Musings on Markets

MAY 6, 2022

In most time periods, those recalibrations and resets tend to be small and in both directions, resulting in the ups and downs that pass for normal volatility. Clearly, we are not in one of those time periods, as markets approach bipolar territory, with big moves up and down.

Risk Premium 103

Risk Premium Treasury Start-ups Equity 103

Musings on Markets

JANUARY 27, 2022

Inflation: Measurement and Determinants As the inflation debate was heating up in the middle of last year, I wrote a comprehensive post on how inflation is measured, what causes it and how it affects returns on different asset classes. Rather than repeat much of that post, let me summarize my key points.

Risk-free Rate 99

Risk-free Rate Treasury Price to Book Start-ups 99

Musings on Markets

FEBRUARY 11, 2023

By the same token, a country that is viewed as "first world" can lose that status, if people start perceiving the system as unfair, legal systems filled with delay and waster and a government that becomes capricious in its actions, or worse.

Risk Premium 97

Risk Premium Start-ups Equity Marketability 97

Musings on Markets

JANUARY 30, 2023

The rise in rates transmitted to corporate bond market rates, with a concurrent rise in default spreads exacerbating the damage to investors. Download data US Treasury rates rose across all maturities, but more so at the short end of the term structure (3 months, 1 year and 2 year) than at the long end (10 year or 30 year).

Treasury 97

Treasury Start-ups Risk Premium Equity 97

Musings on Markets

JANUARY 20, 2021

In this post, I offer an alternative, albeit a more complicated, metric that I believe offers not only a more comprehensive measure of pricing, but also operates as a barometer of the ups and downs in the market. 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

FEBRUARY 10, 2021

In this post, I will start by looking at the role that hurdle rates play in running a business, with the consequences of setting them too high or too low, and then look at the fundamentals that should cause hurdle rates to vary across companies. US , Europe , Emerging Markets , Japan , Australia/NZ & Canada , Global ) 2.

Risk-free Rate 52

Risk-free Rate Risk Premium Start-ups Equity 52

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 106

Dividends Risk Premium Equity Book Value 106

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 52

Treasury Risk Premium Start-ups Risk-free Rate 52

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 99

Start-ups Marketability Risk Premium Equity 99

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 101

Start-ups Dividends Marketability Market Capitalization 101

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 82

Equity Book Value Start-ups Corporate Finance 82

Equidam

APRIL 26, 2025

Instead of comparing to an average, it typically starts with a maximum potential pre-money valuation deemed achievable for a startup of that type in its region. Unlike the Scorecard, it doesn’t explicitly benchmark against competitors but focuses on the startup’s internal milestones and risk mitigation.

Discounted Cash Flow 59

Discounted Cash Flow Terminal Value Book Value Beta 59

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

FEBRUARY 2, 2023

The first of the is as companies scale up, there will be a point where they will hit a growth wall, and their growth will converge on the growth rate for the economy. Firms with large revenues find it difficult to maintain high growth, as they scale up. On both fronts, I am more cautious.

Start-ups 99

Start-ups Risk-free Rate Market Capitalization Marketability 99

Musings on Markets

FEBRUARY 15, 2023

To set the stage, I will start by laying out the differences measure of earnings that reported on an income statement: At the top of the profit ladder is gross income , the earnings left over after a company has covered the direct cost of producing whatever it sells.

Start-ups 52

Start-ups Equity Risk Premium Risk-free Rate 52

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.

Treasury 55

Treasury Start-ups Risk Premium Price to Book 55

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

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 99

Risk Premium Risk-free Rate Start-ups Equity 99

Musings on Markets

JANUARY 28, 2024

Third, by making investing a choice between good (higher returns) and bad (higher risk), a message is sent, perhaps unwittingly, that risk is something to be avoided or hedged. Don't overthink the discount rate : One of my contentions of discount rates is that they cannot become receptacles for all your hopes and fears.

Risk Premium 121

Risk Premium Beta Start-ups Equity 121

Musings on Markets

JULY 27, 2022

In addition, the growth has come in fits and starts, and given Zomato's active acquisition strategy, it is not clear how much of the revenue growth is organic and how much is acquired. And no, you cannot add back stock based compensation and come up with an adjusted EBITDA to claim otherwise.)

Risk Premium 98

Risk Premium Start-ups Equity Marketability 98

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

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 99

Risk Premium Start-ups Market Capitalization Corporate Finance 99

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

Musings on Markets

JANUARY 17, 2025

In my last post , I noted that the US has extended its dominance of global equities in recent years, increasing its share of market capitalization from 42% in at the start of 2023 to 44% at the start of 2024 to 49% at the start of 2025.

Equity 129

Equity Risk Premium Treasury Start-ups 129

Musings on Markets

JANUARY 28, 2025

It was an interesting year for interest rates in the United States, one in which we got more evidence on the limited power that central banks have to alter the trajectory of market interest rates. We started 2024 with the consensus wisdom that rates would drop during the year, driven by expectations of rate cuts from the Fed.

Banking 71

Banking Treasury Risk Premium Start-ups 71

Equidam

APRIL 22, 2025

23] , [24] , [25] This average serves as a starting point, which is then adjusted upwards or downwards based on the specific startup’s relative strengths and weaknesses across several key criteria. [21] 23] Equidam uses country-specific risk-free rates (10-year government bonds) and market risk premiums (sourced from Damodaran). [23]

Discounted Cash Flow 64

Discounted Cash Flow Terminal Value Marketability EBITDA 64

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 52

Discounted Cash Flow Marketability Risk Premium Start-ups 52

Musings on Markets

FEBRUARY 6, 2025

The results, broken down broadly by geography are in the table below: As you can see, the aggregate market cap globally was up 12.17%, but much of that was the result of a strong US equity market. I am no expert on exchange rates, but learning to deal with different currencies in valuation is a prerequisite to valuing companies.

Risk Premium 69

Risk Premium Start-ups Enterprise Value Equity 69