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Musings on Markets's Blog

Winning (losing) by losing (winning): The power of expectations

October 9, 2012 Comments (0)

If you are a baseball fan, I am sure that you know that both the New York Yankees and the Baltimore Orioles made the playoffs last week. While there was some celebration in New York on the news, it was nothing compared to the jubilation in Baltimore. The reason is not hard to fathom. In the last 16 years, the Yankees have made the playoffs in all but one, and with their payroll and heritage, Yankee fans view the playoffs as an entitlement, rather than a bonus. For Baltimore fans, whose team...

The "dividend tax" cliff approaches: Implications for stocks

September 27, 2012 Comments (0)

A great deal has been written about the "fiscal cliff" that US taxpayers, investors and companies are faced with at the end of this year. Put simply, all of the tax changes made in 2002 and 2003 expire at that time, and the tax code will, in large part, revert to what it was prior to those changes. I will leave it to others to debate the macro economic implications of going over the cliff but I want to focus on one "segment" of the code that has implications to valuation. In 2003, the tax...

A new semester begins: Valuation class online

September 7, 2012 Comments (0)

If you are a teacher, you measure your life in quarters and semesters. This is my fiftieth semester teaching, and, as in each of the prior forty nine semesters, I could not wait to get started. Coddled as only tenured faculty at a research university can be, I have only one class to teach this semester. The class is "Valuation", and it is about valuing any asset: stocks, businesses, sports teams and collectibles are all fair game. While the class begins with an extended discussion of...

Apple's Crown Jewel: Valuing the iPhone Franchise

August 29, 2012 Comments (0)

If you are a stockholder in Apple, it is time to celebrate again! The last week has been an eventful one for the company. In addition to claiming the title of "largest market cap" ever, when its market value hit $623.5 billion on August 20, the company also won its lawsuit against Samsung on "patent infringement" charges. Samsung will not only be required to pay $ 1 billion in damages but may also have to remove some of it products from the US market as a consequence. To add to the mix, the...

Groupon Gloom: Deal of the day or Death Spiral?

August 24, 2012 Comments (0)

In keeping with this week's theme of revisiting ghosts of valuations past, I decided to take a look at another fallen angel, Groupon. The stock has collapsed to $4.44 from its post-IPO high of $29 and investors and employees seem to be fleeing from the exits. If you are a contrarian with a strong stomach, it would like the stars are aligned for some bottom fishing but is Groupon a buy, even at this discounted price? To make this assessment, I decided to take a look at my posts on Groupon from...

Facebook face plant: Time to friend the company?

August 20, 2012 Comments (0)

Facebook returned to the headlines on Friday, after it's stock price dropped below $20. At it's closing pricing of $19 on August 17, Facebook was trading at roughly half it's IPO offering price. Investors, analysts and journalists are all looking for the reason for the collapse and some at least seem to have found a ready target: the price drop, they argue, is the result of the "unlocking" of restrictions on insiders selling shares. The problem with this explanation is that it has never been...

Earnings surprises, price reaction and value

July 24, 2012 Comments (0)

The earnings season is upon us and each company’s earnings announcement is eagerly awaited, traded upon and talked about. For widely followed companies like Apple, the obsession with what the next earnings report will deliver overwhelms any sensible assessment of what it means for the company. But is this obsession merited? Do earnings announcements have significant effects on value? If so, why? More importantly, can you make money off earnings announcements?  The “Announcement” Process...

Equity Risk Premiums: Globalization and Country risk

July 2, 2012 Comments (0)

The equity risk premium reflects what investors expect to earn on equities, as a class, over and above the risk free rate. Implicit in that definition are two key points. The first is that the equity risk premium is a macro number that applies to all stocks. The second is that the equity risk premium is the receptacle, in intrinsic valuation, for all macro economic fears. In fact, I used the equity risk premium as my vehicle for talking about how economic crises (the US rating downgrade of...

Value Investing: Where is the beef?

June 29, 2012 Comments (0)

In my first post in this series on value investing, I noted that value investing is a broad brush that covers a range of different approaches, ranging from screening for cheap stocks to looking for bargains in the "loser" bin to being catalysts for change in poorly managed, mispriced companies. There is one characteristic that some value investors seem to share, which is that they are the grown-ups in the investing world, and that investors with different views of the world (a belief in...