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

Dealing with Hybrids

0 implied HN points • 19 Mar 09

💰 Finance Corporate Finance Investment Corporate Finance Valuation Investment Analysis Capital Structure Financial Instruments

Hybrids are financial instruments that combine debt and equity, making them tricky to analyze. It’s best to break them down into their components to truly understand their value.
Convertible debt is a common hybrid, where the lender can convert their loan into equity later. Treating it as just debt can mislead people into thinking it’s cheaper than it actually is.
Preferred stock is a tougher hybrid to handle and needs special consideration. It often doesn't fit neatly into the debt or equity categories like other hybrids.

Amateur Athletics

0 implied HN points • 15 Nov 10

🎾 Sports College sports College sports

College sports in America make a ton of money, but the athletes don't get paid much for their efforts. They get scholarships, but that isn't the same as real earnings.
The NCAA pretends college athletes are amateurs, but that's not true for big sports like football and basketball. It's more like a modern version of indentured servitude, where players risk injuries without fair compensation.
A new system is needed for college athletes, where some can be true 'student athletes' focusing on education, while others could be 'semi-pros' allowed to earn money and get sponsorships. This way, they can make a decent living while playing.

The secret to investment success: Self Awareness?

0 implied HN points • 11 Nov 10

💰 Finance Investing Psychology Market Analysis Investment Strategies Personal Finance Investment Strategies Behavioral Finance Market Analysis Risk management Personal Finance

Investment success isn't just about strategy; it's about knowing yourself. How patient are you? Do you handle stress well? These traits matter.
Different investment philosophies work for different people. What might be a good strategy for one person could be a bad fit for someone else.
Self-awareness can help you choose the right investment approach. Think about your personality and how you react to different situations before investing.

Why I cannot stand George Soros!

0 implied HN points • 05 Mar 09

💰 Finance Investing Speculation Regulation Markets Economics Investing Speculation Market Analysis Risk management Economic Theory

George Soros is viewed as a lucky speculator rather than a great investor, as he made big profits from a couple of fortunate bets.
The author believes Soros should not offer moral lessons, especially since his success comes from speculation rather than hard work.
Many successful investors are often just lucky, and we shouldn't assume they know more than we do about investing.

Can betas be negative? (and other well used interview questions)

0 implied HN points • 17 Feb 09

💰 Finance Investing Market Analysis Risk management Financial Instruments Investing Risk management Market Analysis Investment strategy Financial Instruments

Yes, betas can be negative. This means that adding a negative beta investment to a portfolio makes the overall risk lower.
A negative beta investment acts like insurance against risks that could harm other investments, like gold during inflation.
Expected returns on negative beta investments are usually less than the risk-free rate, reflecting the idea that you're paying for insurance with lower returns.

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Inflation, deflation and investing

0 implied HN points • 14 Oct 10

💰 Finance Investing Economics Inflation Deflation Portfolio Investing Economics Market Trends Taxation Asset management

Economists disagree on whether we are heading into inflation or deflation, but both have big impacts on investing. It's important to understand how these economic changes can affect your portfolio.
Inflation can hurt stock values because it increases costs and taxes while the ability to raise prices might not keep up. Companies with strong brands can handle inflation better than others.
If you expect high inflation, consider investing in real assets or companies that can pass costs to customers. For deflation, focus more on financial assets and companies selling essential products.

Executive Compensation Caps

0 implied HN points • 05 Feb 09

💼 Business Compensation Corporate Governance Investor Relations Regulation Government Economics Legislation Business Taxation

Government should not set limits on executive pay, as it can cause problems in the job market. It might lead to unexpected consequences that could worsen the situation.
Companies that accept government help should allow taxpayers to have a say in executive compensation. If they rely on public funds, they must be accountable to the public.
Stockholders need to take a stand to ensure that executive pay is reasonable, rather than relying on the government. Investors should push for rules that involve them in the decision-making process regarding pay.

Low riskfree rates...

0 implied HN points • 02 Feb 09

💰 Finance Investing Valuation Market Trends Economic Indicators Risk management Investment Valuation Economics Market Trends Risk management

Riskfree rates in the US and Europe are very low right now, which makes valuing companies tricky. Using these low rates can lead to inflated company valuations.
While riskfree rates are low, risk premiums and default spreads are high. This means we need to adjust other factors in our valuation to get accurate results.
It's important to be consistent with all the numbers used in valuation. If you use today's low riskfree rates, you should also update growth and inflation rates to match the current economic situation.

Bias in Valuation

0 implied HN points • 28 Jan 09

💰 Finance Valuation Investing Economics Market Analysis Valuation Investments Market Analysis Risk Assessment Corporate Finance

Bias can greatly affect valuations, often making them unreliable due to preconceived notions and financial incentives. It's important to be aware of who is paying for a valuation and how that might influence the numbers.
To minimize bias, it's suggested that independent third parties handle valuations instead of the deal-makers. This could lead to more honest and accurate assessments.
Trusting famous firms for valuations isn't always enough; it's crucial to investigate the potential biases in their assessments. Always ask who paid for the valuation and what biases might be present.

Corporate Finance - post crisis

0 implied HN points • 19 Jan 09

💰 Finance Corporate Finance Investment Analysis Risk Assessment Debt Management Dividend Policy Corporate Finance Investment Analysis Risk management Capital Structure Dividend Policy

Investment analysis will shift to more probabilistic methods rather than just relying on expected values. This means looking at a range of possible outcomes instead of one average guess.
We can expect higher risk premiums for both stocks and bonds in the near future. This change is due to increasing uncertainty, especially in both developed and emerging markets.
Companies will focus on having more cash and be cautious about paying dividends. They might prefer flexible options like stock buybacks instead of committing to regular dividends.

Sticky dividends!

0 implied HN points • 27 Dec 08

💰 Finance Investing Dividends Market Trends Economic Policy Corporate Finance Dividends Market Trends Corporate Finance Investment Analysis Economic Policy

Many companies stick to their dividend payments, even during tough times. This shows their commitment to returning value to shareholders.
In recent months, some companies have started changing their dividend habits due to market challenges. Pfizer, for example, didn't increase its dividend for the first time in over four decades.
The uncertainty in capital markets is making companies more cautious. They are now prioritizing having cash reserves to weather potential financial troubles.

High dividend stocks: Do they beat the market?

0 implied HN points • 04 Oct 10

💰 Finance Investing Stocks Dividends Market Analysis Portfolio Management Investing Stocks Dividends Market Analysis Taxation

Investing in high dividend stocks can potentially yield higher returns compared to index funds, but it comes with risks. It's important to carefully choose companies that have stable dividends and solid financial health.
Dividends can be cut by companies, meaning they aren't always reliable income sources. Investors should consider the potential for companies to reduce or eliminate these payments.
Investors should aim for a diversified portfolio of high dividend stocks to minimize risk. This can help protect against downturns in specific sectors or companies.

What is going on with the inflation indexed treasuries?

0 implied HN points • 18 Oct 08

💰 Finance Investing Market Analysis Bonds Interest Rates

Inflation-indexed treasuries offer protection against inflation while traditional bonds have set coupons. This creates different return expectations based on inflation rates.
Recently, there has been an unusual rise in real interest rates for inflation-indexed bonds, while nominal rates have stayed the same. This trend is puzzling and contrary to expectations based on economic conditions.
One possible reason for the unusual behavior is that investors are selling inflation-indexed bonds for liquidity, which might bring their rates back to normal levels soon. If that happens, these bonds could become a good investment opportunity.

Past performance is no guarantee of future performance... but is anyone listening?

0 implied HN points • 19 Sep 10

💰 Finance Investing Market Trends Asset management Risk Assessment Economic Indicators

Investors often ignore the warning that past performance doesn't predict future success, and many still chase after funds that have done well recently.
Successful investing usually depends more on how assets are allocated rather than just picking individual stocks.
Momentum investing can be risky, as knowing when to sell is just as important, if not more so, than when to buy.

Developed versus Emerging Markets: Convergence or Divergence?

0 implied HN points • 29 Jul 13

💰 Finance Market Analysis Investment strategy Global Economy Risk Assessment Equity markets

Stocks in riskier areas usually have lower prices. This shows that investors want higher returns for taking on more risk in emerging markets compared to developed markets.
There has been a noticeable trend where the prices and valuations of companies in emerging markets are starting to converge with those in developed markets. This is mainly due to falling prices in developed markets rather than significant gains in emerging markets.
Investors should adjust their expectations for returns in emerging markets. These markets are becoming less risky, but they are not positioned to give the high returns that used to be expected.

Market Mood Swings: Facebook Euphoria

0 implied HN points • 31 Jul 13

💼 Business Finance Investing Markets Valuation Stocks

Facebook's stock had a rocky start after its IPO. It quickly rose to $42 but then fell below $30, showing investors can be unpredictable.
The company is heavily reliant on advertising for most of its revenue. While it has tried to diversify, advertising still brings in about 84% of its income.
Investors need to stay alert and adapt their strategies. The market can swing from enthusiasm to fear, so buying and holding might not always be the best tactic.

Tesla: A Follow up

0 implied HN points • 06 Sep 13

💼 Business Investing Valuation Market Trends Corporate strategy Consumer Tech

Tesla could really change the car industry, similar to how Amazon and Apple changed their markets. If they succeed, they could have high sales and profits.
Tesla's stock price might be more about hype than actual company value. Investors often react to news and trends rather than the company's long-term success.
Big car companies might want to buy Tesla to stay competitive in the electric car market. This could lead to them paying a lot more than Tesla is actually worth.

Rebirth and Reincarnation: Escaping the corporate death spiral

0 implied HN points • 28 Sep 13

💼 Business Corporate strategy Change Management Investment Analysis Market Trends

Companies need to realize when their old methods don't work anymore. It's important for them to accept change and be willing to let go of past practices.
A strong leader or 'change agent' is crucial for any corporate transformation. This person helps push for new ideas and can come from inside or outside the company.
Having a clear plan for change is essential. Companies need to provide new direction and focus, along with actions that support their new goals.

January 2019 Data Update 7: Debt, neither poison nor nectar!

0 implied HN points • 05 Feb 19

💰 Finance Debt Management Corporate Finance Investment strategy Financial Analysis

Debt can be good or bad depending on the company's situation. It's important to know when it's helpful and when it can lead to problems.
The recent US tax reforms made borrowing less attractive for companies. Many still increased their debt, possibly out of habit or uncertainty about future tax changes.
Leases are now treated as debt in accounting, which changes how we view a company's financial health. This change can show companies as more leveraged than before.

The unemployment rate: A look at the sampling question.

0 implied HN points • 06 Feb 11

🇺🇸 U.S. Politics Economics Statistics Labor Market Government Public Policy

The unemployment rate is calculated using a survey of about 60,000 households, while payroll numbers come from a survey of 140,000 businesses. These different sources can lead to different results.
Sampling bias can affect results if the survey doesn't represent the whole population well. It's important to trust that statisticians are working to avoid these biases.
Data can have noise or errors, especially when the job market is changing a lot. Seasonal adjustments and revisions to previous data can impact how we understand the unemployment rate.

Valuation Myths: Young companies cannot be valued

0 implied HN points • 18 Nov 13

💰 Finance Investing Valuation Market Analysis Stocks

You can value young companies, even with their uncertainties. It's possible to estimate future earnings and cash flows, so saying they can't be valued isn't accurate.
Value estimates for companies can change over time as new information comes in. This volatility is normal and can even help investors find better opportunities.
Young growth companies aren't always overpriced. With creative and flexible valuation methods, it's possible to find good deals on these companies.

Experiments in online teaching: My Spring Classes and an Online Valuation Class

0 implied HN points • 27 Jan 14

🚌 Education Online Learning Teaching Methods Student Engagement Curriculum design

Online courses need to be shorter and more engaging, as 80-minute lectures can feel very long in a virtual setting. Keeping online classes brief helps keep students' attention.
Interaction is crucial in online learning; students should communicate more with each other and their instructors. This can enhance learning and make the experience more enjoyable.
Feedback is important for students to know if they understand the material. Online classes should include assessments or tests to help students gauge their learning progress.

January 2019 Data Update 9: The Pricing Game

0 implied HN points • 22 Feb 19

💰 Finance Investing Market Analysis Corporate behavior Valuation Risk management

The price of a stock can often differ from its true value. Factors like demand, supply, and investor feelings can affect pricing.
When comparing companies, it's important to look at their pricing in relation to the market, rather than relying on absolute rules or ratios.
Fundamentals often influence stock prices, meaning strong or weak performance factors can help explain why some stocks appear cheap or expensive.

Comcast bids for Time Warner Cable: Synergy, Reverse Synergy or Ego Trip?

0 implied HN points • 18 Feb 14

💼 Business Mergers Valuation Finance Market Analysis Corporate strategy

Comcast's bid for Time Warner Cable raises questions about whether the merger will truly benefit both companies. It seems there may be some potential for synergy, but it could be limited.
The initial market reactions suggest mixed feelings about the deal, with Comcast's stock dropping. This could indicate doubts about future growth or regulatory hurdles.
Even small improvements from the merger can add value, but achieving those improvements may require significant effort and time from Comcast's management.

If Tim Cook does not care about the "bloody ROI", does he care about the "bloody stock price"?

0 implied HN points • 03 Mar 14

💼 Business Corporate Governance Social Responsibility Investor Relations

Tim Cook's focus on social responsibility may conflict with the business goal of maximizing profits. Companies should balance doing good with making money.
Transparency is key in corporate social responsibility. Companies need to share how much they are spending on social initiatives with shareholders.
Shareholders should have a say in how companies operate, especially regarding spending on social issues. Not including them in the conversation can create mistrust.

Uber's Coming out Party: Personal Mobility Pioneer or Car Service on Steroids?

0 implied HN points • 15 Apr 19

💼 Business Startups Valuation Market Analysis Transportation Financial Reporting

Uber is more than just a ride-sharing service; it sees itself as a personal mobility business, aiming to tap into a huge market worth potentially $2 trillion.
Despite growing rider numbers and revenues, Uber struggles with profitability, continuously facing high costs and losses, making its financial future uncertain.
Uber's ability to convince riders to use its services more often, rather than just acquiring new users, will be key to its success and overall company value.

Luck versus skill: How can you tell?

0 implied HN points • 12 Mar 11

💰 Finance Investment Risk management Behavioral Finance Market Analysis Portfolio Management

It can be hard to tell if someone in finance is successful because of luck or skill. This confusion makes it tricky to reward them appropriately.
In sports, it's easier to see skill because success is clear and happens often, while in finance, success is more subjective and can happen by chance.
To find skilled investors or managers, look for those who are consistent in their success, transparent about their strategies, and humble enough to acknowledge the role of luck.

Myth 4.3: The D cannot change (over time) in a DCF

0 implied HN points • 04 Nov 16

💰 Finance Valuation Investing Cash Flow Equity

Discount rates in a DCF can change over time, so don't think you need to stick with one forever. It's important to adjust them based on the company's growth and risks.
Adjusting discount rates makes valuations more accurate, especially for young or transitioning companies. Big changes in these firms mean their risk should be reflected in the discount rate.
To estimate changing costs of capital, begin with the current rate and make adjustments based on planned changes in the company's debt and business mix, moving towards stable growth if the company matures.

Government Default and Riskfree Rates

0 implied HN points • 22 Mar 10

💰 Finance Investing Economics Risk management Bond Market

In some emerging markets, companies can borrow money at lower rates than their own government, especially if the debt is in foreign currency.
It's surprising that investors feel safer lending to companies like Berkshire Hathaway than to the US government, even though the government can print money.
The market seems to be signaling to the US government that it needs to improve its financial health quickly, or it may face higher borrowing costs in the future.

Reacting to Earnings Reports: Pricing Metrics and Market Reactions

0 implied HN points • 06 Aug 14

💰 Finance Investing Market Analysis Earnings Reports Valuation Corporate Finance

Investors often focus on one or two key metrics, like earnings per share, because it's simpler than developing a full understanding of a company's value. This can be risky as it can lead to ignoring other important factors.
Different stages of a company's growth can change which metrics investors pay attention to. Early on, they might care more about user numbers, while mature companies might shift focus to earnings and profitability.
Relying too much on specific metrics can lead to problems, like missing the bigger picture or companies manipulating numbers to look better. It's important for investors to keep an eye on the whole situation, not just one number.

My small challenge to the "university" business model

0 implied HN points • 25 Jan 12

🚌 Education Online Education Competitive Landscape

The traditional university business model is outdated and often prioritizes profit over the quality of education. Many people feel they don't get good value for their money in terms of what they learn.
New technologies and online learning platforms are changing the education landscape. These innovations may disrupt universities like how Amazon changed retail.
There is a growing need for accountability in education. Students deserve better experiences and options, as well as the ability to choose how they want to learn.

Stock Buybacks: They are big, they are back and they scare some people!

0 implied HN points • 22 Sep 14

💰 Finance Stocks Investments Corporate Finance Market Trends Valuation

Stock buybacks have become popular again and can be a way for companies to return cash to their shareholders. It's important to understand how buybacks impact both the company's stock value and the shareholders.
Buybacks can either help or hurt a company's value depending on how they're funded and their effect on investments. If a company uses cash wisely, buybacks can be beneficial; but if they lead to increased debt or poor investments, they can be harmful.
There's a lot of debate about whether buybacks are good or bad for the economy. Critics worry they lead to less investment in businesses, but some argue returning cash this way can actually be a smart move when companies don't have good opportunities for reinvestment.

Value Investing: Where is the beef?

0 implied HN points • 29 Jun 12

💰 Finance Investing Market Analysis Investment Strategies

Value investing includes many strategies, but it often assumes that value investors have a clear advantage over others. However, this belief isn't always supported by the evidence.
Studies show that while some individual investors can outperform the market, many do not. Those who invest based on solid research and have focused portfolios tend to perform better.
Successful value investing combines having a strong investment philosophy, a competitive edge, discipline, and an openness to learning from other investing strategies.

The Walking Dead: Blackberry, Yahoo and the Zombie Apocalypse!

0 implied HN points • 30 Sep 14

💼 Business Corporate Governance Market Analysis Investment Strategies Technology Companies Business Models

Some companies can stick around even after their business model has failed, like zombies in a show. They keep going but aren't really successful anymore.
Managers of these struggling companies often believe they can fix things, even when it's clear their efforts are not working. They might waste resources trying to revive the business.
When investing in these 'walking dead' companies, it's important to recognize that their management may make bad decisions, leading to further losses. Investors should be cautious and realistic about their value.

There is an app for that....

0 implied HN points • 09 Jun 11

🕹 Technology Apps Valuation Software Education Finance

Technology has made valuing companies easier than it used to be. In the past, gathering data was a lot of work, but now apps can do much of it for us.
The uValue app offers different models to help users value stocks and businesses effectively. It includes detailed and simple versions of valuation models, making it versatile for different users.
The app is currently only available for iPads and has some initial errors that are being fixed. Despite being new, it has been tested on many types of companies and seems to work well.

Equity Risk Premiums: Globalization and Country risk

0 implied HN points • 02 Jul 12

💰 Finance Investing Risk management Market Analysis Global Economy Valuation

The equity risk premium shows what investors expect to earn from stocks over a risk-free rate. It is influenced by macroeconomic concerns and varies across different countries.
Country risk matters when estimating equity risk premiums. Riskier countries, like Venezuela or Greece, should have higher premiums compared to safer ones like Switzerland or Canada.
Estimating equity risk premiums for different markets can be tricky. Approaches like using country default spreads or market volatility can help, but it's important to consider specific economic conditions and investor behavior.

The "dividend tax" cliff approaches: Implications for stocks

0 implied HN points • 27 Sep 12

💰 Finance Investing Taxation Stock Market Portfolio Management Economic Policy

The potential increase in dividend tax rates could lead to lower stock prices, especially for high-dividend stocks. If taxes go up, investors may demand higher returns, which could make stocks less appealing.
Different types of stocks will be affected differently by tax changes. High dividend-paying stocks might see larger price drops compared to those that don't pay dividends.
Investors might already expect tax law changes to affect stock prices. However, companies may not change their dividend policies even if taxes increase, as they usually stick to their dividend practices.

Go Pro: Camera or Smartphone? Social Media or Electronics? Price or Value?

0 implied HN points • 16 Oct 14

💰 Finance Investing Valuation Market Analysis Stock Market

GoPro targets a specific market of active, social media users, which is different from traditional camera users. This focus helps them stand out in a crowded market.
The competition for GoPro is growing, as other brands and smartphones become more capable of taking action photos and videos. GoPro needs to maintain its unique edge to keep its market share.
Investing in GoPro carries risks because their future growth depends on both attracting new users and staying ahead of competitors. This balance is tricky and not guaranteed.

Go where it is darkest: When company, country, currency and commodity risk collide!

0 implied HN points • 20 Nov 14

💰 Finance Investing Valuation Market Analysis Risk management Corporate Governance

Investing in companies with uncertain futures can lead to bigger rewards. While it may seem safer to choose stable companies, those come with less potential for finding great deals.
Understanding various risks, like country, currency, and corporate governance, is crucial when valuing companies. These factors can greatly impact a company's success and its stock price.
Higher commodity prices usually benefit mining and oil companies, but these markets are unpredictable. A thorough understanding of these cycles is necessary for wise investing.

No Light at the end of the Tunnel: Investing in Bad Businesses

0 implied HN points • 25 May 15

💼 Business Investment Corporate strategy Market Analysis Financial Performance Risk management

Businesses can be considered 'bad' if most companies in the industry regularly lose money. It's not enough for just a few companies to struggle; the whole sector needs to be underperforming.
Companies might stick around in bad businesses because they hope things will improve or because it's hard to sell their assets at a good price. Sometimes, they also face pressure from other parties, like unions or governments.
Investors might still invest in these bad businesses if the price is right. However, they need to be careful as putting money into struggling companies can turn out to be risky and often leads to more losses.