The hottest Investment strategy Substack posts right now

And their main takeaways

Data Update 4 for 2021: The Hurdle Rate Question!

Musings on Markets • 0 implied HN points • 10 Feb 21

A hurdle rate is the minimum return a business wants from an investment based on its risk. If it's set too high, the company might miss good opportunities.
There are different ways to calculate a hurdle rate, like looking at the cost of raising funds or considering the risk of the specific project. Using the right method helps better match the risk and reward.
Hurdle rates can change based on business type, geography, and currency. It's important to understand these factors to make smart investment decisions.

A Viral Market Update IX: A Do-it-Yourself S&P 500 Valuation

Musings on Markets • 0 implied HN points • 04 Jun 20

💰 Finance Market Analysis Valuation Methods Equity Research Investment strategy Risk Assessment

Stock prices can rise even when the economy is doing badly. This happens because companies can still make money, which keeps investors interested.
The market doesn’t always reflect the current situation. Sometimes, it takes time for stock prices to catch up with economic changes.
Investors should have a clear story or a plan about why they think the market will go up or down. It’s important to avoid getting mad when the market doesn’t match their expectations.

A Viral Market Meltdown V: Back to Basics!

Musings on Markets • 0 implied HN points • 31 Mar 20

💰 Finance Market Analysis Investment strategy Economic Trends Asset Valuation Corporate Finance

The market is experiencing a lot of ups and downs, with some recovery seen recently. However, many global indices are still down significantly compared to earlier this year.
Investors should go back to basic evaluation strategies during this unpredictable time. It's important to assess potential company shakeups and their financial health rather than solely relying on past data.
The survival of companies is at risk, especially those with high debt or poor earnings. The post-crisis market might look very different as new winners and losers emerge.

Data Update 7 for 2020: Debt Delusions and Reality

Musings on Markets • 0 implied HN points • 21 Mar 20

💰 Finance Corporate Finance Debt Management Investment strategy Risk Assessment Market Analysis

Companies with high debt are more likely to fail during tough times. It's important for them to manage their debt levels carefully to survive crises.
Borrowing can seem appealing due to tax benefits, but it carries risks. The real impact of debt on a company's success depends on its ability to generate stable income.
When assessing a company's debt, looking at different calculations is key. Debt measures based on earnings can reveal whether a company can handle its debt payments, even if its overall debt ratio looks good.

Regime Change and Value: A Follow up Post on Aramco

Musings on Markets • 0 implied HN points • 19 Nov 19

💰 Finance Valuation Risk Analysis Business valuation Investment strategy

Valuing a company like Aramco requires looking at both its expected cash flows and political stability. Changes in government can hugely impact its value.
Risk is an important factor in investments and can be split into 'going concern' risk, which means worrying about future cash flows, and 'truncation' risk, which means worrying about whether the company will still exist in the future.
There are pros and cons to investing in businesses within democracies versus autocracies. Democracies can lead to more stable cash flows but also introduce more frequent changes, while autocracies can appear stable but may lead to sudden and drastic changes.

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

Musings on Markets • 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 GE End Game: Bataan Death March or Turnaround Play?

Musings on Markets • 0 implied HN points • 14 Nov 18

💼 Business Corporate strategy Financial Analysis Market Trends Management Practices Investment strategy

General Electric (GE) was once very valuable but has faced a sharp decline in recent years. It’s important to understand how a company changes over time and what can cause such a downfall.
GE has the option to break up into smaller companies, reshape itself into a stable business, or try to regain its former glory. Each path has its own risks and potential rewards.
The history of GE shows that being a large and complex company can create problems. Easy money from financial services can lead to significant troubles when economic conditions shift.

An October Surprise? Making Sense of the Market Mayhem!

Musings on Markets • 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.

January 2018 Data Update 3: Taxing Questions on Value

Musings on Markets • 0 implied HN points • 12 Jan 18

💰 Finance Tax policy Corporate Finance Economic Impact Investment strategy Market Analysis

The 2017 Tax Reform lowered the corporate tax rate significantly from 35% to 21%, affecting how much companies pay in taxes.
Changes to how foreign income is taxed allow companies to bring money back to the US more easily, which can impact growth and investment.
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 2017 Data Update 8: The Dark and Light Sides of Debt

Musings on Markets • 0 implied HN points • 01 Feb 17

💰 Finance Corporate Finance Debt Management Investment strategy Risk Assessment Financial Analysis

When companies decide how much debt to take on, it’s really important to think about both the good and the bad sides of debt. Debt can help a company save on taxes and keep managers in check, but it also increases the risk of financial problems.
There are real benefits to using debt, like tax savings, but many people get distracted by myths about debt being better for returns. It's crucial to understand that higher debt can also raise costs, especially if companies run into trouble.
Different industries handle debt in various ways. For example, companies in technology tend to use less debt, while capital-heavy industries, like trucking and telecom, often carry more. Understanding this can help investors see the bigger picture.

Myth 4.5: DCFs break down with near-zero risk free rates!

Musings on Markets • 0 implied HN points • 04 Nov 16

💰 Finance Valuation Interest Rates Investment strategy Risk management Market Analysis

Lower risk-free rates can increase the value of future cash flows in discounted cash flow (DCF) models. This means that when interest rates go down, it can make companies look more valuable.
It's important to adjust growth rates and risk premiums alongside changes in risk-free rates. If you change one factor without looking at the others, your valuation might be way off.
Using historical data for risk premiums while ignoring current rates can lead to misvaluations. As rates change, you need to rethink the risks associated with investments.

Race to the top: The Duel between Alphabet and Apple!

Musings on Markets • 0 implied HN points • 15 Feb 16

💼 Business Market Analysis Corporate Finance Investment strategy Economics

Apple's recent earnings show mixed results, with record profits but lower iPhone sales. Investors reacted negatively, suggesting concerns about future growth.
Alphabet's earnings surpassed expectations, highlighting strong revenue growth and profit margins. The company's core business remains robust, keeping it ahead in market valuation.
When comparing as investments, Apple might be seen as a safer bet due to its strong value at low growth expectations, while Alphabet relies on consistent high growth to maintain its price.

January 2016 Data Update 6: Debt, the double edged sword!

Musings on Markets • 0 implied HN points • 25 Jan 16

💰 Finance Corporate Finance Debt Management Investment strategy Economic Trends Market Analysis

Debt can be a double-edged sword for companies. It offers tax benefits and can encourage better project decisions, but it also increases the risk of default and conflicts with lenders.
Different companies have various levels of debt based on their industry and region. Some sectors, like real estate and commodities, tend to have higher debt ratios, while tech companies often borrow less due to uncertainty.
In good times, debt can boost company value, but in bad times, it can lead to financial trouble. It's important to carefully assess how much debt a company has before investing.

Storied Asset Sales: Valuing and Pricing "Trophy" Assets

Musings on Markets • 0 implied HN points • 15 Aug 15

💼 Business Asset Valuation Investment strategy Corporate Finance Market Analysis Mergers & Acquisitions

Trophy assets are unique and rare, often gaining value from their scarcity, history, or recognition. This means they can be very desirable when they go up for sale.
These assets usually generate cash flow, making them more like traditional investments rather than just collectibles. Their value can be assessed based on their potential earnings.
When people label an asset as a trophy, it can suggest that buyers might be paying a premium due to emotional reasons, rather than just financial ones. Sometimes, this is justified if the asset offers future growth or synergies.

Country Risk, Return and Pricing: The Global Landscape in January 2015

Musings on Markets • 0 implied HN points • 19 Jan 15

💰 Finance Market Analysis Investment strategy Risk Assessment Global Economy

In 2014, the US stock market did well but some emerging markets performed even better, suggesting potential opportunities elsewhere. It's important to think beyond just strong performers when investing, as the market can shift quickly.
Country risk can be tricky to assess, and two common methods are looking at sovereign ratings and CDS spreads. These numbers help understand the risks investors face in different countries.
Even risky markets can offer bargains if the prices are right. It's key for investors to consider both risk and potential return when evaluating global opportunities.

Focus Pocus: Is breaking up a cure for corporate attention deficit disorder?

Musings on Markets • 0 implied HN points • 07 Nov 14

💼 Business Corporate strategy Financial Analysis Market Trends Business valuation Investment strategy

Companies sometimes break up to become more focused and nimble. This is thought to help them respond faster to market changes.
Breaking up a company can make it easier to manage different parts that have different needs and growth potential. Each part can focus on what it does best.
Investors may find it easier to value smaller companies, leading to better pricing. This could happen because investors use different metrics for different types of businesses.

The Tax Dance: To Pass Through or Not to Pass Through Income?

Musings on Markets • 0 implied HN points • 01 Sep 14

💰 Finance Taxation Corporate Structure Investment strategy Business valuation Market Trends

Pass-through entities like REITs and MLPs are popular because they avoid double taxation on income. This means the company pays taxes only at the investor level, not at the corporate level as well.
Choosing between pass-through and corporate structures affects a company's growth and investment choices. Pass-throughs often have restrictions on investments and must distribute most earnings as dividends, which can limit expansion.
When valuing businesses, it's important to consider the tax situation of the investors and the growth potential. A pass-through might not always be more valuable than a corporate structure if the tax benefits don't outweigh the growth limitations.

A good year ends, but what's next for stocks?

Musings on Markets • 0 implied HN points • 02 Jan 14

💰 Finance Stock Markets Investment strategy Market Analysis Risk Assessment Economic Trends

Many people are worried that stocks might be in a bubble, but opinions vary on this. It's possible to see things differently depending on which metrics you focus on.
The cash flow and growth from companies will help determine stock values. If companies continue to grow and generate cash, stock prices may hold steady.
Investors need to be cautious about risks like rising interest rates or economic downturns. These factors can significantly affect stock prices and the overall market.

When the pieces add up to too much: Micro Dreams and Macro Delusions

Musings on Markets • 0 implied HN points • 15 Oct 13

💰 Finance Market Analysis Investment strategy Valuation Methods Corporate Finance Economic Trends

Social media companies might be overvalued as a whole. While individual companies can have solid growth, the total market might not support such high valuations.
There will be a few winners among these companies in the future. Investors should focus on identifying which companies will succeed, as some can thrive even in a crowded market.
Easy entry into the market can lead to higher growth but also lower profits. This means that just because a market is growing doesn't mean companies will make big money.

Developed versus Emerging Markets: Convergence or Divergence?

Musings on Markets • 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.

The year in review: Apple's universe?

Musings on Markets • 0 implied HN points • 28 Dec 12

💼 Business Corporate Finance Investment strategy Market Analysis Stock Performance Consumer Technology

Apple had an exciting year in 2012, becoming a major focus in both finance and culture. Their products and earnings announcements attracted a lot of attention, almost like celebrity news.
Debates about how Apple should manage its enormous cash reserves heated up, leading to decisions around dividends and stock buybacks. Ultimately, Apple returned cash to shareholders but less than some expected.
Investors in Apple need to watch for changes in stock price and understand that different groups of shareholders may have conflicting expectations. It's important to focus on Apple's overall value, rather than get distracted by small details.

Do markets punish long term thinking? Amazon as a case study

Musings on Markets • 0 implied HN points • 17 Dec 11

💼 Business Market Trends Investment strategy Financial Analysis Long-term Planning

Markets often reward short term gains over long term strategies. Amazon's focus on long term growth has sometimes led to negative market reactions, even though it created significant value over time.
Amazon's stock price has fluctuated widely, showing that it has been both overvalued and undervalued at different times. This reflects the market's sometimes irrational perspective on the company's growth potential.
While Amazon has seen substantial growth in market value, there's a caution that future growth may not be as easy or cost-effective, making it potentially overpriced despite having strong leadership.

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

Musings on Markets • 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.

Trapped Cash: Measurement and Consequences

Musings on Markets • 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.

Is Skype worth $8.5 billion? An exercise in valuing young, growth companies

Musings on Markets • 0 implied HN points • 18 May 11

💼 Business Valuation Acquisitions Market Analysis Investment strategy Acquisitions Valuation Financial Analysis Investing

Valuing a young company like Skype is tricky because there are many unknowns. The worth of such a company can depend on factors like future revenue growth and operating margins.
When investing in young businesses, it's important to look for a large market and strong competition barriers. These can help the company grow and succeed in a tough marketplace.
Young companies need good financial health and a capable team to survive. Companies with less debt and strong cash reserves have a better chance of making it long-term.

Catastrophe and consequences for value

Musings on Markets • 0 implied HN points • 22 Mar 11

💰 Finance Market Analysis Risk management Investment strategy Economic Impact Asset Valuation

Natural disasters can change how we think about risk over long periods of time. We often base our expectations on past events, which might not be enough for rare but powerful situations.
Experts often seem surprised by big events, even though they are supposed to know what to expect. This makes us question what we really mean by 'expertise' when big surprises keep happening.
After a disaster, companies and investors face big challenges in managing risk. It's harder to prepare for unpredictable events, and these events can seriously affect the value of businesses and the market.

Tax policy

Musings on Markets • 0 implied HN points • 29 Jan 11

💰 Finance Tax policy Economic Analysis Investment strategy Debt Management Tax policy Economic Policy Financial regulation

The average U.S. company pays about 29% in taxes on its taxable income, which is higher than many companies in other countries.
U.S. companies experience much more variation in tax rates due to a complicated tax code, which can lead to unequal tax burdens.
Investment and borrowing decisions should focus on economics rather than the tax code, but simplifying taxes might require sectors to shift their tax responsibilities.

Buybacks and Stock Prices: Good or bad news?

Musings on Markets • 0 implied HN points • 25 Jan 11

💰 Finance Stock Markets Corporate Finance Investment strategy Valuation Methods Market Analysis Corporate Finance Stock Market Investment Strategies Financial Analysis Market Valuation

Buybacks can increase stock prices if the market undervalues cash. If investors think the cash is wasted, buying back shares can make the stock more valuable.
Companies with little debt that buy back shares can improve their value. However, if a firm is already in a strong position, a buyback might send negative signals about future growth.
Mature companies often benefit more from buybacks because they might be seen as having poor returns on their investments. In contrast, fast-growing companies may harm their stock prices if they buy back shares.

How much cash is too much? Looking at Apple

Musings on Markets • 0 implied HN points • 19 Jan 11

💼 Business Finance Investing Corporate Economics Valuation Corporate Finance Investment strategy Market Analysis Risk management Company Valuation

Cash balance should be compared to low-risk investments, not just operating costs. It's important to know how a company is using cash, since unnecessary risk can harm investors.
Companies like Apple that effectively manage cash can be trusted to use it wisely. A good track record is key to determining how much cash is too much.
Too much cash can lead to bad investment decisions, which could hurt company value. Keeping cash can be smarter than spending it poorly, especially if the company is performing well.

Corporate finance in illiquid markets

Musings on Markets • 0 implied HN points • 29 Dec 10

💰 Finance Corporate Finance Investment strategy Debt Management Market Liquidity Dividend Policy Corporate Finance Investment Market Liquidity Dividend Policy

In illiquid markets, companies find it hard to access funds, which can limit their ability to take on new investments. Instead of focusing just on net present value, using a percentage return like IRR can help maximize their value.
The mixture of debt and equity that minimizes costs can change in illiquid markets. If the equity market is less liquid, companies may want to increase debt, but if the debt market is illiquid, they might choose to decrease debt.
Companies facing illiquidity may decide to keep more cash on hand instead of returning it to shareholders. This can lead to higher dividends and less reliance on stock buybacks, as investors favor cash during uncertain times.

Asset selection & Valuation in Illiquid Markets

Musings on Markets • 0 implied HN points • 26 Dec 10

💰 Finance Valuation Asset management Investment strategy Market Analysis Risk Assessment Valuation Investment Asset management Market Analysis Risk Assessment

When picking assets, consider how liquid they are. More liquid assets are often a better choice for those needing quick access to cash.
To evaluate illiquid assets, you can adjust their value down by using an 'illiquidity discount' or increase their risk by raising the discount rate.
Using relative valuation involves screening for both cheap stocks and those that are more liquid, helping avoid investments in hard-to-sell assets.

Emerging versus Developed Markets: The margin shrinks in 2010

Musings on Markets • 0 implied HN points • 31 Jan 10

💰 Finance Investment Analysis Market Trends Economic Indicators Risk Assessment Capital Markets Market Analysis Investment strategy Economic Trends Risk Assessment Valuation Techniques

Emerging markets are seeing more companies being publicly traded, which makes their financial markets grow and become stronger. This is especially true in big economies like India, China, and Brazil.
Liquidity issues are now affecting both emerging and developed markets, showing that crises can happen anywhere. Emerging markets are becoming more liquid as local investor bases expand.
The risk of government default is being reconsidered, as some developed market governments show vulnerabilities. People are starting to value companies in emerging markets more based on their fundamentals rather than government risks.

Crisis Lessons: Presentation...

Musings on Markets • 0 implied HN points • 10 Oct 09

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

Personal lessons from a crisis may vary for each individual and shouldn't be forced on others.
Relying too much on historical data can be risky; understanding that things may not always revert to previous averages is important.
A better grasp of risk and its unpredictability helps improve decision-making in finance and investing.

Behavioral finance and corporate finance

Musings on Markets • 0 implied HN points • 12 Jul 09

💰 Finance Corporate Finance Behavioral Finance Investment strategy Market Analysis Behavioral Finance Corporate Finance Investment Theory Market behavior

Behavioral finance studies how people's behavior affects financial decisions. It shows that both investors and managers can be overconfident, leading to poor decision-making.
Even though traditional finance often ignores human behavior, combining insights from behavioral finance can improve corporate decision-making. It's important to understand why managers may deviate from financial principles.
Recent developments in behavioral finance focus on improving systems and processes instead of just highlighting mistakes. This shift may help managers make better choices and minimize costs for shareholders.

Buffett and Munger... Shock value!

Musings on Markets • 0 implied HN points • 02 May 09

💰 Finance Investing Market Theory Portfolio Management Financial Analysis Economic Trends Investing Market Theory Portfolio Management Investment strategy Financial Analysis

Warren Buffett and Charlie Munger often challenge common investing practices, suggesting that many popular ideas are overly complex and not sensible. They believe that simplicity and common sense should guide investment decisions.
Buffett argues against relying too much on complicated math in finance, indicating that it can lead to bad decisions. He feels that common sense should play a bigger role than high-level calculations.
Both Buffett and Munger highlight that innovative ideas in finance can face resistance, often taking time to be accepted. They suggest that the solution is to keep generating new ideas rather than giving up.

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

Musings on Markets • 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.

Alternatives to Regression Betas

Musings on Markets • 0 implied HN points • 15 Feb 09

💰 Finance Risk Assessment Investment strategy Market Analysis Statistical Methods Investment Risk Assessment Market Analysis Valuation Methods Financial Metrics

You can use relative standard deviations instead of regression betas to measure risk. This method looks at how a stock's volatility compares to the average volatility of other stocks.
Option-based methods provide a forward-looking estimate of risk by using prices from traded options. However, this approach only works for companies with those options and bonds available.
Accounting betas are calculated by looking at changes in a company's earnings compared to the overall market. They can be a stable alternative, especially for private companies, but their lagging nature can be a drawback.

Corporate Hedging: The Down Side

Musings on Markets • 0 implied HN points • 27 Nov 08

💰 Finance Risk management Corporate Finance Investment Strategies Market Analysis Derivatives Risk management Investment strategy Derivatives Corporate Finance Market Analysis

Not all risks should be hedged. Some risks can be passed on to investors who may want that exposure, like how oil companies shouldn't hedge oil prices.
Companies should hedge against important risks that can greatly affect their operations, like insurance for physical damage or stabilizing fuel costs for airlines.
Firms can also benefit from seeking out risks where they have an advantage. This can lead to success if they understand and exploit those risks well.

Black, blue and white swans: Comments on Taleb

Musings on Markets • 0 implied HN points • 13 Oct 08

💰 Finance Risk management Investment strategy Market Theory Behavioral Finance Economic Models

It's important to realize that real-life data often doesn’t follow normal patterns and can have unexpected jumps and surprises.
While it's essential to be aware of unpredictable events (black swans), we shouldn't stop planning or forecasting our future.
We should use our best judgment to value assets, keeping in mind that shocks can occur, and we need to account for these risks.

Play It Cool: Chasing Heat vs. Being Contrarian in Venture Capital

Digital Native • 0 implied HN points • 21 Nov 24

💼 Business Venture Capital Investment strategy Market Trends Healthcare Innovation

Venture capital often rewards those who can spot unique opportunities instead of following trends. If most investors are chasing the same hot market, it’s hard to find standout success.
Certain sectors like healthcare, consumer products, and education may be undervalued today but could become hot investment areas in the next few years. Being ahead of the curve can lead to big wins.
There are emerging fields like psychedelics, longevity, and AI-driven digital media that show potential for growth. Investors should keep an eye on these areas as they may heat up sooner than we think.