Musings on Markets

MAY 6, 2022

Investment Consequences As the storm clouds of higher inflation and interest rates, in conjunction with slower or even negative economic growth, gather, it should come as no surprise that equity markets are struggling to find their footing. At the close of trading on May 5, 2022, the S&P 500 stood at 4147, down 13.3%

Risk Premium 102

Risk Premium Treasury Start-ups Equity 102

Musings on Markets

JANUARY 20, 2021

With equities, the metric that has been in use the longest is the PE ratio, modified in recent years to the CAPE, where earnings are normalized (by averaging over time) and sometimes adjusted for inflation. 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

JULY 17, 2023

In my second data update post from the start of this year , I looked at US equities in 2022, with the S&P 500 down almost 20% during the year and the NASDAQ, overweighted in technology, feeling even more pain, down about a third, during the year. US Equities in 2023: Into the Weeds! that was lost last year.

Marketability 98

Marketability Risk Premium Start-ups Treasury 98

Reynolds Holding

OCTOBER 22, 2024

In leveraged buyouts (LBOs), a private equity (PE) sponsor acquires controlling ownership of a target company, typically by using a significant amount of bank loans. The findings of our study have important implications for debates about the role of private equity firms.

Equity 45

Equity Risk Premium Banking Private Equity Firm 45

Andrew Stolz

MARCH 20, 2020

A firm uses a mix of equity and debt to minimize the cost of capital. In general, the cost of debt is lower than the cost of equity due to the tax advantage of debt. The cost of equity (Ke) is an expected return that a firm pays to an equity investor to compensate for the risk of investing capital.

Beta 52

Beta Capital Structure Risk-free Rate Weighted Average Cost of Capital 52

Musings on Markets

NOVEMBER 9, 2021

In this post , I argued that one of the key dividing lines between the two groups was flexibility , with companies with more flexible investing, financing and dividend policies winning out over companies with more rigidity on those dimensions. for mature markets.

Start-ups 101

Start-ups Dividends Marketability Market Capitalization 101

Chris Mercer

MARCH 7, 2024

The emerging attractiveness of the entity for equity offering, sale, merger or acquisition. Expected economic benefits associated with the subject interest, which come from interim benefits (dividends or distributions) and a terminal cash flow when the investment is sold or liquidated. 3) Preferential dividend claims. (4)

Dividends 52

Dividends Appraisal Terminal Value Business Valuation 52

Musings on Markets

JANUARY 19, 2022

If equity markets surprised us with their resilience in 2020, not just weathering a pandemic for the ages, but prospering in its midst, US equity markets, in particular, managed to find light even in the darkest news stories, and continued their rise through 2021. The year that was.

Risk Premium 98

Risk Premium Risk-free Rate Start-ups Equity 98

Musings on Markets

JANUARY 12, 2021

Thus, you and I can disagree about whether beta is a good measure of risk, but not on the principle that no matter what definition of risk you ultimately choose, riskier investments need higher hurdles than safer investments.

Corporate Finance 52

Corporate Finance Start-ups Finance Marketability 52

Musings on Markets

JANUARY 6, 2023

When valuing or analyzing a company, I find myself looking for and using macro data (risk premiums, default spreads, tax rates) and industry-level data on profitability, risk and leverage. I do report on a few market-wide data items especially on risk premiums for both equity and debt. Cost of Equity 1.

Risk Premium 52

Risk Premium Dividends Start-ups EBITDA 52

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 80

Equity Book Value Start-ups Corporate Finance 80

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

MAY 11, 2021

The Taxation of Investment Income In much of the world, income from investments (interest, dividends) is treated differently than earned income (salary, wages), by the tax code, and the reasons for the divergence are both practical and political: 1.

Dividends 52

Dividends Start-ups Risk Premium Treasury 52

Musings on Markets

JANUARY 8, 2022

Most of the variables that I report are micro variables, relating to company choices on investing, financing and dividend policies, or to data that may be needed to value these companies. I extend my equity risk premium approach to cover other countries, using sovereign default spreads as my starting point, at this link.

Risk Premium 99

Risk Premium Start-ups Market Capitalization Corporate Finance 99

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. Return on Equity 1. Dividends and Potential Dividends (FCFE) 1.

Dividends 105

Dividends Risk Premium Equity Book Value 105

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.

Risk Premium 117

Risk Premium Beta Start-ups Equity 117

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 126

Equity Risk Premium Treasury Start-ups 126

Musings on Markets

JANUARY 10, 2025

Thus, as you peruse my historical data on implied equity risk premiums or PE ratios for the S&P 500 over time, you may be tempted to compute averages and use them in your investment strategies, or use my industry averages for debt ratios and pricing multiples as the target for every company in the peer group, but you should hold back.

Risk Premium 115

Risk Premium Dividends Start-ups Corporate Finance 115

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. The second set of inputs are prices of risk, in both the equity and debt markets, with the former measured by equity risk premiums , and the latter by default spreads.

Risk Premium 72

Risk Premium Beta Start-ups Equity 72

Musings on Markets

FEBRUARY 23, 2025

The Debt Trade off As a prelude to examining the debt and equity tradeoff, it is best to first nail down what distinguishes the two sources of capital. To me, the key distinction between debt and equity lies in the nature of the claims that its holders have on cash flows from the business.

Equity 75

Equity EBITDA Risk Premium Gross Debt 75