Corporate Debt and the Fallout from Rising Rates

The potential for and timing of an interest rate hike is the source of endless speculation and presents several layers of potential fallout for highly leveraged companies, according to Validea CEO John Reese. In a recent article for The Globe and Mail, he discusses the various factors at play. A wall of maturities: Rising rates could jolt the bond market. Jeffrey Gundlach of DoubleLine has said that “hundreds of billions” of corporate and high-yield bonds… Read More

The Weakest Link in Today’s Market

Expending more than you take in works for a diet, but it doesn’t for the stock market. That’s the upshot of a recent Wall Street Journal article by Steven Russolillo, who writes that today’s ultra-low interest rate market is allowing share prices to “stay higher for longer than under more normal circumstances.” What could “end this game” he argues, is the amount of cash companies are paying out to investors–which is now exceeding the earnings… Read More

Key Pillar of the Market – Share Buybacks – Could be at Risk

Rock-bottom interest rates allow the market to stay higher for longer than it would otherwise, writes Steven Russolillo in this week’s Wall Street Journal. One factor that could end the party, however, is the amount of cash companies are paying out to investors. Not surprisingly, robust dividend payments and buybacks are big draws for investor dollars. However, the article quotes New York University professor Aswath Damodaran as saying, “This is the weakest link in the… Read More

Investing Internationally: Countries or Companies?

The topic of global investing through allocating country risk was addressed in a recent CFA Institute interview with NYU finance professor Aswath Damodaran. While the goal of this approach is to minimize risk through maximizing diversified country exposure, Damodaran believes that much of it is misguided. “Here’s the strange thing: You don’t even have to leave your domestic market if you’re an American or a European to get country risk exposure.” He asserts that, by just… Read More

Margin of Safety: How Misconceptions Could Hurt You

NYU finance professor Aswath Damodaran focuses on myths associated with the concept of “margin of safety” (MOS) in a recent post on his Musings on Markets blog. MOS is thought of as a tool for value investors to protect themselves against uncertainty. Ben Graham brought the term into value investing and Seth Klarman has argued that investors gain the margin of safety by “buying at a significant discount to underlying business value and giving preference… Read More

NYU Prof, Damodaran, on Price vs. Value: Reading Earnings Reports

NYU finance professor Aswath Damodaran writes in the blog Musings on Markets about “the pricing and value game and how they play out, especially around earnings season.” Contrasting the two concepts, Damodaran says that value “comes from a company’s fundamentals, i.e., its capacity to generate and grow cash flows,” while pricing “is a market process” that results from supply and demand and is “a function of market mood/sentiment and incremental information about the company.” Accordingly,… Read More

The Fed & The Equity Risk Premium

While the equity risk premium is currently quite high by historical standards, New York University professor Aswath Damodaran says that might not be an indication that stocks are cheap. In a post on his “Musings on Markets” blog, Damodaran notes that the equity risk premium (the spread between the risk-free rate and expected stock returns) has historically moved in the same direction as the risk-free rate. From 1960-2003, for example, a 1% increase in the… Read More

What It Takes To Be A True Value Investor

In a recent CNBC interview, New York University Professor Aswath Damodaran discusses Apple’s valuation, and in the process lays out a great example of what true value investing is. Damodaran says Apple shares are worth $600, about 30% more than their current price, based on his analysis. While the firm’s recent earnings report, which showed low growth and compressed margins, wasn’t great, he says “that would be a problem only if Apple [had been] priced… Read More

Siegel: Stocks Are Cheap

Several top strategists recently spoke at the CFA Institute Equity Research and Valuation Conference, and The Motley Fool’s Bryan Hinmon and Michael Olsen highlighted a few pieces of advice from these gurus. One was author and Wharton Profesor Jeremy Siegel, who advised that “stocks are cheap”. Siegel said stocks are trading below average historical valuations, and noted that there has never been a 20-year period where real returns on a diversified U.S. stock portfolio have… Read More