The hottest Valuation Methods Substack posts right now

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Big Risks: Catastrophic Risk in Investing and Business

Musings on Markets • 1139 implied HN points • 17 Feb 24
💼 Business Risk management Investment strategy Valuation Methods Market behavior Financial Analysis
  1. Catastrophic risks can come from many sources like natural disasters, hacks, or changes in laws. They can seriously threaten a business's survival and impact its value.
  2. It's crucial for business owners to understand how these risks affect their financial situation. They can either be insurable or uninsurable, and knowing this helps in making better decisions.
  3. People often react emotionally to risks, sometimes ignoring them until it's too late. Understanding these reactions can help in making smarter investments and preparing for the worst.

Value Investing I: The Back Story

Musings on Markets • 19 implied HN points • 23 Oct 20
💰 Finance Investment Market Trends Behavioral Finance Valuation Methods Risk management
  1. Value investing does not have a single definition; different investors have their own ways of approaching it. Some focus only on low price-to-earnings or book value, while others consider management quality and market conditions.
  2. There are different styles of value investing like contrarian investing, where you buy stocks that have dropped in price, or activist investing, where you aim to change company management to unlock value. Each has its own strategy for finding value.
  3. The belief that value investing is the best way to achieve long-term success comes from both success stories and academic support. Many investors follow this philosophy because it combines strong principles and practical results.

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
  1. Stock prices can rise even when the economy is doing badly. This happens because companies can still make money, which keeps investors interested.
  2. The market doesn’t always reflect the current situation. Sometimes, it takes time for stock prices to catch up with economic changes.
  3. 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.

Data Update 5: Relative Risk and Hurdle Rates

Musings on Markets • 0 implied HN points • 27 Feb 20
💰 Finance Corporate Finance Risk management Investment Strategies Valuation Methods Market Analysis
  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.

A Viral Market Meltdown: Fear or Fundamentals?

Musings on Markets • 0 implied HN points • 26 Feb 20
💰 Finance Market Analysis Economic Indicators Investment Strategies Risk Assessment Valuation Methods
  1. The recent market crisis is driven by fear stemming from the COVID-19 virus, which complicates predictions about economic impacts. Investors are feeling uncertain and need to approach their decisions with caution.
  2. Market drops can be alarming, but it's important to view them in the larger context of overall market performance. Regular investors might not see major changes in their portfolios over the long term despite recent losses.
  3. It's essential to rely on your own judgment when making investment decisions, especially during uncertain times. With ongoing developments regarding the virus, staying informed and adaptable is key.
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The Market is Huge! Revisiting the Big Market Delusion

Musings on Markets • 0 implied HN points • 30 Dec 19
💼 Business Market Analysis Valuation Methods Investment Strategies Entrepreneurship Venture Capital
  1. A lot of new companies think they can succeed just because the market seems big. They often ignore the fact that success isn't guaranteed, and many companies fail despite the big market promise.
  2. Overconfidence is a major issue for entrepreneurs and investors, leading them to believe their app or service will win big without considering competition or practical challenges.
  3. Investors and companies often focus on growth numbers instead of actual profits, leading to high prices for companies that may not have a solid business model, which can result in dramatic price corrections later.

My Snap Story: Valuing Snap ahead of it's IPO!

Musings on Markets • 0 implied HN points • 17 Feb 17
💰 Finance Investing Market Analysis Tech Stocks Valuation Methods
  1. Snap focuses on online advertising, which means most of its money will come from ads rather than selling products. They aim to keep users engaged to boost ad revenue.
  2. The main audience for Snap is younger users who like visual content. They plan to continue tailoring their app to be attractive for this demographic.
  3. Snap wants users to spend more time on their platform instead of just growing their user numbers. They believe that keeping users engaged is more valuable than simply having a lot of users.

January 2016 Data Update 3: Country Risk and Pricing

Musings on Markets • 0 implied HN points • 09 Jan 16
💰 Finance Risk management International Markets Valuation Methods Investment Strategies
  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.

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
  1. 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.
  2. 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.
  3. 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.

Apple's Crown Jewel: Valuing the iPhone Franchise

Musings on Markets • 0 implied HN points • 29 Aug 12
💼 Business Market Analysis Corporate strategy Valuation Methods Financial Performance Investment Trends
  1. The iPhone makes a lot of money for Apple, generating $100 billion in sales and $21 billion in profits last year. It's a big part of why Apple is so valuable.
  2. Apple has a strong position in the growing smartphone market, selling about 20% of all smartphones while making 43% of the money in that market because of its higher prices.
  3. The iPhone has a short life cycle, meaning customers often wait for the next version. This puts pressure on Apple to keep improving and innovating to keep customers coming back.

Alternatives to the CAPM: Wrapping up

Musings on Markets • 0 implied HN points • 30 Apr 11
💰 Finance Investment Risk management Valuation Market Analysis Financial Models Investment Risk Valuation Methods Financial Analysis Market Theory Equity Research
  1. Ignoring risk in investments is a big mistake. You need your own way to measure and manage risk because investments have different levels of risk.
  2. Using numbers is important for valuing companies, but don't forget the stories behind them. The results in numbers should reflect the company's real situation.
  3. Keep your methods simple. A straightforward approach, like CAPM, can be useful, and it's important to question and refine your risk assessment regularly.

Behavioral Economics: Thoughts on Value and Price

Musings on Markets • 0 implied HN points • 01 Mar 11
💰 Finance Behavioral Economics Investment Strategies Valuation Methods Market Dynamics
  1. Different analysts can value the same company differently because their psychology and perspectives affect their judgment. This is why some people become buyers while others are sellers.
  2. Prices can differ from actual value due to irrational investor behaviors, like panic selling or following trends. Even when people have similar information, their emotions can lead to significant price deviations.
  3. Behavioral economics helps us understand how and when prices will align with value again. Knowing this can guide investors on how long they might wait for their investments to pay off.

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
  1. 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.
  2. 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.
  3. 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.

Valuing declining and distressed companies

Musings on Markets • 0 implied HN points • 30 Jun 09
💼 Business Corporate Finance Valuation Methods Investment Strategies Market Analysis Risk management Investing Valuation Market Analysis Corporate Finance Risk Assessment
  1. Declining companies often show stagnant or even falling revenues over time. This can signal a deeper issue, especially if it's happening across their whole industry.
  2. These firms frequently deal with shrinking profits due to losing pricing power and competition. As a result, they might start selling off assets to stay afloat.
  3. Declining companies might pay out large dividends or buy back stock, but this can be risky. If they have a lot of debt, it could make their financial situation even worse.

Valuing brand names

Musings on Markets • 0 implied HN points • 10 Apr 09
💰 Finance Branding Valuation Marketing Finance Consumer behavior Corporate strategy Valuation Methods Market Analysis Consumer behavior
  1. Brand names can significantly add value to a company, making it important to try estimating that value. It's interesting to think about what would happen if a company suddenly lost its brand name.
  2. Estimating the value of a brand is easier when there are no significant quality differences among products. For example, Coca Cola and generic sodas are very similar except for the brand.
  3. For companies like Sony or Apple, their higher profits might come from factors besides their brand names, like quality and design. So, valuing their brand may include a mix of different advantages.

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
  1. 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.
  2. 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.
  3. 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.