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Musings on Markets's Blog

Growth (Part 1): The Limits of Growth

October 26, 2011 Comments (0)

When valuing young, growth companies, a key input into the valuation is the expected growth rate in revenues. For these companies to become valuable, small revenues have to become big revenues (and negative operating margins have to become positive ones...) and revenue growth is the driver of value. It is a tough number to estimate and it is easy to get carried away, especially in hot sectors. In this post, I will look at the information that can be used to put limits on this estimate,...

Growth and Value: Thoughts on Google, Groupon and Green Mountain

October 18, 2011 Comments (0)

In the last week, I noticed three stories that at firstsight seem to be unrelated but I think share a common theme: The first was on Google, with the focus being onhow much Google is spending to impressive growth numbers.The second and continuing story is on Groupon and it’s imminent or not so imminent IPO, with the emphasis being on theaccounting shenanigans and market whiplash.The third story is on Green Mountain Coffee, anincredible success story over the last five years, and the...

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

September 30, 2011 Comments (0)

Last week, the 10-year US treasury bond rate dropped to 1.75%. While it has risen since to about 2%, there can be no denying a  basic fact. Government bond rates have dropped in almost all of the developed market currencies: the Euro, the British Pound, the Swiss Franc and the Yen. Since government bond rates are used as risk free rates to estimate discount rates in valuation or hurdle rates in corporate finance, there has been a great deal of hand wringing and angst among valuation...

Ruminations on Rogue Trading

September 23, 2011 Comments (0)

We are in the midst of a "rogue trading" scandal and the media loves it. It started with this report in the Wall Street Journal about an unnamed trader who had lost $ 2 billion for the Swiss banking giant, UBS. The trader was quickly identified and named as Kewku Abdoli, a director at the UBS Delta One desk (more on that later). Today's story has more details, with a comment from Abdoli's lawyer about how much he regrets his actions (or at least getting caught). If you have a sense of deja...

The Buffett Plan: An apt name for a sanctimonious, hypocritical and superficial proposal

September 22, 2011 Comments (0)

At the start of this week, President Obama laid the groundwork for his deficit plan, with one of the proposals being what he termed the "Buffett" tax. Like Bank of America, a few weeks prior, he was perhaps hoping to borrow on Buffett's credibility to increase support for his plan. Put briefly, here is the what the plan is designed to do. Taxpayers who earn more than a million dollars will be required to pay at least as high a tax rate as what the average tax payer pays. What...

The Buffett Plan: An apt name for a sanctimonious, hypocritical and superficial proposal

September 22, 2011 Comments (0)

At the start of this week, President Obama laid the groundwork for his deficit plan, with one of the proposals being what he termed the "Buffett" tax. Like Bank of America, a few weeks prior, he was perhaps hoping to borrow on Buffett's credibility to increase support for his plan. Put briefly, here is the what the plan is designed to do. Taxpayers who earn more than a million dollars will be required to pay at least as high a tax rate as what the average tax payer pays. What...

Breaking up is easy to do...

September 21, 2011 Comments (0)

Breaking up may have been hard to do for the Carpenters, but it seems to be easy to do for some companies. Here are just  a few examples of companies that have announced plans to dismember themselves, in the last few months:Kraft Foods: Kraft Foods split itself into two companies: a division that sells candy and snacks (Oreo, Cadbury, Tang) globally and a division that sells grocery brands in the US (Oscar Meyer, Jell-O). McGraw-Hill: The company responded to demands by investors...

Operation Twist II: The Fed as Chubby Checker

September 16, 2011 Comments (0)

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Class is in session...

September 7, 2011 Comments (0)

As some of you probably already know, I teach at the Stern School of Business at NYU. Well, summer is officially over and a new semester is beginning. In a rite that I repeat at the start of every semester that I teach, I want to invite you to be part of my class this semester. Note, though, that this invitation is completely unofficial and approaching NYU for credit for taking the class is a definite no no. This semester's class:Valuation The only class that I will be teaching this fall is...

Buffett and Bank of America: Poker and Patsies...

August 25, 2011 Comments (0)

Warren Buffet is famously quoted as saying, "If you have been playing poker for half an hour and you still don't know who the patsy is, you're the patsy". Today, we got a glimpse of Buffett playing poker with Bank of America, and at least from my perspective, it seems clear who the patsy in this game is... it is either Bank of America's stockholders or the rest of us who attribute mystical properties (and uncommon ethics) to the Oracle from Omaha... So, let's recap what happened. It has been...