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

SEPTEMBER 27, 2022

In my early 2021 posts on inflation, I argued that while the higher inflation that we were just starting to see could be explained by COVID and supply chain issues, prudence on the part of policy makers required that it be taken as a long term threat and dealt with quickly. in the NY Fed survey. in the NY Fed survey.

Risk Premium 74

Risk Premium Treasury Start-ups Equity 74

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 74

Treasury Start-ups Risk Premium Equity 74

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 88

Marketability Risk Premium Start-ups Equity 88

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 81

Risk Premium Start-ups Equity Marketability 81

Musings on Markets

MARCH 19, 2022

The Lead In To understand the market effects of the Russia-Ukraine conflict, we need to start with an assessment of the two countries, and their places in the global political, economic and market landscape, leading in. Ukraine, a part of the Soviet Union, has had its shares of ups and downs, and its economic footprint is even smaller.

Start-ups 100

Start-ups Risk Premium Equity Market Capitalization 100

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

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

Equilest

APRIL 11, 2023

With limited features and formulas, it can be difficult to account for all the necessary parameters in a valuation, such as interest rates, equity risk premiums, and beta. It lacks interest rates, equity risk premiums, beta, and other important data. You can Sign up for free here.

Business Valuation 40

Business Valuation Beta Risk Premium Discounted Cash Flow 40

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.

Equity 52

Equity Start-ups Risk Premium Risk-free Rate 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

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 84

Risk-free Rate Treasury Price to Book Start-ups 84

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 52

Risk Premium Market Capitalization Equity Start-ups 52

Musings on Markets

JANUARY 17, 2024

While stocks had their ups and downs during the year, they ended the year strong, and recouped, at least in the aggregate, most of the losses from 2022. Stocks ended the year well, with November and December both delivering strong up movements, and while this left investors feeling good about the year, it was a rocky year.

Risk Premium 77

Risk Premium Start-ups Equity Treasury 77

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 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

JULY 17, 2023

At the start of the year, the consensus of market experts was that this would be a difficult year for markets, given the macro worries about inflation and an impending recession, and adding in the fear of the Fed raising rates to this mix made bullishness a rare commodity on Wall Street.

Marketability 95

Marketability Risk Premium Start-ups Treasury 95

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

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%. While I understand that much of the real growth in 2021 is a bounce back from 2020, even using a 2-3% real growth yields risk free rates that are much, much higher than today's numbers.

Equity 52

Equity Risk-free Rate Treasury Start-ups 52

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. An Optimizing Tool In my second and third data posts for this year, I chronicled the effects of rising interest rates and risk premiums on costs of equity and capital.

Equity 52

Equity EBITDA Start-ups Net Debt 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

AUGUST 15, 2023

I took this estimation process for granted until 2008, when during that crisis, I woke up to the realization that no matter what the text books say about risk-free investments, there are times when finding an investment with a guaranteed return can become an impossible task. and the reverse will occur, when risk-free rates drop.

Risk-free Rate 80

Risk-free Rate Treasury Risk Premium Start-ups 80

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

FEBRUARY 16, 2024

I have no particular insights to offer on physical risk, other than to note that while taking on physical risks for some has become a leisure activity, I have no desire to climb Mount Everest or jump out of an aircraft.

Risk Premium 74

Risk Premium Start-ups Beta Marketability 74

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 52

Start-ups Marketability Equity Treasury 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. Return on Equity 1. Debt Ratios & Fundamentals 1. Debt Details 1.

Dividends 98

Dividends Risk Premium Equity Book Value 98

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 52

Risk Premium Dividends EBITDA Start-ups 52

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%). - Conclusion.

Business Valuation 40

Business Valuation EBIT EBITDA Discounted Cash Flow 40

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 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

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

Musings on Markets

JULY 22, 2021

Zomato, an Indian online food-delivery company, was opened up to public market investors on July 14, 2021, and its market debut is being watched for clues by a number of other online ventures in India, waiting in the wings to go public. The Zomato IPO clocks in at 420 pages , much of it designed to bore readers into submission.

Marketability 86

Marketability Start-ups Equity Price to Book 86

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. In short, I am assuming that the price cuts and cost pressures of the fourth quarter are more representative of what Tesla will face in the future, as competition steps up.

Start-ups 99

Start-ups Risk-free Rate Market Capitalization Marketability 99

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 52

Dividends Start-ups Risk Premium Treasury 52

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

MARCH 28, 2022

That judgment may be harsh, but as the Russian hostilities in Ukraine shake up markets, the weakest links in the ESG chain are being exposed, and as the same old rationalizations and excuses get rolled out, I believe that a moment of reckoning is arriving for the concept. They are hypothetical questions, but I think I know the answer.

Start-ups 113

Start-ups Alpha Marketability Risk Premium 113