The hottest Risk management Substack posts right now

And their main takeaways
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Top Finance Topics

On Innovation

Something to Consider • 0 implied HN points • 16 Jun 24
💼 Business Risk management
  1. Innovating is risky, and many people are afraid to invest in new ideas because the outcomes are uncertain. Government help might be needed to encourage more people to take these risks.
  2. One idea for helping innovation is to give tax breaks to companies that offer stock options to their employees. This could motivate workers to take more risks with their projects.
  3. There are challenges with making this system fair and preventing abuse, but finding ways to promote innovation is crucial because it benefits everyone in society.

Financial Management: Modelling & Analysis

Logos • 0 implied HN points • 18 Aug 20
💰 Finance Risk management
  1. Only create financial models when necessary. If the decision is clear, don't waste time building a model just to check a box.
  2. Focus on the key variables that have the biggest impact. It's often just a couple of factors that make the most difference in the results.
  3. Use tools like Monte Carlo simulations and sensitivity analysis to understand risks and potential outcomes better. They can help you see how different situations might play out.

A Viral Market Update XIV: A Wrap on the COVID market, premature or not!

Musings on Markets • 0 implied HN points • 05 Nov 20
💰 Finance Risk management
  1. The COVID-19 pandemic caused major shifts in financial markets, with significant gains in technology and healthcare sectors while energy and real estate suffered. Companies that adapted quickly have done better than those that did not.
  2. Younger and high-growth companies have gained more value during the crisis, while older and low-growth firms have lost ground. This shows a trend towards investing in future potential rather than established stability.
  3. The stock market's recovery suggests that investors are hopeful about the economy bouncing back despite ongoing uncertainties. This reflects a belief that the worst of the crisis has passed, even though challenges remain.

Value Investing III: Requiem, Rebirth or Reinvention?

Musings on Markets • 0 implied HN points • 23 Oct 20
💰 Finance Risk management
  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.

A Viral Market Update XII: The Resilience of Private Risk Capital

Musings on Markets • 0 implied HN points • 23 Jul 20
💰 Finance Risk management
  1. Private risk capital, like venture capital, has surprisingly remained strong during the crisis, unlike past downturns where such funding dried up.
  2. Growth companies and flexible businesses have thrived while traditional, capital-intensive companies struggled, showing a shift in market values.
  3. Investors are more willing to take risks now, leading to a rise in IPOs and high-yield bond issuances, unlike previous crises where these opportunities vanished.
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A Viral Market Update XI: The Flexibility Premium

Musings on Markets • 0 implied HN points • 02 Jul 20
💰 Finance Risk management
  1. Flexibility is key for businesses during tough times. Companies that can quickly adapt their operations are often more successful.
  2. Investment, operating, financing, and cash return flexibilities are important factors. Companies that manage these well are more likely to thrive.
  3. However, focusing on flexibility can have trade-offs like shorter business lifecycles and social costs. It's crucial to balance flexibility with long-term stability.

A Viral Market Update VIII: A Crisis Test - Value vs Growth, Active vs Passive, Small Cap vs Large!

Musings on Markets • 0 implied HN points • 13 May 20
💰 Finance Risk management
  1. The recent market crisis has highlighted differences between value and growth investing. Value investors have faced significant losses, while growth stocks did not drop as much.
  2. Active investing is struggling against passive strategies like index funds, which have been gaining popularity. Many active funds underperformed during recent market turmoil.
  3. Small cap stocks have underperformed compared to large caps during this crisis. This suggests that large companies may become more dominant in the post-COVID economy.

A Viral Market Meltdown IV: Investing for a post-virus Economy

Musings on Markets • 0 implied HN points • 23 Mar 20
💰 Finance Risk management
  1. The market is going through a tough time, and many investment options have lost value, showing that no asset class is completely safe right now.
  2. How quickly the economy rebounds after the crisis will depend on various factors, including consumer behavior and structural changes in the economy.
  3. Depending on your view of the recovery, you can adopt different investment strategies, like focusing on lower-debt companies or innovative ones that may thrive in the new normal.

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

Musings on Markets • 0 implied HN points • 16 Mar 20
💰 Finance Risk management
  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.

Data Update 5: Relative Risk and Hurdle Rates

Musings on Markets • 0 implied HN points • 27 Feb 20
💰 Finance Risk management
  1. You can estimate the risk of different companies even if you don't like using betas. There are other ways to measure risk that might suit you better.
  2. When valuing investments, it’s important to first determine their risk, because that helps set a safe buying price. This means understanding both equity and debt costs.
  3. The cost of capital is calculated by looking at how much companies have to pay for funding, taking into account their mix of debt and equity. This is key for valuing companies correctly.

Data Update 3 for 2020: The Price of Risk!

Musings on Markets • 0 implied HN points • 11 Feb 20
💰 Finance Risk management
  1. Risk is a necessary part of investing, and avoiding it completely can cost you potential returns. It's important to find a balance between taking on risk and ensuring enough return for that risk.
  2. The price of risk varies between different asset classes like bonds and equities, with markets setting these prices based on demand and supply. For instance, the default spread for bonds and the equity risk premium for stocks can help gauge expected returns.
  3. Real estate also has its own risk premium, which can change over time like stocks and bonds. Understanding this can help you make better decisions about how to allocate your investments.

An Ode to Luck: Revisiting my Tesla Valuation

Musings on Markets • 0 implied HN points • 30 Jan 20
💰 Finance Risk management
  1. Investing in Tesla brings mixed feelings. Some people believe in its huge potential, while others think it's too risky and overpriced.
  2. Luck played a big role in when to buy or sell Tesla stocks. It's important to recognize the difference between lucky timing and real investment skill.
  3. The future of Tesla depends on its ability to grow and make profits. Investors need to consider how well Tesla can compete in the busy car market.

Country Risk: A Mid-year 2019 Update

Musings on Markets • 0 implied HN points • 13 Aug 19
💰 Finance Risk management
  1. When companies invest abroad, they face risks from changing currency values and unstable economies and politics. It's important to balance the potential for growth with these risks.
  2. Different countries have varying levels of risk based on their political stability, legal systems, and economic diversity. Emerging markets often have higher risks compared to developed ones.
  3. Understanding country risk is crucial for investors and businesses. It's not just about where a company is based but also where it operates and earns revenue.

The Perils of Investing Idol Worship: The Kraft Heinz Lessons!

Musings on Markets • 0 implied HN points • 27 Feb 19
💰 Finance Risk management
  1. Warren Buffett and major investors can make mistakes just like anyone else. Investors shouldn't blindly trust their idols without thinking critically about their decisions.
  2. Stocks are not like bonds; companies aren't required to pay dividends. If a stock's yield seems too good to be true, it might not be sustainable.
  3. Brands can lose their appeal over time. Even famous names can struggle to remain relevant as tastes change and the market evolves.

January 2019 Data Update 9: The Pricing Game

Musings on Markets • 0 implied HN points • 22 Feb 19
💰 Finance Risk management
  1. The price of a stock can often differ from its true value. Factors like demand, supply, and investor feelings can affect pricing.
  2. When comparing companies, it's important to look at their pricing in relation to the market, rather than relying on absolute rules or ratios.
  3. Fundamentals often influence stock prices, meaning strong or weak performance factors can help explain why some stocks appear cheap or expensive.

An October Surprise? Making Sense of the Market Mayhem!

Musings on Markets • 0 implied HN points • 29 Oct 18
💰 Finance Risk management
  1. 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.
  2. 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.
  3. 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.

Amazon and Apple at a Trillion $: A Follow-up on Uncertainty and Catalysts!

Musings on Markets • 0 implied HN points • 21 Sep 18
💰 Finance Risk management
  1. Uncertainty is a big part of valuing companies. Instead of ignoring it, we can use tools like scenario analysis and simulations to make better predictions.
  2. When valuing companies like Apple and Amazon, using more than just single numbers helps us understand how different factors can change the outcome.
  3. Look for events or news (like earnings reports or management changes) that can change a company's stock price. These can be key moments for making investment decisions.

Deja Vu In Turkey: Currency Crisis and Corporate Insanity!

Musings on Markets • 0 implied HN points • 15 Aug 18
💰 Finance Risk management
  1. Turkey is facing a severe currency crisis, primarily due to a drop in the value of the Lira. This situation is made worse by poor business practices and lack of proper regulatory oversight.
  2. Many Turkish companies are mismatching their debts, meaning they borrow in foreign currencies while generating cash flows in the Lira. This creates a big risk for them, especially as the Lira declines.
  3. To prevent future crises, changes are needed. This includes the government not bailing out companies with mismatched debts and banks needing to be more careful about the risks they take when lending money.

January 2018 Data Update 6: A Cost of Capital Primer

Musings on Markets • 0 implied HN points • 26 Jan 18
💰 Finance Risk management
  1. The cost of capital is a critical concept in finance, representing the return an investor requires from a business investment. It's best understood as an opportunity cost, not just the cost of borrowing money.
  2. It's important to use appropriate rates for different risks when making investment decisions, as applying a single cost of capital to varying investments can lead to poor choices.
  3. Estimating the cost of capital involves understanding both equity and debt and considering market values. Having a clear method can help make better financial decisions.

January 2018 Data Update 4: The Currency Conundrum

Musings on Markets • 0 implied HN points • 24 Jan 18
💰 Finance Risk management
  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 1: Numbers don't lie, or do they?

Musings on Markets • 0 implied HN points • 05 Jan 18
💰 Finance Risk management
  1. Collecting and analyzing data from a large number of companies helps in gaining a better perspective for making investment decisions. It allows for comparison against industry and geographic averages.
  2. It's important to question common investing rules of thumb and understand whether they still hold true in today’s market. Examining actual data can reveal if these rules are outdated.
  3. Trends and changes in corporate finance can significantly impact investors and the economy. It’s useful to track how companies evolve over time and how that affects various financial metrics.

A Tale of Two Markets: Politics and Investing!

Musings on Markets • 0 implied HN points • 06 Jun 17
💰 Finance Risk management
  1. There is a big divide among investors about the current market. Some think a crash is coming while others believe a new bull market is starting.
  2. People are showing different feelings about risk. For some, the market seems stable, but others see a lot of uncertainty in economic policies.
  3. Consumer confidence is up, but spending hasn't followed. Both consumers and businesses feel good about the future, but they aren't investing as much as expected.

January 2017 Data Update 3: Cracking the Currency Code

Musings on Markets • 0 implied HN points • 20 Jan 17
💰 Finance Risk management
  1. Understanding currency is really important for evaluating companies. You can't just ignore how different currencies affect cash flows and the value of assets.
  2. You should be able to value a company in any currency without changing its actual worth. The key is to keep your estimates consistent across cash flows and risk rates.
  3. When estimating future exchange rates, a simple approach is to consider how inflation rates differ between currencies. It helps you make better valuations without overcomplicating things.

January 2017 Data Update 2: The Resilience of US Equities!

Musings on Markets • 0 implied HN points • 13 Jan 17
💰 Finance Risk management
  1. US stocks showed resilience in 2016 despite initial fears of a market bubble due to economic concerns. Investors were surprised by the market's recovery after significant drops early in the year.
  2. The expected return on stocks for 2017 is estimated at around 8.14%, which is higher than the historical average. However, there are concerns about companies paying out more cash than they're earning, which isn't sustainable in the long term.
  3. Interest rates are likely to rise in 2017 due to economic growth and inflation. This could impact stock prices if earnings don't keep pace, but there's also a chance that rising earnings will support the market.

Active Investing: Seeking the Elusive Edge!

Musings on Markets • 0 implied HN points • 28 Dec 16
💰 Finance Risk management
  1. Active investing is struggling because most active investors don't perform better than passive options. This is mainly due to high fees and transaction costs that eat into returns.
  2. Many active investors lack a clear investment philosophy, causing them to jump between strategies instead of sticking to one approach. This inconsistency leads to poor performance.
  3. To succeed in active investing, it's important to have a strong investment philosophy and find a unique edge that sets you apart from others in the market.

Myth 5.2: As g-> r...To Infinity and Beyond!

Musings on Markets • 0 implied HN points • 30 Nov 16
💰 Finance Risk management
  1. When using the perpetual growth model in valuations, the growth rate should never exceed the overall economy's growth rate. This keeps your calculations realistic.
  2. It's best to use the risk-free rate as a cap for growth because it takes inflation into account and provides a solid basis for your numbers.
  3. Valuing companies with overly optimistic growth rates can lead to big mistakes. Keeping growth rates in check helps maintain value accuracy.

The Trump Effect on Markets: A Financial (not a Political) Analysis!

Musings on Markets • 0 implied HN points • 11 Nov 16
💰 Finance Risk management
  1. Market reactions to big political events can be surprising and unpredictable. After the election, there were initial drops but then the markets bounced back, showing that how investors react can change quickly.
  2. Expert predictions are not always reliable. In this case, many experts predicted doom, but the market's actual response showed that the public often trusts their instincts over expert advice.
  3. Stories can influence outcomes more than statistics. The narratives around Brexit and the Trump election resonated with many voters, suggesting that emotional connections can sometimes matter more than hard data.

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

Musings on Markets • 0 implied HN points • 04 Nov 16
💰 Finance Risk management
  1. 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.
  2. 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.
  3. 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.

Myth 4.4: The D(discount) rate is a receptacle for your hopes and fears

Musings on Markets • 0 implied HN points • 04 Nov 16
💼 Business Risk management
  1. The discount rate in cash flow valuation shouldn't be used to reflect personal hopes or fears. It's meant to account for business risks, not management quality or competitive advantages.
  2. Risks like nationalization or distress risks are better handled with decision trees or other tools instead of altering the discount rate. This helps provide a clearer picture of an asset's value.
  3. Using a margin of safety or doing more homework won't eliminate risk in valuations. It's important to recognize that some risks are inherent and cannot be fully mitigated.

Myth 4.2: It's all about D in the DCF

Musings on Markets • 0 implied HN points • 04 Nov 16
💰 Finance Risk management
  1. Many people focus too much on discount rates when valuing investments, often ignoring cash flows and growth rates, which are just as important.
  2. Getting the discount rate wrong can lead to big mistakes in valuation, but the range of costs of capital is often quite similar across different companies.
  3. Instead of stressing over discount rates, we should prioritize accurately estimating future cash flows and growth, especially for younger companies.

Deutsche Bank: A Greek Tragedy at a German Institution?

Musings on Markets • 0 implied HN points • 06 Oct 16
💰 Finance Risk management
  1. Deutsche Bank has experienced a significant drop in its stock price and market value, which has raised concerns among investors regarding its stability and future prospects.
  2. The bank's recent troubles are attributed to a mix of bad investment decisions and regulatory challenges, especially after facing a large fine from the US Department of Justice.
  3. Despite the current perception of risk, some investors see an opportunity as the stock may be undervalued, but it's important to recognize the risks associated with such investments.

May you live in "exciting" times! An Updated Picture of Country Risk

Musings on Markets • 0 implied HN points • 22 Jul 16
💰 Finance Risk management
  1. Investing in different countries has varying levels of risk. Factors like political stability, legal systems, and violence affect how risky a country is.
  2. There's a difference between market measures and non-market measures when assessing risk. Market measures can change quickly, while non-market measures can be slower and less clear.
  3. Understanding country risk is important for businesses operating globally. The risk isn't just based on where a company is located, but also on where it does its business.

DCF Myth 3.2: If you don't look, its not there!

Musings on Markets • 0 implied HN points • 23 May 16
💰 Finance Risk management
  1. Using simulations for financial valuations helps capture uncertainty. Instead of just using one guess for numbers, you can use a range to see different possible outcomes.
  2. Probability distributions are important in understanding risks and making better financial decisions. They can show how likely different outcomes are, which is essential for planning.
  3. Modern tools like Excel add-ons make simulations easier to run. You can use programs that help visualize the potential values of an investment based on various inputs.

DCF Myth 3.1: The Margin of Safety - Tool for Action or Excuse for Inaction?

Musings on Markets • 0 implied HN points • 03 May 16
💰 Finance Risk management
  1. The Margin of Safety (MOS) is a way to protect your investments by ensuring you buy assets at a price lower than their actual value. It helps investors feel safer by providing a buffer against mistakes or market fluctuations.
  2. MOS isn't a one-size-fits-all strategy. Different investments should have different levels of MOS based on how risky or certain they are. For example, a steady utility company may need less margin than a startup with uncertain prospects.
  3. Using MOS doesn't mean you can skip careful valuations. Good investing requires solid value judgments and understanding what you're buying, rather than just relying on a safety margin to make choices.

DCF Myth 3: You cannot do a valuation, when there is too much uncertainty!

Musings on Markets • 0 implied HN points • 02 May 16
💰 Finance Risk management
  1. You can still do valuations even when there's a lot of uncertainty. It's actually common to face unknowns in investing.
  2. Uncertainty can lead to bad decision-making like inaction or relying too much on others' opinions. Being aware of how uncertainty affects you is key.
  3. Having a clear story or narrative about a company helps during uncertain times. It can guide your decisions and make valuations feel more grounded.

January 2016 Data Update 4: The Costs of Capital

Musings on Markets • 0 implied HN points • 14 Jan 16
💰 Finance Risk management
  1. The cost of capital is crucial for businesses as it helps determine where to invest. Companies need to know the minimum returns needed to justify their investments.
  2. It plays a key role in deciding the mix of debt and equity a company should use. Understanding this mix can optimize financial performance.
  3. Different sectors have varying costs of capital due to risk factors. It's important to use a cost of capital that reflects the specific risks of investments being considered.

January 2016 Data Update 3: Country Risk and Pricing

Musings on Markets • 0 implied HN points • 09 Jan 16
💰 Finance Risk management
  1. Country risk matters for business, and it's based on where a company operates, not just where it is based. Companies can face risks from markets they rely on for revenue.
  2. Different countries have different levels of investment risk, affecting equity risk premiums. Understanding these risks helps investors make better decisions.
  3. Stocks from various countries are priced differently, often reflecting local market conditions. It's important to consider these multiples when investing internationally.

Another Market Crisis? My Survival Manual/Journal!

Musings on Markets • 0 implied HN points • 26 Aug 15
💰 Finance Risk management
  1. Market crises cause a sharp increase in the price of risk, which leads to a drop in the value of risky assets. It's important to keep an eye on this price of risk to understand market movements.
  2. During a crisis, liquidity becomes very important. Investors prefer liquid assets more than ever, and companies with strong cash positions generally fare better.
  3. It's easy to panic during market downturns, but it's crucial to stick to a personal investment strategy. Taking a step back and avoiding constant checking of the market can help manage anxiety.

Valuing Country Risk: Pictures of Global Risk - Part II

Musings on Markets • 0 implied HN points • 29 Jul 15
💰 Finance Risk management
  1. Investors need to adjust cash flows based on country risk, which means recognizing how risks in different countries can affect expected earnings and cash flows.
  2. An alternative way to deal with country risk is by increasing the required return on investments to reflect the higher risk, which also lowers the asset's value.
  3. It's important to avoid double counting risks when making adjustments and to ensure that any changes made for country risk are clear and understandable to others.

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

Musings on Markets • 0 implied HN points • 25 May 15
💼 Business Risk management
  1. 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.
  2. 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.
  3. 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.