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).

Risk Premium 80

Risk Premium Risk-free Rate Start-ups Equity 80

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 Markets in the Third Quarter Coming off a year of rising rates in 2022, interest rates have continued to command center stage in 2023.

Marketability 104

Marketability Start-ups Risk Premium Treasury 104

Musings on Markets

JANUARY 28, 2024

In my last data updates for this year, I looked first at how equity markets rebounded in 2023 , driven by a stronger-than-expected economy and inflation coming down, and then at how interest rates mirrored this rebound. Analysts often try to bring company-specific components, i.e, Analysts often try to bring company-specific components, i.e,

Risk Premium 93

Risk Premium Beta Start-ups Equity 93

Brian DeChesare

AUGUST 31, 2022

But before delving into the best candidates for these roles, typical trades, careers, and more, let’s start with the basic definitions: What is a Convertible Arbitrage Hedge Fund? If the stock price goes up or down by 10%, but the volatility stays the same, you might not earn or lose anything on the trade. The conversion price is $300.

Banking 67

Banking Risk-free Rate Equity Start-ups 67

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?

Risk-free Rate 80

Risk-free Rate Treasury Risk Premium Start-ups 80

Musings on Markets

FEBRUARY 11, 2023

In the month since, I have added two more data updates, one on US equities and one on interest rates , but my attention was drawn away by other interesting stories. Thus, I took a detour to value Tesla , around the time of their most recent earnings report on January 26, and added a second post to respond to the pushback that I got.

Risk Premium 76

Risk Premium Start-ups Equity Marketability 76

Brian DeChesare

MAY 3, 2023

When I started offering financial modeling training , I never expected to get questions about a methodology like the Dividend Discount Model (DDM). It can be useful for certain companies, such as power and utility firms and midstream (pipeline) operators in oil & gas … …but it’s also much harder to set up and use than a standard DCF.

Dividends 64

Dividends Terminal Value Enterprise Value Equity 64

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 91

Risk Premium Start-ups Market Capitalization Corporate Finance 91

Musings on Markets

JULY 27, 2022

On the bad news front , the take rate, i.e., the slice of gross order value (GOV) that Zomato keeps has dropped substantially over the last year , reflecting increased competition in the market, higher delivery costs and Zomato's entry into newer markets (like grocery delivery) with lower revenue sharing.

Risk Premium 81

Risk Premium Start-ups Equity Marketability 81

Musings on Markets

FEBRUARY 15, 2023

As I have argued in all four of my posts, so far, about 2022, it was year when we saw a return to normalcy on many fronts, as treasury rates reverted back to pre-2008 levels, and risk capital discovered that risk has a downside.

Start-ups 52

Start-ups Equity Risk Premium Risk-free Rate 52

Andrew Stolz

JANUARY 28, 2022

The share price is up 35% YTD. Western countries fear that Russia starts to gain control over Ukraine again. Germany delayed the approval as it uses the pipeline as a sanction threat in case Russia starts a war. Russia has a massively high risk-free rate of 10%. Value estimate – Gazprom.

Risk-free Rate 52

Risk-free Rate Net Debt Start-ups Marketability 52

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 52

Corporate Finance Start-ups Finance Marketability 52

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 99

Start-ups Dividends Marketability Market Capitalization 99

Musings on Markets

AUGUST 5, 2023

As part of that obsession, since September 2008, I have estimated an equity risk premium for the S&P 500 at the start of each month, and not only used that premium, when valuing companies during that month, but shared my estimate on my webpage and on social media.

Risk Premium 78

Risk Premium Equity Start-ups Treasury 78

ThomsonReuters

JUNE 15, 2021

Which basically means that before you do the transaction you have to have started the process that would enable you to do an audit of your internal controls for the year that you were in.”. Additionally, private companies have options in a few areas—most notably use of IBR or risk-free rate–that public companies do not,” she said.

Risk-free Rate 64

Risk-free Rate Equity Start-ups Book Value 64

Musings on Markets

JANUARY 20, 2021

The failures of the signal have been variously attributed to low interest rates, accounting mis-measurement of earnings (especially at tech companies), and by some, to animal spirits. Note that nothing that I have said so far is premised on modern portfolio theory, or any academic view of risk premiums.

Risk Premium 52

Risk Premium Risk-free Rate Equity Dividends 52

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 70

Equity Risk Premium Start-ups Dividends 70

Musings on Markets

FEBRUARY 8, 2022

Investors all talk about risk, but there seems to be little consensus on what it is, how it should be measured, and how it plays out in the short and long term. In closing, I will talk about some of the more dangerous delusions that undercut good risk taking. What is risk?

Risk Premium 67

Risk Premium Beta Start-ups Equity 67

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

Brian DeChesare

FEBRUARY 28, 2024

For the right person, though, fixed income research can be even better than equity research, whether you’re at a bank, an asset management firm, a hedge fund, or a credit rating agency: Table of Contents: What is Fixed Income Research? a credit rating vs. an investment recommendation). Due to the age and the fact that J.C.

Equity 59

Equity Banking Start-ups Finance 59

Musings on Markets

JANUARY 5, 2024

First, these categorizations were created close to twenty years ago, when I first started looking a global data, and many countries that were emerging markets then have developed into more mature markets now. Beta & Risk 1. Equity Risk Premiums 2. Ratings & Spreads 2. Tax rates 4. Return on Equity 1.

Dividends 98

Dividends Risk Premium Equity Book Value 98

Musings on Markets

MAY 24, 2021

Looking at US equities, the S&P 500 is up about 11% and the NASDAQ about 5%, from start of the year levels, and the underperformance of the latter has led to a wave of stories about whether this is start of the long awaited comeback of value stocks, after a decade of lagging growth stocks. How do you measure inflation?

Treasury 55

Treasury Start-ups Risk Premium Price to Book 55

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

JANUARY 26, 2023

Thus, almost everything I know and practice, when valuing young and start-up companies, I learned in the process of valuing Amazon in the 1990s. Just as impressively, the company finally started delivering on its promise of profitability, going from barely making money in 2019 to an operating margin of 16.57% in 2022.

Start-ups 80

Start-ups Marketability Risk Premium Equity 80

Musings on Markets

JULY 25, 2023

Since country risk is multidimensional and dynamic, my annual country risk update runs to more than a hundred (boring) pages , but I will try to summarize what the last year has brought in this post. Drivers of Country Risk What makes some countries riskier than others to operate a business in?

Risk Premium 52

Risk Premium Equity Start-ups Risk-free Rate 52