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

January 2018 Data Update 7: Growth and Value

0 implied HN points • 27 Jan 18

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.
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.
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.

The Yankees' A Rod Problem: Sunk costs and investing

0 implied HN points • 27 Oct 12

💼 Business Finance Investment Behavioral Finance Decision-making

Sunk costs shouldn't affect current decisions. If you've already spent money, it shouldn't make you invest more if it's no longer worth it.
Investors tend to hold on to losing stocks longer than they should. This can cause frustration and loss of potential gains.
Regularly reviewing your investments can help you avoid emotional decision-making. Treating your portfolio like a new investment each year can keep it healthy.

A new semester begins: Valuation class online

0 implied HN points • 07 Sep 12

🚌 Education Online Learning Classroom Management Curriculum Development Higher education Student Engagement

The Valuation class covers how to value various assets like stocks and businesses. It starts with intrinsic valuation and includes topics like multiples and real options.
Students can access the class materials through multiple platforms, including the Stern website, Lore, Apple iTunes U, and YouTube, making it flexible for different preferences.
The first class was on September 5, and new students can catch up easily before the next session. Webcasts of the classes will be available shortly after each session.

Groupon Gloom: Deal of the day or Death Spiral?

0 implied HN points • 25 Aug 12

💼 Business Investing Market Trends Stock Valuation Corporate strategy Financial Analysis

A big drop in a stock price isn't always a good chance to buy. Sometimes it's just the market reacting to real problems with the company.
Valuations of companies can change a lot over time. If a company's growth potential looks shaky or uncertain, its worth might drop significantly.
For growth companies, it's important they can defend their market share. If they can't, they might struggle to make money and their stock could suffer.

Facebook face plant: Time to friend the company?

0 implied HN points • 20 Aug 12

💰 Finance Investing Stock Market Corporate Governance Valuation Market Trends

Facebook's stock price has dropped significantly since its IPO, going from $38 to about $19. This decline has raised many questions about the company's financial health and future.
Valuing Facebook is tricky because it has a large user base but lacks a clear plan for making money. Its governance structure also makes it hard for investors to influence decisions.
Even though some think the stock might be undervalued at $19, it may not be the right time to buy yet. The stock's future is uncertain, and it could take a while for its true value to show.

Get a weekly roundup of the best Substack posts, by hacker news affinity:

Earnings surprises, price reaction and value

0 implied HN points • 24 Jul 12

💰 Finance Investing Market Analysis Stock Trading Earnings Reports Valuation

Earnings surprises are important because they affect stock prices. If a company does better or worse than expected, the stock price will react accordingly.
Before earnings announcements, stock prices often move in anticipation of good or bad news. This indicates that investors are trying to guess what the earnings report will say.
Investors can use earnings reports to make money by predicting surprises, trading based on the news, or looking for patterns in companies that consistently do well.

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

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.
During market chaos, prices can swing wildly based on mood and speculation. This means prices might not reflect true value for a long time.
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

The app named 'Damodaran Online' gathers all materials from his website, blog, and YouTube into one place for easy access on Apple devices.
He is currently on sabbatical, enjoying a break from regular teaching but continuing to share knowledge through various classes and external workshops.
His research and writing projects include updating his book on valuing tough companies and exploring the difference between pricing and valuing assets.

How much are you paying for growth?

0 implied HN points • 29 May 12

💰 Finance Valuation Investment Growth Equity Market Analysis

There are different views on how much growth in a company is worth. Some think it's not worth much, while others believe it's priceless.
To understand the value of growth, you look at what a company is earning now versus what it could earn in the future if it reinvests its profits.
By comparing a company's market value to the value of its current assets, you can see how much of its price is based on expected future growth.

Lessons learned, unlearned and relearned: A semester of online class

0 implied HN points • 07 May 12

🚌 Education Online Learning Teaching Methods Educational Technology Student Engagement Curriculum Development

Discipline is really important for both teachers and students. Teachers need to stay organized, and students must manage their time well to keep up.
Students come from different backgrounds, which can make learning hard for some. It's good to offer extra resources for those who need a bit more help.
Technology can be tricky! There can be issues with recordings and bandwidth, so it's important to keep improving the tools we use for online classes.

The Goldman indictment

0 implied HN points • 30 Apr 10

💰 Finance Investment Banking Regulation Market Analysis Securities Legal issues

Goldman Sachs faced an indictment over their Abacus deal, which lost billions during the housing crisis. This case highlights issues of selective prosecution and the role of investment banks in selling risky products.
The SEC argued that Goldman misled investors by not revealing that a hedge fund was selling the securities. However, it's debated whether the identity of the seller really mattered to the buyers.
Goldman's actions might have seemed unprofessional, but exploiting information gaps in trading isn’t illegal. It's important to recognize that all trading involves risks, and buyers should research before purchasing securities.

Governments and Value: Part 1 - Nationalization Risk

0 implied HN points • 17 Apr 12

💰 Finance Valuation Investing Economics Risk Assessment Government Policy

Nationalization can greatly affect the value of companies, especially in countries with unstable governments. Investors need to consider the risk of losing their ownership rights when valuing businesses in such places.
To account for nationalization risk, investors can adjust their cash flow expectations or increase the required return on investments. This helps them understand how much risk they are taking.
When valuing companies based on financial multiples, be careful, as firms in high-risk countries might seem cheap but can be risky investments. It's important to evaluate the real reasons behind these low valuations.

Emotions, Intrinsic value and Dividend Clienteles: The Apple trade postscript

0 implied HN points • 07 Apr 12

💰 Finance Investing Stock Market Valuation Dividends Behavioral Finance

Emotions can play a big role in investing decisions. Sometimes people buy or sell stocks based on how they feel, not just on facts.
The value of a company can change based on its investors. If a company attracts the wrong kind of investors, it could hurt its overall value.
Management's ability to handle pressure from different types of stockholders is important. If they respond poorly to investor demands, it could negatively impact the company's future.

Apple: Know when to hold 'em, know when to fold 'em..

0 implied HN points • 04 Apr 12

💰 Finance Investing Stock Market Valuation Dividends Market Trends

Apple's stock has become a momentum-driven play, meaning its value is based more on past performance than on any new information about the company. This makes it hard to predict future growth.
Institutional investors now favor Apple, and they can quickly change their opinions. If many big investors like something, it might be time for individual investors to think twice.
With the introduction of dividends, Apple is attracting a new kind of investor who may clash with long-term growth investors. This could create tension if things don't go as planned.

Equity Risk Premiums: An Update

0 implied HN points • 22 Oct 09

💰 Finance Investing Market Analysis Risk management Economic Trends Stock Valuation

Equity risk premiums are important in understanding stock market debates. They help determine if stocks are overpriced or underpriced.
After a major financial crisis, the implied equity risk premium rose significantly, leading to questions about whether this change is permanent or temporary.
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

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.
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.
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

Cryptocurrencies like Bitcoin and Ether have seen huge price increases, but they are still new and not widely used for everyday transactions.
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.
Many people are interested in cryptocurrencies as investments more than as actual currencies, which makes it hard for them to be used for purchases.

Moneyball and Investing: Data, Information and my 2012 Update

0 implied HN points • 26 Jan 12

💰 Finance Investing Data Analysis Market Trends Financial forecasting Corporate Finance

Investing should focus more on data and numbers rather than just gut feelings or stories from analysts. Just like in baseball, using hard data can lead to better investment choices.
Data is useful, but it’s important to understand that all numbers are estimates. This means they can have errors and should be used carefully.
To make good investment decisions, combine data analysis with sensible stories. Numbers are a starting point, but having a narrative helps make better choices.

Acquisition Archives: Winners and Losers

0 implied HN points • 02 Dec 12

💼 Business Mergers Acquisitions Corporate strategy Financial Performance Market Trends

Acquisitions often don't benefit the buying company. When companies acquire others, their stock prices usually drop rather than rise.
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.
Growth through acquisitions is often less effective than other strategies. Companies can create more value by developing new products instead of buying other companies.

How much diversification is too much?

0 implied HN points • 27 Nov 11

💰 Finance Investing Portfolio Management Risk Assessment Market Analysis Behavioral Finance

Diversification helps reduce risk in investing. It's generally better to spread your money across various investments instead of putting it all in one stock.
Some investors completely avoid diversification and focus on a few stocks because they believe they have a better understanding of the market. However, this can be risky if they are overconfident.
Research shows that most individual investors are not well diversified and often miss out on better returns by being overly concentrated in fewer stocks. Diversifying can lead to more stable and higher returns overall.

Risk free rates and value: Dealing with historically low risk free rates

0 implied HN points • 30 Sep 11

💰 Finance Risk management Investment strategy Market Analysis Economic Policy Valuation Techniques

Lower risk free rates mean lower discount rates, which can make assets look more valuable. However, this can be complicated for valuers who want to keep a low value for an asset.
The risk free rate reflects general economic expectations, combining views on inflation and growth. When it's low, it often signals a lack of confidence in the economy's future.
How you value assets today can vary widely. You can stick with current rates for a more dynamic approach or try to normalize past rates for a different perspective, but be careful not to mix inconsistent inputs.

Alternatives to the CAPM: Part 5. Risk Adjusting the cash flows

0 implied HN points • 30 Apr 11

💰 Finance Investment Valuation Risk management Econometrics Investing Risk management Valuation Financial Theory Capital Markets

You can adjust cash flows for risk in two main ways: estimating expected cash flows across scenarios and using certainty equivalent cash flows. Both methods aim to accurately reflect investment risk.
Certainty equivalent cash flows account for risk by using a safer value an investor would accept instead of the expected cash flow. This helps to quantify how risk-averse someone is when valuing their investment.
Risk adjusting cash flows isn't necessarily easier than adjusting discount rates. It's important to know when to apply simple methods, like focusing on safe cash flows or dividends, but also to recognize their limitations.

Acquisition Accounting I: Accretive (Dilutive) Deals can be bad (good) deals

0 implied HN points • 08 Dec 12

💼 Business Finance Mergers Investing Accounting Corporate strategy

Accretive deals are not always good; it depends on the earnings and risks of the companies involved. Just because a deal raises earnings per share doesn't mean it will help the stock price.
Dilutive deals can also be beneficial if the acquired company has better growth potential or lower risk. Sometimes, risks from a lower-quality target company can hurt the combined firm's value.
Market reactions to accretive and dilutive deals don't always align with assumptions. The market may not reward or punish these deals in the expected way, making the traditional analysis less useful.

Alternatives to the CAPM: Part 4: Market-Implied cost of equity

0 implied HN points • 30 Apr 11

💰 Finance Equity Investment Valuation Risk Models Investing Valuation Equity Risk management Market Theory

You can calculate the market-implied cost of equity using a simple dividend discount model, which helps you understand if a stock is fairly priced. This method allows you to figure out the expected return on a stock based on its price and future dividends.
Comparing the market-implied cost of equity to a conventional one can help you decide whether to invest in a stock. If the market-implied cost is much higher than your estimate, it might mean the stock is riskier or less attractive.
You can use the market-implied cost of equity for an entire sector so that you have a uniform measure for evaluating companies in that sector. This approach can make it easier to compare different companies without getting lost in individual risks.

Breaking up is easy to do...

0 implied HN points • 21 Sep 11

💼 Business Corporate strategy Market Valuation Mergers & Acquisitions Investment Analysis Financial Management

Many companies break up into smaller parts to increase their value. Sometimes, they think the whole company is worth less than its pieces.
Breaking up can also help companies avoid problems with laws or reputations that drag them down. It's like getting rid of your bad parts to make the good parts shine.
But not all breakups are smart. Sometimes, companies lose benefits like shared resources or have a harder time getting money after splitting up.

Stream On: An IPO Valuation of Spotify!

0 implied HN points • 17 Mar 18

💼 Business Finance Market Analysis IPO Valuation Music Industry

Spotify has experienced rapid growth, significantly increasing its user base and revenues in recent years. This growth is crucial as it shows the company's potential in the competitive music streaming industry.
A large portion of Spotify's revenue comes from premium subscriptions rather than ad revenue, highlighting the importance of getting users to pay for better experiences.
The company's content costs are declining as a percentage of revenue, which could help improve profit margins, but there is ongoing tension between keeping music labels and artists satisfied while managing costs.

Death and Taxes at year end: Unpredictable Certainties

0 implied HN points • 30 Dec 12

💰 Finance Investing Taxation Portfolio Management Economic Policy Market Trends

The goal of investing is to make more money after taxes, not just to pay less in taxes. It's better to focus on good investments rather than making choices just to avoid taxes.
When looking at the value of a company, ignore your personal tax situation at first. You should think about taxes later when comparing similar investment options.
The best way to reduce taxes on your investments is to have a long-term investment strategy. Holding on to investments longer means you pay less in taxes overall.

Trapped Cash: Measurement and Consequences

0 implied HN points • 19 Aug 11

💼 Business Corporate Finance Investment strategy Market Analysis Global Economics

Trapped cash is money that companies can't easily access because it's stuck in foreign subsidiaries. This happens for several reasons like local laws, taxes, and investment needs.
Having trapped cash can hurt a company's value. If that cash isn't earning a good return or is hard to access, it could lead to wasted resources or bad investment decisions.
Changing tax laws could help release trapped cash, but many believe these changes won't boost investments or create jobs. Instead, companies might just use the cash for dividends or buybacks instead.

Data Update 2013: The Dark Side of Numbers

0 implied HN points • 13 Jan 13

💰 Finance Data Analysis Corporate Finance Investment Strategies Risk Assessment Economic Indicators

Some people use complex numbers to scare others into agreeing with them. You can fight this by sticking to common sense and focusing on the main idea.
Data can be twisted to support a certain viewpoint by only showing what fits. Always check for the full picture before believing claims.
Many analysts hide behind data instead of making tough decisions. It's better to personalize and adapt data to your own understanding rather than rely on generic numbers.

Alternatives to the CAPM: Part 2: Proxy Models

0 implied HN points • 29 Apr 11

💰 Finance Investment Theory Market behavior Statistical Analysis Financial Metrics Investing Risk management Economic Theory Market Analysis Quantitative Analysis

Proxy models move away from traditional finance theories like CAPM, focusing instead on how markets actually price investments. They try to explain returns based on observable factors rather than assumptions about investor behavior.
Research by Fama and French found that factors like market capitalization and price-to-book ratios are better at explaining stock returns than the original CAPM betas. This means smaller companies and those with lower price-to-book ratios tend to have higher returns.
While proxy models can improve expected return calculations, they come with risks like data mining and standard error problems. This means the results may not always be reliable or may misrepresent the true risk involved.

An October Surprise? Making Sense of the Market Mayhem!

0 implied HN points • 29 Oct 18

💰 Finance Market Analysis Investment strategy Behavioral Finance Economic Trends Risk management

It's important to stay calm and avoid making hasty decisions during market drops. Taking a moment to breathe and disconnect from constant news can help keep your mind clear.
Assessing the situation carefully is crucial. Look at the facts behind the market movements instead of jumping to conclusions about what's causing the drops.
Sticking to your investment strategy is key. Don't let fear lead you to stray from your goals, and regularly evaluate your stocks to ensure they still fit your plan.

Time to Split!!

0 implied HN points • 18 Jan 10

💰 Finance Investing Stock Market Corporate Finance Market Analysis Economics

Companies can split their stocks, but not all do it regularly. Some companies, like Berkshire Hathaway, avoid stock splits to keep their high share prices.
Many believe stock splits attract new investors and improve trading volume, but evidence shows this isn't always true. In reality, lower share prices often lead to higher transaction costs.
Stock splits can create a small positive impact on prices, but they also increase volatility. Overall, they usually don't change a company's value, so they shouldn't be the main reason for investing.

The market value of Tiger Woods

0 implied HN points • 31 Dec 09

💼 Business Marketing Endorsements Economics Market Analysis Marketing Endorsements Valuation Sports Business

Tiger Woods' recent scandals have caused the companies that sponsor him to lose a significant amount of market value, totaling between $10-$12 billion.
Previous studies showed that celebrity endorsements can either boost or hurt a company's market value, depending on the athlete's public image.
Companies need to carefully consider the risks of using celebrity endorsements, as a negative event can lead to serious reputation and financial damage.

Bond Ratings: Why, how and what next?

0 implied HN points • 14 Oct 09

💰 Finance Bond Markets Credit Risk Investment Analysis Regulatory issues Bond Markets Credit Risk Investment Analysis Market Regulation Financial Institutions

Bond ratings help investors understand the credit risk of borrowing companies. Ratings agencies provide this information because individual investors often lack the knowledge to assess it themselves.
Bond rating changes can affect market prices, but often prices react before the rating changes happen. This shows that while ratings are useful, they can be slow to reflect current risks.
Though there are concerns about conflict of interest because ratings agencies are paid by the companies they rate, it's important to recognize that many factors contribute to bond performance, not just these ratings.

Hundred dollar bills are hard to come by!

0 implied HN points • 13 Feb 13

💰 Finance Investing Market Analysis Economic Theory Corporate Finance

Finding a $100 bill on the street is rare, similar to finding big opportunities in highly followed stocks. You might have better luck in wealthy areas compared to busy streets.
Searching for 'free' money can be a waste of time, as the effort may not be worth it. Just like checking for coins at a phone booth, it might not yield enough results.
It's important not to rely on luck for financial planning. Expecting to find money frequently is unwise and could lead to budget problems.

The dangers of relative valuation

0 implied HN points • 27 Sep 09

💰 Finance Valuation Investing Market Analysis Asset management Valuation Investment Market Analysis Financial risk Equity

Relative valuation can be risky because if one company is valued poorly, it can affect the valuations of other companies that are based on it. This is especially true for big companies like Facebook.
Using relative valuation without careful analysis can lead to mistakes and potentially create market bubbles. Just looking at averages can be misleading.
A better approach to relative valuation is to consider differences between companies and analyze the data thoroughly. This way, it can provide useful insights rather than just being a lazy shortcut.

Default and Bankruptcy: Black, white and shades of grey

0 implied HN points • 14 Jul 11

💰 Finance Debt Management Economic Policy Credit Risk Debt Management Financial risk Macroeconomics

Default is not just about missing a payment; it can also involve lenders accepting losses to help borrowers avoid a formal default. This can include restructuring loans or adjusting payment terms.
Lenders may prefer implicit default over explicit default because it allows them to avoid recognizing their mistakes in assessing credit risk. It makes the situation less transparent and allows them to delay acknowledging losses.
For borrowers, sometimes it might be better to face explicit default and make necessary changes rather than stay in a cycle of implicit default, which can lead to worse problems down the line.

Marty Lipton: Shareholder Champion, Stakeholder Protector or Management Tool?

0 implied HN points • 10 Mar 13

💼 Business Corporate Governance Investment Strategies Activism Financial regulation

Activist investors are not necessarily short-term thinkers. Studies show that they often hold onto their investments longer than many passive investors, and they focus on getting companies to do what's best for their shareholders.
It's okay for activists to speak out and share their opinions. Just like other investors, they have the right to use media to explain their views and more open discussions can help companies improve.
Long-term shareholders actually benefit from activist investors. These activists push for changes that can help improve a company's performance and protect shareholders from unaccountable management.

A Sweet Spot for US Equities: Opportunity and Dangers

0 implied HN points • 28 Mar 13

💰 Finance Equity markets Investment Strategies Market Analysis Risk Assessment

US stock markets are currently doing well, but investors should be cautious about potential downturns or corrections. It's important to stay informed and not just ride the wave of rising prices.
Key factors determining stock prices are cash returned to investors, expected growth, risk-free rates, and risk premiums. Each of these plays a role in how we value and perceive stocks.
Despite some risks, stock prices are elevated for good reasons: strong cash flows, decent growth prospects, and poor returns from alternative investments make staying in the market appealing.

A tangled web of values: Enterprise value, Firm Value and Market Cap

0 implied HN points • 29 Jun 13

💰 Finance Valuation Investment Equity Debt Market Analysis

Different types of value, like market cap and enterprise value, can give you different views of a company's worth. Investors should know which measure makes more sense for their situation.
Measuring value isn't straightforward because you might need to consider things like non-traded shares and off-balance sheet debts. Mistakes in these measurements can lead to the wrong conclusions about a company's value.
The best value measure can change based on what you're trying to figure out; different situations, like buying a company or investing in stocks, might call for different approaches to valuing a company.