Musings on Markets

Musings on Markets covers finance, investing, and business. It discusses financial education, company valuation, market trends, economic risks, and corporate governance. Posts analyze specific companies like Tesla, market phenomena like big tech's impact, and broader economic issues such as inflation and country risk.

Finance Education Company Valuation Market Trends Economic Risks Corporate Governance Tech Industry Investment Strategies

The hottest Substack posts of Musings on Markets

And their main takeaways

Accounting Fraud

0 implied HN points • 07 Jan 09
💼 Business Corporate Governance Investor Relations Regulatory Compliance Corporate Governance Accounting Fraud Investment Risk management
  1. Self-interest is often more powerful than accountability in companies. When people face conflicts, they usually prioritize their own benefits.
  2. Good corporate governance is important to prevent fraud. Having a board that asks smart questions can help keep management honest.
  3. New accounting rules won't stop fraud. Companies often find ways to cheat around regulations, so being skeptical can save investors from losses.

The GM Buyback: Beyond the Hysteria!

0 implied HN points • 27 Mar 15
💼 Business Finance Corporate Governance Investments Economics Market Analysis
  1. GM has struggled with management issues for many years and hasn't proven itself to be well managed in recent times. They've faced big challenges that have affected their performance.
  2. The automotive industry is facing serious problems and is expected to go through disruption. Many companies, including GM, aren't making enough money compared to their costs, which raises concerns about their future.
  3. Buybacks can be controversial. Some believe that GM should focus on investing in its business and workers instead of buying back stock, arguing that it might be better for the company's long-term health.

The Aging of the Tech Sector: The Pricing Divergence of Young and Old Tech Companies

0 implied HN points • 26 Feb 15
💼 Business Finance Investing Economics Market Analysis Corporate strategy
  1. Technology companies vary widely in age and characteristics. Young tech companies are often unprofitable, while older ones usually have better profits.
  2. The prices of tech stocks depend on their age, with younger firms generally trading at higher multiples of sales than older firms. Some old tech companies may even be underpriced compared to their non-tech peers.
  3. We should classify tech companies by age rather than lumping them together. This way, it’s easier to identify which groups may be overpriced or underpriced.

DCF Myth 1: If you have a D(discount rate) and a CF (cash flow), you have a DCF!

0 implied HN points • 23 Feb 15
💰 Finance Valuation Analysis Investment Cash Flow Risk management
  1. You can't calculate a DCF just with a discount rate and cash flow. It needs to be done carefully, considering many factors for accurate results.
  2. It's important that everything in a DCF is consistent, like using the same currency and type of cash flows. If things don’t line up, the result won't make sense.
  3. A good DCF should tell a convincing story about the business’s future, matching numbers with real expectations and market conditions.

How low can you go? Doing the Petrobras Limbo!

0 implied HN points • 11 Feb 15
💰 Finance Investing Market Trends Risk management Corporate Governance Valuation
  1. Petrobras had a major rise and fall in its market value, going from a top global oil company to losing over $200 billion due to poor management and political interference.
  2. The company's governance structure allowed the Brazilian government to maintain control while still raising funds from shareholders, leading to decisions that favored political gains over profitability.
  3. Investors should be cautious when companies are heavily influenced by government interests, as this can result in value destruction rather than shareholder benefits.
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Blood in the Shark Tank: Pre-money, Post-money and Play-money Valuations

0 implied HN points • 04 Feb 15
💰 Finance Valuation Investment Venture Capital Entrepreneurship Market Analysis
  1. Pre-money and post-money valuations are important in venture capital. They help determine how much a business is worth before and after an investment.
  2. The ownership share an investor gets depends on the business's value and their bargaining power. A strong entrepreneur might keep more ownership if capital is easy to find.
  3. Pricing a business can be tricky and unclear. It's better to be transparent about how ownership rights are assessed to avoid confusion and ensure fairness.

Stockholder democracy...

0 implied HN points • 22 May 09
💼 Business Corporate Governance Finance Investments Market behavior Stock Markets Investments Corporate Governance Regulation
  1. Shareholder democracy is complicated. While it might seem simple to let shareholders propose board members, different shareholders have different interests that can conflict.
  2. Some investors may actually benefit if the company fails, like those involved in credit default swaps. This can lead to them nominating directors who might hurt the company.
  3. It's hard to decide who can be a 'good' shareholder. Since everyone's interests differ, trusting voters to make good choices is important, even if those choices vary widely.

Investing and Valuation Lessons from the Renaissance

0 implied HN points • 15 Aug 16
💰 Finance Investing Valuation Market Trends Economic History Financial Education
  1. Investing requires faith, much like the builders of the Duomo had patience. You often need to trust your judgment and stick to your valuations, even when the market seems unpredictable.
  2. Many investment lessons are not new; they are just being forgotten and rediscovered. It's important to learn from past mistakes instead of assuming we're better than earlier investors.
  3. Combining storytelling and data is key in investing. Just as art and science can work together, being skilled in both narrative and numbers can lead to better investment decisions.

Market Meltdown

0 implied HN points • 17 Sep 08
💰 Finance Markets Equities Investments Economy Financial Services
  1. The stock market dropped significantly this week, with the S&P 500 down nearly 20% for the year, which is troubling but not yet disastrous.
  2. Financial companies have suffered the most from the market decline, while most other sectors are doing okay.
  3. Despite the market's fears and panic, the overall economy is still holding up well, except for the housing sector.

Back to Class: A Teaching Manifesto!

0 implied HN points • 11 Jan 19
🚌 Education Teaching Curriculum Online Learning Higher education
  1. Teaching is not just a job; it's a passion. Some people discover their true calling through teaching, realizing it's what they love to do most.
  2. Classes can be accessed in different formats. You can choose to watch long lectures or shorter, condensed versions depending on your schedule and attention span.
  3. Learning is flexible and personal. Students can pick what interests them from the courses and learn at their own pace, whether online or in person.

Value Investing III: Requiem, Rebirth or Reinvention?

0 implied HN points • 23 Oct 20
💰 Finance Investing Market Analysis Risk management Asset Valuation Investment Strategies
  1. Value investing has become too strict and doesn't adapt to new businesses, especially in tech. This has caused some investors to miss great opportunities.
  2. It's important to understand the difference between value and price when investing. These concepts are different and need different ways to look at them.
  3. Investing isn't about being morally right; it's about making smart choices. Value investors should respect other investing styles and learn from them to improve their own strategies.

Intergalactic Finance: Valuing the Star Wars Franchise

0 implied HN points • 28 Dec 15
💼 Business Entertainment Finance Marketing Investments Media
  1. The Star Wars franchise is incredibly valuable, making billions from movie ticket sales, toys, and merchandise. Its popularity has created a massive fan base that has continued to grow for decades.
  2. Disney's acquisition of Star Wars for $4 billion in 2012 has proven to be a smart move. They have successfully expanded the franchise, generating even more revenue through movies and related products.
  3. The franchise makes four times more money from merchandise and other sources than it does from movies alone. This strong revenue from various avenues shows Star Wars' lasting cultural impact.

The School Bell Rings! It's Time for Class!

0 implied HN points • 01 Sep 16
🚌 Education Teaching Valuation Business Investment Online Learning
  1. Teaching is about sharing a story. The teacher believes a good class follows a narrative that evolves over time and reflects personal experiences.
  2. Valuation isn't just about calculations; it's about developing a personal investment philosophy. The course emphasizes understanding intrinsic value and how to trust your own asset assessments.
  3. The class resources are open to everyone, allowing anyone to learn from the materials and lectures. It's encouraged to take time with the content – there's no rush!

Culprit found for market crisis!!!!

0 implied HN points • 07 Jun 09
💰 Finance Market Theory Financial Crisis Investing Strategies Risk management Economic Policy Market Theory Financial Crisis Regulation Investor behavior
  1. The efficient market hypothesis claims that markets are generally accurate in pricing assets, meaning it’s tough for investors to consistently beat the market. Some people believe this idea is not entirely true.
  2. There are criticisms of the notion that financial leaders fully trusted the efficient market hypothesis. Many academics recognized market inefficiencies long before the crisis and warned about issues like asset bubbles.
  3. The idea that the financial crisis is largely due to the efficient market theory overlooks other factors. Issues like poor regulations, the creation of complex financial products, and incentive structures also played significant roles.

The key number for stocks: The Equity Risk Premium (ERP)

0 implied HN points • 20 Sep 08
💰 Finance Investing Market Analysis Stock Market Risk Assessment Economic Indicators
  1. The Equity Risk Premium (ERP) shows how much extra return investors want for choosing stocks over safer investments like treasuries. It's a crucial number for understanding market feelings.
  2. When investors are more scared about risks, they demand a higher ERP, which can lead to falling stock prices. Fear and hope can shift this number daily.
  3. The week highlighted in the text shows how quickly the market mood can change, with stock prices and ERP fluctuating based on news and events. This highlights how unpredictable investing can be.

Fairness Opinions: Fix them or Flush them!

0 implied HN points • 14 Sep 16
💼 Business Valuation Mergers Acquisitions Finance Corporate Governance
  1. Fairness opinions are supposed to check if a deal is fair, but many appraisers do it poorly. They often rely on numbers from company management, which can lead to biased results.
  2. These opinions don't really protect shareholders like they were meant to. Instead, they're often just a way for boards to avoid scrutiny after a deal.
  3. To improve fairness opinions, there should be stricter rules and penalties for appraisers and managers who don't follow fair practices. This could help make the valuation process more trustworthy.

Venture Capital: It is a pricing, not a value, game!

0 implied HN points • 02 Oct 16
💼 Business Venture Capital Investing Financial Analysis Market Trends Startups
  1. Venture capitalists focus on pricing companies rather than determining their actual value. This means they often set prices based on what similar companies are fetching rather than deep financial analysis.
  2. The process of pricing in venture capital relies on small data samples and infrequent updates. This can lead to pricing errors and a greater amount of subjectivity in their valuations.
  3. Successful venture capitalists tend to be better at pricing and timing their investments. They can influence the companies they invest in and ensure they're well-positioned for profitable exits.

Corporate Hedging: Answers to questions

0 implied HN points • 30 Nov 08
💰 Finance Risk management Investments Market Analysis Corporate strategy Trading
  1. Hedging makes sense when companies protect against risks that directly affect their core business, like Southwest Airlines hedging against oil prices.
  2. Hedging after a price increase can be dangerous. Airlines that didn't hedge before prices spiked often suffer losses trying to time the market.
  3. Companies should make hedging decisions based on their unique situations and avoid risky speculative bets that can confuse investors.

Myth 4.1: If you don't like betas (or modern portfolio theory),you cannot do a DCF!

0 implied HN points • 04 Nov 16
💰 Finance Valuation Investing Risk Assessment Capital Markets
  1. Discounted cash flow (DCF) analysis needs a discount rate, typically estimated using beta to assess risk, but not everyone agrees on using this method.
  2. Investors can use alternative risk measures if they don't like betas or modern portfolio theory, such as based on historical earnings or other company characteristics.
  3. It's important to recognize that while betas can help estimate costs of equity, there are other ways to evaluate risk that might better fit different viewpoints on investing.

Myth 5.4: Negative Growth Rates forever? Impossible!

0 implied HN points • 30 Nov 16
💼 Business Finance Valuation Growth Investment Corporate strategy
  1. Negative growth is more common in businesses than people usually think, with many firms experiencing revenue declines over time. It's important to recognize that not all firms will continue to grow.
  2. A company's life cycle affects its growth expectations. Companies can go through stages of development where negative growth becomes a possibility, especially in declining markets.
  3. When estimating a company's value, considering the potential for negative growth can lead to a more accurate and realistic valuation. Sometimes, shrinking a company can be a better strategy than trying to sustain growth.

Narrative and Numbers: How a number cruncher learned to tell stories!

0 implied HN points • 11 Jan 17
💼 Business Valuation Finance Storytelling Education Investing
  1. Both storytelling and number crunching are important in business. It's good to balance both skills for better decision-making.
  2. A story can help make sense of numbers in valuation. Starting with a strong story can guide how you look at financial data.
  3. Valuation isn't a one-time thing; it's an ongoing process. Being open to feedback and willing to update your stories and valuations is key.

Buffett and Bank of America: Playing Poker with Patsies...

0 implied HN points • 26 Aug 11
💰 Finance Investing Banking Market Analysis Corporate Finance Financial Strategy
  1. Warren Buffett's investment in Bank of America might seem helpful, but it actually comes with terms that could hurt the bank's stockholders. Buffett gets great benefits while the bank may take on extra burdens.
  2. Buffett's deal included a hefty dividend and options to buy shares at a low price, which could lead to big profits for him. However, Bank of America still risks losing control over its dividends and stock buybacks.
  3. While some people see Buffett’s involvement as a sign the bank is doing well, the deal's terms suggest the opposite. It raises questions about whether Bank of America is truly stable or hiding bigger financial problems.

The Crisis of 2008: Lessons learned, unlearned and reinforced

0 implied HN points • 31 Dec 08
💰 Finance Market Analysis Investment Strategies Risk management Economic Trends Behavioral Finance
  1. Interest rates can be negative, which is surprising. It shows how unexpected financial situations can be.
  2. Investing in established companies isn't always safe, and relying on certain rules can lead to mistakes. The financial landscape can change quickly.
  3. Cash can be an important safety net, and understanding risk is more complex than just looking at numbers. Real-world connections matter too.

Rebirths and Fresh starts!

0 implied HN points • 26 Jan 09
🚌 Education Teaching Learning Curriculum Assessment Research
  1. Teaching allows for a fresh start every semester, making it unique compared to other jobs. You can leave the past behind and embrace new beginnings.
  2. The excitement of starting a new class motivates the teacher, and they hope to share that enthusiasm with students.
  3. The opportunity to connect lessons from past experiences into fresh classes enriches the learning process for everyone involved.

January 2017 Data Update 10: The Pricing Game!

0 implied HN points • 10 Mar 17
💰 Finance Investing Stock Market Valuation Global Markets
  1. When comparing stock prices, it's better to use price multiples like PE or EV to EBITDA instead of looking at share prices alone. Share prices can be misleading and don't tell the whole story.
  2. Different regions and sectors have their own pricing trends, which means some stocks may be cheap in one market but overvalued in another. Always check the broader picture before investing.
  3. Don’t blindly rely on common rules for finding cheap stocks. It's important to understand the reasons behind a stock's price rather than just focusing on numbers.

Online Teaching: Promise, Pitfalls and Potential!

0 implied HN points • 20 Jul 17
🚌 Education Online Learning Teaching Methods Student Engagement Educational Technology
  1. Online classes often lack the personal touch that in-person classes provide. It's not the same as being in a room with others, even if the videos are high quality.
  2. Interaction is crucial for learning, but online learning can be too formal. In-person classes allow for spontaneous discussions that help deepen understanding.
  3. Staying disciplined is harder online. Without the structure of a physical classroom, many people struggle to finish online courses.

Keep it simple!!

0 implied HN points • 05 May 09
💰 Finance Valuation Investing Economics Markets Analysis
  1. Always start with the simplest explanation or model when trying to understand something. It helps make things clearer.
  2. The simplest model can change based on what you are valuing, so think about the asset you are dealing with.
  3. Complexity can cloud your judgment and mess up simple valuations, but sometimes you do have to make predictions, especially for growth companies.

A Tesla 2017 Update: A Disruptive Force and a Debt Puzzle!

0 implied HN points • 11 Aug 17
💼 Business Finance Investing Technology Market Trends Manufacturing
  1. Tesla has ambitious goals to produce a lot of cars, but it faces tough competition from other automakers who are now paying attention to the electric market. To succeed, Tesla needs to sell millions of cars within the next few years.
  2. The company struggles with manufacturing costs and production timelines. Meeting these goals is essential for Tesla to build its reputation and financial success, given its history of production issues.
  3. Tesla relies heavily on debt to fund its operations and growth, which may not be the best choice at this stage. Using debt can create financial pressure, and it might be wiser for Tesla to consider raising equity instead.

Tax Reform, 2017: Promise of Plenty or Poisoned Chalice?

0 implied HN points • 06 Oct 17
🇺🇸 U.S. Politics Tax policy Economic Growth Political Debate Fiscal Responsibility
  1. Tax reform often promises to make the system fairer and simpler, but it usually ends up being more complex and less fair.
  2. Changes in tax laws can impact a company's cash flows, cost of capital, and growth potential in different ways depending on their financial structure.
  3. Not all companies benefit equally from tax reforms; those with high effective tax rates and low debt tend to gain, while companies with low tax rates and high debt may struggle.

Buybacks and Stock Prices..

0 implied HN points • 20 Sep 09
💰 Finance Stock Market Corporate Finance Investment Strategies Financial Analysis Economic Trends
  1. Buybacks give companies a way to return cash to shareholders without the long-term commitment of dividends. They also help adjust financial leverage, especially if a company feels it has too little debt.
  2. When a company decides to buy back its stock, it's usually based on how the price compares to the company's perceived value. If they think the stock is worth more than its current price, they'll consider buying it back.
  3. Sometimes companies buy back stock just to follow what others in their industry are doing, which may not always be the best choice for their own financial health.

January 2018 Data Update 3: Taxing Questions on Value

0 implied HN points • 12 Jan 18
💰 Finance Tax policy Corporate Finance Economic Impact Investment strategy Market Analysis
  1. The 2017 Tax Reform lowered the corporate tax rate significantly from 35% to 21%, affecting how much companies pay in taxes.
  2. Changes to how foreign income is taxed allow companies to bring money back to the US more easily, which can impact growth and investment.
  3. The tax reform creates winners and losers among sectors, benefiting those with high taxes and physical assets, while hurting those with low taxes and high debt.

January 2018 Data Update 4: The Currency Conundrum

0 implied HN points • 24 Jan 18
💰 Finance Risk management Investment Analysis Currency Markets Economic Theory Sovereign debt
  1. Many people wrongly assume that government bonds always have no risk, especially when they are in local currency. But countries can default on these bonds, making their interest rates not risk-free.
  2. There is no single global risk-free rate; it varies with inflation across different countries. Mixing risk-free rates from different currencies can distort financial analyses.
  3. Choosing the currency for valuation doesn’t change a company's inherent value, since risks and cash flows should align with the currency used.

January 2018 Data Update 7: Growth and Value

0 implied HN points • 27 Jan 18
💰 Finance Investing Corporate Finance Market Analysis Data Analysis Performance Metrics
  1. Profitability is measured using various profit margins, which help assess how well a company is doing. It’s important to choose the right measure based on what you're analyzing, like gross margin for efficiency or net margin for overall profitability.
  2. Excess returns show how much a company earns above its cost of capital, and most companies struggle to achieve this. Many firms aren't making enough money to cover their investments, highlighting a risk in company performance.
  3. Regional, sector, and size factors influence company profits. For instance, smaller companies often perform worse than larger ones, and certain industries, like technology, can produce high returns while others, like retail, may struggle.

A Viral Market Meltdown III: Pricing or Value? Trading or Investing?

0 implied HN points • 16 Mar 20
💰 Finance Market Trends Investing Strategies Risk management Valuation Techniques Economic Analysis
  1. Price and value are different concepts. Price is what you pay in the market, while value is what a stock is really worth based on its cash flow and risk.
  2. During market chaos, prices can swing wildly based on mood and speculation. This means prices might not reflect true value for a long time.
  3. Investors need to figure out their approach based on their belief in value, their cash situation, and where they think they have an advantage in the market.

Damodaran Online: There is an App for that!

0 implied HN points • 05 Mar 18
💼 Business Finance Education Technology Data Analysis Corporate strategy
  1. The app named 'Damodaran Online' gathers all materials from his website, blog, and YouTube into one place for easy access on Apple devices.
  2. He is currently on sabbatical, enjoying a break from regular teaching but continuing to share knowledge through various classes and external workshops.
  3. His research and writing projects include updating his book on valuing tough companies and exploring the difference between pricing and valuing assets.

Equity Risk Premiums: An Update

0 implied HN points • 22 Oct 09
💰 Finance Investing Market Analysis Risk management Economic Trends Stock Valuation
  1. Equity risk premiums are important in understanding stock market debates. They help determine if stocks are overpriced or underpriced.
  2. After a major financial crisis, the implied equity risk premium rose significantly, leading to questions about whether this change is permanent or temporary.
  3. Current market conditions are uncertain, and opinions vary on whether stocks will continue to rise or face a correction based on the equity risk premium.

The Brexit Effect: The Signals amidst the Noise

0 implied HN points • 29 Jun 16
💰 Finance Market Analysis Investment Strategies Economic Trends Risk Assessment Global Economics
  1. Brexit caused big market reactions, with the British Pound losing value quickly against the US Dollar. This showed that currency fluctuations can signal larger economic issues.
  2. Experts were often wrong in their predictions about Brexit's consequences, leading many to distrust their advice. This highlights how people sometimes ignore experts in favor of their own beliefs.
  3. Stories matter more than numbers in shaping public opinion. The Leave campaign had a stronger narrative, which attracted more support compared to the Remain side's focus on statistics.

The Crypto Currency Debate: Future of Money or Speculative Hype?

0 implied HN points • 02 Aug 17
🔮 Crypto Cryptocurrency Blockchain Investment Financial Markets Decentralization
  1. Cryptocurrencies like Bitcoin and Ether have seen huge price increases, but they are still new and not widely used for everyday transactions.
  2. The blockchain technology behind cryptocurrencies is real and valuable, but for these currencies to succeed, they need to be more reliable and accepted as money.
  3. Many people are interested in cryptocurrencies as investments more than as actual currencies, which makes it hard for them to be used for purchases.

Acquisition Archives: Winners and Losers

0 implied HN points • 02 Dec 12
💼 Business Mergers Acquisitions Corporate strategy Financial Performance Market Trends
  1. Acquisitions often don't benefit the buying company. When companies acquire others, their stock prices usually drop rather than rise.
  2. Most acquiring companies struggle to perform better after merging compared to their peers. Studies show a majority underperform in terms of profitability and stock price.
  3. Growth through acquisitions is often less effective than other strategies. Companies can create more value by developing new products instead of buying other companies.