Musings on Markets

JANUARY 30, 2023

If 2022 was an unsettling year for equities, as I noted in my second data post, it was an even more tumultuous year for the bond market. The rise in rates transmitted to corporate bond market rates, with a concurrent rise in default spreads exacerbating the damage to investors.

Treasury 96

Treasury Start-ups Risk Premium Equity 96

Brian DeChesare

AUGUST 31, 2022

Convertible bonds are hybrid instruments with elements of debt and equity, and some groups that trade convertible bonds also combine elements of S&T and IB. 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?

Banking 89

Banking Risk-free Rate Equity Start-ups 89

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 90

Risk Premium Beta Start-ups Equity 90

Musings on Markets

MARCH 25, 2021

The first quarter of 2021 has been, for the most part, a good time for equity markets, but there have been surprises. The first has been the steep rise in treasury rates in the last twelve weeks, as investors reassess expected economic growth over the rest of the year and worry about inflation. for 2021 and inflation of 2.2%

Equity 52

Equity Risk-free Rate Treasury Start-ups 52

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 102

Risk Premium Treasury Start-ups Equity 102

Brian DeChesare

FEBRUARY 28, 2024

While everyone seems to know about equity research and trading stocks, fixed income research gets far less attention. Equity Research vs. Fixed Income Research Common Myths What Do You Do as a Fixed Income Research Analyst or Associate? a credit rating vs. an investment recommendation). closer to the work at a quant fund ).

Equity 59

Equity Banking Start-ups Finance 59

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 96

Risk Premium Start-ups Equity Marketability 96

Musings on Markets

JULY 27, 2022

grow at the cost of equity), yielding about ?46 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. higher (i.e., 46 in July 2022.

Risk Premium 98

Risk Premium Start-ups Equity Marketability 98

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

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

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.

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. Return on Equity 1. Equity Risk Premiums 2. Ratings & Spreads 2. Tax rates 4.

Dividends 105

Dividends Risk Premium Equity Book Value 105

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

SEPTEMBER 20, 2024

The truth, though, is that the Fed sets only one interest rate, the Fed Funds rate, and that none of the rates that we face in our lives, either as consumers (on mortgages, credit cards or fixed deposits) or businesses (business loans and bonds), are set by or even indexed to the Fed Funds Rate.

Banking 122

Banking Treasury Start-ups Marketability 122

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

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 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 98

Start-ups Marketability Risk Premium Equity 98

Musings on Markets

JANUARY 24, 2024

In my last post, I looked at equities in 2023, and argued that while they did well during 2023, the bounce back were uneven, with a few big winning companies and sectors, and a significant number of companies not partaking in the recovery. The Fed Effect: Where's the beef?

Treasury 52

Treasury Risk Premium Start-ups Risk-free Rate 52

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

ThomsonReuters

JUNE 15, 2021

Use of Special purpose acquisition (SPAC) vehicles have spiked over the past year because private equity and venture capital firms have excess cash they need to put to work, accounting practitioners said mid-June. These standards require companies to assess whether the warrants should be equity or liability classified.

Risk-free Rate 64

Risk-free Rate Equity Start-ups Book Value 64

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. Its net-debt to equity ratio stood at 0.3 Russia has a massively high risk-free rate of 10%.

Risk-free Rate 52

Risk-free Rate Net Debt Start-ups Marketability 52

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 Risk Premium 99

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 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,

Risk Premium 117

Risk Premium Beta Start-ups Equity 117

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 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 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 69

Banking Treasury Risk Premium Start-ups 69

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 67

Risk Premium Start-ups Enterprise Value Equity 67