusions that undercut good risk taking. What is risk?

Risk Premium

Musings on Markets

OCTOBER 4, 2023

We started the year with significant uncertainty about whether the surge in inflation seen in 2022 would persist as well as about whether the economy was headed into a recession. The NASDAQ also gave back gains in the third quarter, but is up 27.27% for the year, but those gaudy numbers obscure a sobering reality.

Marketability

Musings on Markets

JANUARY 30, 2023

Just as rising equity risk premiums push up the cost of equity, rising default spreads push up the cost of debt of companies, with the added complication of higher default risk for those companies that had pushed to the limits of their borrowing capacity in a low interest-rate environment.

Treasury

Musings on Markets

AUGUST 15, 2023

In every introductory finance class, you begin with the notion of a risk-free investment, and the rate on that investment becomes the base on which you build, to get to expected returns on risky assets and investments. What is a risk free investment? Why does the risk-free rate matter?

Risk-free Rate

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. Equity Risk Premiums 2. Return on Equity 1. Debt Details 1.

Dividends

Musings on Markets

JANUARY 6, 2023

In my last post, I talked about the ritual that I go through every year ahead of my teaching each spring, and in this one, I will start on the first of a series of posts that I make at the start of each year, where I look at data, both macro and company-level. That is not true!

Risk Premium

Musings on Markets

JANUARY 24, 2024

As we start 2024, the interest rate prognosticators who misread the bond markets so badly in 2023 are back to making their 2024 forecasts, and they show no evidence of having learned any lessons from the last year. The Fed Effect: Where's the beef?

Treasury

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

Musings on Markets

JANUARY 12, 2021

I also start thinking about my passion, which is teaching, the spring semester to come, and the classes that I will be teaching, repeating a process that I have gone through every year since 1984, my first year as a teacher. Face up to uncertainty, rather than avoid or deny it : Uncertainty is a feature of investing/ business, not a bug.

Corporate Finance

Musings on Markets

NOVEMBER 9, 2021

As I have valued Tesla over the years, I have come to the realization that it is the most 'uncar-like" automobile company in the world, and its uniqueness shows up on two dimensions. Put simply, the company has been able to scale up more quickly, while reinvesting less in capacity, than any other automobile company.

Start-ups

Musings on Markets

JANUARY 9, 2021

The second was that, starting mid-year in 2020, equity markets and the real economy moved in different directions, with the former rising on the expectations a post-virus future, and the latter languishing, as most of the world continued to operate with significant constraints.

Risk Premium

Equilest

MARCH 17, 2022

They give a vision of the company, which must be supplemented by other approaches to address the "true" price, which will result from the negotiation, i.e., the amount accepted by the assignor and financed by the buyer. . . Thus two companies with the same level of results but different future performance risks will have different values.

Business Valuation

Musings on Markets

JANUARY 27, 2021

In my last post , I described the wild ride that the price of risk took in 2020, with equity risk premiums and default spreads initially sky rocketing, as the virus led to global economic shutdowns, and then just as abruptly dropping back to pre-crisis levels over the course of the year.

Start-ups

Musings on Markets

JANUARY 28, 2024

In this post, I look at risk, a central theme in finance and investing, but one that is surprisingly misunderstood and misconstrued. That said, and notwithstanding decades of research and debate on the topic, there are still wide differences in how risk is defined and measured. What is risk?

Risk Premium

Musings on Markets

JANUARY 19, 2022

In a post at the start of 2021 , I argued that while stocks entered the year at elevated levels, especially on historic metrics (such as PE ratios), they were priced to deliver reasonable returns, relative to very low risk free rates (with the treasury bond rate at 0.93% at the start of 2021). The year that was.

Risk Premium

Musings on Markets

JULY 1, 2022

In this post, I will argue that almost everything that we are observing in markets, across asset classes, can be explained by a pull back on risk capital, and that understanding the magnitude of the pull back, and putting in historical perspective, is key to gauging what is coming next. Risk Capital: What is it?

Marketability

Musings on Markets

JANUARY 8, 2022

To start the year, I returned to a ritual that I have practiced for thirty years, and that is to take a look at not just market changes over the last year, but also to get measures of the financial standing and practices of companies around the world. Happy New Year, and I hope that 2022 brings you good tidings! Sometimes, less is more!

Risk Premium

Musings on Markets

FEBRUARY 27, 2023

That may reflect the concern that once a person or entity starts borrowing to fund its needs, it is easy to overuse debt, and risk its wellbeing in the process. The "Right" Financing Mix Is there an optimal mix of debt and equity for a business?

Equity

Musings on Markets

MAY 11, 2021

In the weeks since, the administration has come up with its follow-up proposal, this one funded by increases in individual taxes, primarily on the wealthy. On capital gains, the same argument can be made, but it is less direct, since stock prices can go up, even if a company is money-losing and has no taxable income.

Dividends

Musings on Markets

JULY 24, 2024

After the 2008 market crisis, I resolved that I would be far more organized in my assessments and updating of equity risk premiums, in the United States and abroad, as I looked at the damage that can be inflicted on intrinsic value by significant shifts in risk premiums, i.e., my definition of a crisis.

Risk Premium

Musings on Markets

JANUARY 31, 2025

I am going to start this post with a confession that my knowledge of the architecture and mechanics of AI are pedestrian and that there will be things that I don't get right in this post. Along the way, the the AI story picked up supercomputing companies, as passengers, again on the belief that Ai systems would find a use for them.

Start-ups

Musings on Markets

APRIL 20, 2025

There are strands of research in both behavioral finance and empirical studies that back up contrarian strategies, but as with everything to do with investing, it comes with caveats and constraints. In the third, constrained contrarianism , you buy the stocks that are down, but only if they pass your screens for qualify and safety.

Start-ups

Equidam

APRIL 22, 2025

2] Startups typically lack significant historical financial data, often operate with negative profits initially, rely heavily on private equity or venture capital rather than traditional bank loans, and face a much higher risk of failure. [1] This premium rises when perceived market risk increases. [27] 2] [15] [17].

Discounted Cash Flow

Reynolds Holding

MARCH 25, 2025

Thats what started in 1940. 19, 2015) (Chairs Opening Remarks) (The modern American investment company started in the 1920s with the end of certain state corporate laws that limited the growth of funds and with a desire of investors, particularly those of modest means, to invest in stocks by pooling their assets with those of others.

Corporate Finance

Equidam

APRIL 22, 2025

Venture Capital (VC) Financing: This is perhaps the most common context. 3] , [7] , [6] It sets a benchmark against which future fundraising rounds will be measured and helps investors assess whether the potential upside justifies the significant risks associated with early-stage ventures. [8]

Discounted Cash Flow