Blog on Investment Finance
Companies can make debt-funded share buybacks. This has several effects on shareholder value. First, the interest payments reduce the future earnings. Second, the number of shares is decreased which potentially increases the future earnings and dividends per share. Third, the risk of default and bankruptcy is increased. Read more ...
Mean-variance portfolios are commonly believed to minimize risk for a given level of expected return, because variance is believed to measure risk. But this is incorrect as proven with a short example. Read more ...
J. C. Penney is an example of a company that first bought back shares at a high price that would require future earnings growth to justify the share-price, and then the company made a subsequent share issuance at a much lower price that caused disproportionate dilution. Read more ...
Stock options are granted to employees as part of their compensation in an effort to align the interests of employees and shareholders. But if the stock is underpriced when the options are granted and the stock is overpriced when the options are exercised, then the employee is overcompensated at the expense of shareholders. A recent example of this occurred with the company Best Buy. Read more ...
During the past year, a few celebrity investors have been pushing for Apple to increase share buybacks because the investors believe Apple's shares are undervalued. But the investors do not provide arguments as to why share buybacks would be good for the long-term shareholders; why Apple's shares are undervalued; or what will ultimately happen if the investors are wrong in their beliefs. Read more ...
Facebook recently announced its acquisition of WhatsApp for USD 4b in cash and 230m shares and Restricted Stock Units. The acquisition was discussed extensively in the media but the discussions were vague and inconclusive because of the lack of proper valuation formulas. This article outlines the necessary valuation formulas. Read more ...
An extremely profitable trading opportunity suddenly arose yesterday for Exchange Traded Funds (ETF) that invest in U.S. Mid-Cap stocks. Read more ...
An amusing and true story from Denmark about the uninformed and irrational stock market. Read more ...
Elon Musk on Stock Prices
"It kind of sucks running a public company. The stock goes through these huge gyrations for seemingly arbitrary reasons and then I'm asked to explain why it changed ... and I have no idea!" - Elon Musk, CEO of Tesla Motors. Citation source: Video on YouTube.
Maersk on Stock Prices
The Values of James Simons
Autobiography of Lars Larsen