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 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 101

Start-ups Dividends Marketability Market Capitalization 101

Equilest

MARCH 17, 2022

They give a vision of the company, which must be supplemented by other approaches to address the "true" price, which will result from the negotiation, i.e., the amount accepted by the assignor and financed by the buyer. . . Thus two companies with the same level of results but different future performance risks will have different values.

Business Valuation 40

Business Valuation EBIT Discounted Cash Flow EBITDA 40

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 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). The year that was.

Risk Premium 99

Risk Premium Risk-free Rate Start-ups Equity 99

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? Why does the risk-free rate matter?

Risk-free Rate 98

Risk-free Rate Risk Premium Treasury Start-ups 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 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 81

Equity Book Value Start-ups Corporate Finance 81

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. The "Right" Financing Mix Is there an optimal mix of debt and equity for a business?

Equity 52

Equity EBITDA Start-ups Net Debt 52

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 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

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

JANUARY 28, 2024

In this post, I look at risk, a central theme in finance and investing, but one that is surprisingly misunderstood and misconstrued. That said, and notwithstanding decades of research and debate on the topic, there are still wide differences in how risk is defined and measured. What is risk?

Risk Premium 122

Risk Premium Beta Start-ups Equity 122

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. Equity Risk Premiums 2. Return on Equity 1. Debt Details 1.

Dividends 106

Dividends Risk Premium Equity Book Value 106

Musings on Markets

JANUARY 10, 2025

It is the end of the first full week in 2025, and my data update for the year is now up and running, and I plan to use this post to describe my data sample, my processes for computing industry statistics and the links to finding them. In the table below, we compare the changes in regional market capitalizations (in $ millions) over time.

Risk Premium 120

Risk Premium Dividends Start-ups Corporate Finance 120

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. A few years ago, I wrote a paper for practitioners on the cost of capital , where I described the cost of capital as the Swiss Army knife of finance, because of its many uses.

Risk Premium 73

Risk Premium Beta Start-ups Equity 73

Musings on Markets

JANUARY 31, 2025

I am going to start this post with a confession that my knowledge of the architecture and mechanics of AI are pedestrian and that there will be things that I don't get right in this post. Along the way, the the AI story picked up supercomputing companies, as passengers, again on the belief that Ai systems would find a use for them.

Start-ups 134

Start-ups Marketability Technology Risk Premium 134

Musings on Markets

MARCH 15, 2025

I will start with a couple of confessions. Thus, my estimates of equity risk premiums, updated every month, are not designed to make big statements about markets but more to get inputs I need to value companies.

Start-ups 66

Start-ups Risk Premium Marketability Equity 66

Musings on Markets

FEBRUARY 18, 2025

I pointed to the flaw in the logic, but the comments thereafter suggested such deep confusion about what returns on equity or capital measure, and what comprises an efficient market, that I think it does make sense to go back to basics and see if some of the confusion can be cleared up.

Equity 52

Equity Book Value Marketability Start-ups 52

Musings on Markets

JULY 24, 2024

After the 2008 market crisis, I resolved that I would be far more organized in my assessments and updating of equity risk premiums, in the United States and abroad, as I looked at the damage that can be inflicted on intrinsic value by significant shifts in risk premiums, i.e., my definition of a crisis.

Risk Premium 76

Risk Premium Equity Start-ups EBITDA 76

Musings on Markets

FEBRUARY 23, 2025

When the debt is within reasonable bounds (scaling up with the company), a company can borrow money, and not lower its ratings. Even if bond ratings drop, a business may be worth more, at that lower rating, if the tax benefits from the debt offset the higher default risk.

Equity 76

Equity EBITDA Risk Premium Gross Debt 76

Global Finance

OCTOBER 29, 2024

Meghan Robson, head of US Credit Strategy for BNP Paribas, speaks to Global Finance about directional forecasts and what to expect post-election. Global Finance: What surprised you in 2024? Chairman Jerome Powell used his Jackson Hole speech in August to declare victory on inflation and ended up delivering that 50 basis point cut.

Start-ups 98

Start-ups Finance Equity Private Equity Firm 98