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Musings on Markets wrote a new blog post titled January 2019 Data Update 1: A reminder that equities are risky, in case you forgot!
In bull markets, investors, both professional and amateur, often pay lip service to the notion of risk, but blithely ignore its relevance in both asset allocation and stock selection, convinced that every dip in stock prices is a buying opportunity, and soothed by bromides that stocks always win in the long term. It is therefore healthy, albeit painful, to be reminded that the risk in stocks is real, and that there is a reason why investors earn a premium for investing in equities, as opposed...
27 days ago
Musings on Markets wrote a new blog post titled January 2019 Data Update 2: The Message from Bond Markets!
I must admit that I don't pay as much attention to fixed income markets, as I do to equity markets, other than to use numbers from the markets as inputs when I value companies or look at equity markets. This year, I decided to look at bond market movements, both in the sovereign bond and corporate bond markets for two reasons. First, bond markets offer predictive information about future economic growth and inflation, and since one of the big uncertainties for equities going into the new year...
27 days ago
Musings on Markets wrote a new blog post titled January 2019 Data Update 3: Playing the Numbers Game!
Every year, for the last three decades, I have spent the first week of the year, looking at numbers. Specifically, as the calendar year ends, I download raw data on individual companies and try to decipher trends and patterns in the data. Over the years, the raw data has become more easily accessible and richer, but ironically, I have become more wary about trusting the numbers. In this post, I will describe, in broad terms, what the data for 2019 looks like, in terms of geography and industry,...
27 days ago
Musings on Markets wrote a new blog post titled Back to Class: A Teaching Manifesto!
I am convinced that each of us is granted moments of grace, where, if we are open to the possibility, we find out what we are meant to do with our lives. For me, one of those moments occurred in the second year of my MBA program at UCLA, when, cash poor, I decided to be a teaching assistant for a quarter to earn some money. At the time I made that decision, my plans were typical of many of my MBA cohort, to get a job in consulting or investment banking, and to make my work up the corporate...
27 days ago
Musings on Markets wrote a new blog post titled January 2019 Data Update 4: The Many Faces of Risk!
I think that all investors would buy into the precept that investing in equities comes with risk, but that is where the consensus seems to end. Everything else about risk is contested, starting with whether it is a good or a bad, whether it should be sought out or avoided, and how it should be measured. It is therefore with trepidation that I approach this post, knowing fully well that I will be saying things about risk that you strongly disagree with, but it is worth the debate. Risk: Basic...
27 days ago
Musings on Markets wrote a new blog post titled January 2019 Data Update 5: Hurdle Rates and Costs of Financing
In the last post, I looked at how to measure risk from different perspectives, with the intent of bringing these risk measures into both corporate finance and valuation. In this post, I will close the circle by converting risk measures into hurdle rates, critical in corporate finance, since they drive whether companies should invest or not, and in valuation, because they determine the values of businesses. As with my other data posts, the focus will remain on what these hurdle rates look like...
27 days ago
Musings on Markets wrote a new blog post titled January 2019 Data Update 6: Profitability and Value Creation!
In my last post, I looked at hurdle rates for companies, across industries and across regions, and argued that these hurdle rates represent benchmarks that companies have to beat, to create value. That said, many companies measure success using lower thresholds, with some arguing that making money (having positive profits) is good enough and others positing that being more profitable than competitors in the same business makes you a good company. In this post, I will look at all three measures...
27 days ago
Musings on Markets wrote a new blog post titled January 2019 Data Update 7: Debt, neither poison nor nectar!
Debt is a hot button issue, viewed as destructive to businesses by some at one end of the spectrum and an easy value creator by some at the other. The truth, as is usually the case, falls in the middle. In this post, I will look not only at how debt loads vary across companies, regions and industries, but also at how they have changed over the last year. That is because last year should have been a consequential one for financial leverage, especially for US companies, since the corporate tax...
27 days ago
Musings on Markets wrote a new blog post titled January 2019 Data Update 8: Dividends and Buybacks - Fact and Fiction
In my series of data posts, I had always planned to get to dividends and buybacks, the two mechanisms that companies have for returning cash to stockholders, at this point, but an op ed on buybacks by Senators Schumer and Sanders this week, in the New York Times, will undoubtedly make this post seem reactive. The senators argue that the hundreds of billions of dollars that US companies have expended buying back their own shares could have been put to better use, if it had been reinvested back...
27 days ago
Musings on Markets wrote a new blog post titled Is there a signal in the noise? Yield Curves, Economic Growth and Stock Prices!
The title of this post is not original and draws from Nate Silver's book on why so many predictions in politics, sports and economics fail. It reflects the skepticism with which I view many 'can't fail" predictors of economic growth or stock markets, since they tend to have horrendous track records. Over the last few weeks, as markets have gyrated, market commentators have been hard pressed to explain day-to-day swings, but that has not stopped them from trying. The explanations have shifted...
103 days ago
Musings on Markets wrote a new blog post titled Investing Whiplash: Looking for Closure with Apple and Amazon!
In September, I took a look, in a series of posts, at two companies that had crested the trillion dollar market cap mark, Apple and Amazon, and concluded that series with a post where I argued that both companies were over valued. I also mentioned that I was selling short on both stocks, Amazon for the first time in 22 years of tracking the company, and Apple at a limit price of $230. Two months later, both stocks have taken serious hits in the market, down almost 25% apiece, and one of my...
107 days ago
Musings on Markets wrote a new blog post titled The GE End Game: Bataan Death March or Turnaround Play?
It seems like ancient history, but it was just 2001, when GE was the most valuable company in the world, commanding a market capitalization in excess of $500 billion. The quintessential conglomerate, with a presence in almost every aspect of the global economy, it seemed to have been built to withstand economic shocks and was the choice for conservative investors, scared of the short life cycles and the volatile fortunes of its tech challengers. Unlike other aging companies like Sears that have...
126 days ago
Musings on Markets wrote a new blog post titled An October Surprise? Making Sense of the Market Mayhem!
I don't know what it is about October that spooks markets, but it certainly feels like big market corrections happen in the month. As stocks have gone through contortions this month, more down than up, like many of you, I have been looking at my portfolio, wondering whether this is the crash that the market bears have been warning me about since 2012, just a pause in a continuing bull market or perhaps a prognosticator of economic troubles to come. If you are expecting me to give you the answer...
142 days ago
Musings on Markets wrote a new blog post titled High and higher: The Money in Marijuana!
In 1992, when Bill Clinton was running for president of the United States, and was asked whether he had ever smoked marijuana, he responded that he had, but that he did not inhale, reflecting the fear that being viewed as a weed-smoker would lay low his presidential ambitions. How times have changed! Today, smoking marijuana recreationally is legal in nine states, and medical marijuana in twenty nine states, in the United States. Outside the United States, much of Europe has always taken a...
155 days ago
Musings on Markets wrote a new blog post titled Amazon and Apple at a Trillion $: A Follow-up on Uncertainty and Catalysts!
In my last post, I looked at Apple and Amazon, as their market caps exceeded a trillion dollars, tracing the journey that they took over the last two decades to get to that threshold and valuing them  given their current standing. While you can check out the stories that I told and the details of my valuation in that post, I valued Apple at $200, about 9% less than the market price, and Amazon at abut $1255, about 35% lower than its market price. I concluded the post with a teaser,...
180 days ago
Musings on Markets wrote a new blog post titled Apple and Amazon at a Trillion $: Looking Back and Looking Forward!
For most of us, even envisioning a trillion dollars is difficult to do, a few more zeros than we are used to seeing in numbers. Thus, when Apple’s market capitalization exceeded a trillion on August 2, 2018, it was greeted with commentary, and when Amazon’s market capitalization also exceeded a trillion just over a month later on September 4, 2018, there was more of the same. I have not only admired both companies, but tracked and valued them repeatedly over the last twenty years. There is much...
182 days ago
Musings on Markets wrote a new blog post titled Trillion Dollar Toppers: Market Triggers, Value Drivers and Pricing Catalysts!
In the last few weeks, the market capitalization of Apple and Amazon each hit a trillion dollars, a threshold not seen before in public markets. Predictably, that has drawn press attention and commentary about what this moment means for markets, investors and the companies themselves. As readers of this blog know, I have followed both companies and valued them for more than two decades, and this is as good a time as any to see how they got to where they are today, and what the future holds for...
191 days ago
Musings on Markets wrote a new blog post titled Deja Vu In Turkey: Currency Crisis and Corporate Insanity!
This has been a year of rolling crises, some originating in developed markets and some in emerging markets, and the market has been remarkably resilient through all of them. It is now Turkey's turn to be in the limelight, though not in a way it hoped to be, as the Turkish Lira enters what seems like a death spiral, that threatens to spill over into other emerging markets. There is plenty that can be said about the macro origins of this crisis, with Turkey's leaders and central bank bearing a...
217 days ago
Musings on Markets wrote a new blog post titled The Privatization of Tesla:
After my last two posts in Tesla, I was planning to take a break from the company, since I had said everything that I had to say about the company. In short, I argued that Tesla, notwithstanding its growth potential, was over valued and that to deliver on this potential, it would need to raise significant amounts of capital in the next few years. In an even earlier post, I described Tesla as the ultimate story stock, both blessed and cursed by having Elon Musk as a CEO, a visionary with a self...
222 days ago
Musings on Markets wrote a new blog post titled The Privatization of Tesla: Stray Tweet or Game Changing News?
After my last two posts in Tesla, I was planning to take a break from the company, since I had said everything that I had to say about the company. In short, I argued that Tesla, notwithstanding its growth potential, was over valued and that to deliver on this potential, it would need to raise significant amounts of capital in the next few years. In an even earlier post, I described Tesla as the ultimate story stock, both blessed and cursed by having Elon Musk as a CEO, a visionary with a self...
222 days ago