stock-market
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Financial theory tells us that there is an optimal capital structure derived from tax savings and the risks of financial leverage, but it says little about how to achieve the optimal structure for a specific organization. The diagram below shows the hierarchy of value creation using cash, which represents the foundation for properly forming a…
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Mergers and acquisitions can be executed either with cash or by transferring the shares of the new company. What is the difference? When the acquisition is done with cash, the entire risk of the transaction is borne by the shareholders of the acquiring company. In the case of an acquisition with shares, the risk of…
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Managers often justify mergers and acquisitions by claiming that the operation is accretive, meaning that EPS (earnings per share) increases, and therefore shareholders should be satisfied. However, the market focuses not on transactional accounting but on whether value is actually being created. The table below discusses a hypothetical example that shows the deterioration of an…
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When viewed through the lens of human behavior, even a fundamental economic model like the principle of equilibrium in demand and supply curves comes into question… The issue is that economic models rely on the assumption of human rationality, which doesn’t quite align with reality. The demand-supply model suggests that the driving forces behind demand…
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“Many want to be long-term investors, but as the graph shows, few succeed. As behaviorists say, the problem is fundamental for investors. Last week, I read this book: The Little Book of Behavioral Investing by James Montier, which very well describes the mistakes that investors make. In this note, I will focus on just one…
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Why insurance is not profitable in the direct sense and the source of profit is an investment activity? There is such a term – Combined Ratio – which reflects the share of losses, bonuses and insurance dividends issued in insurance premiums… https://www.statista.com/statistics/502232/combined-ratio-in-p-c-insurance-industry-usa/ In my opinion, the fact is that in the US this figure in…
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Market Timing as a long-term investing opposition strategy, but there was a time when mutual fund managers were making not bed money. The point is that sometimes the share prices of such funds are not matching to their NAV (Net Asset Value – which is calculated at the market prices of assets hold by a…
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Fisher Effect: The higher the inflation expectations, the greater the pressure on the securities market. Fisher Formula:i = (RIR + Expected-IP) + (RIR*Expected (IP)). Intuitively: The level of nominal interest rates approximately equals the real rate plus inflation expectations (the second part of the formula is a very small number). P.S.The graph shows the correlation…
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Market Segmentation Theory – This theory reflects the impact of events in different segments of financial markets on the relationship between interest rates and loan maturities. The theory posits that the market is divided into various segments, each with different preferences regarding bond maturities. For example, pension funds are more focused on long-term bonds, while…
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