Why do investors not get compensated for diversifiable risk?

One of the tenets of modern finance is that risk is seen from the perspective of the marginal investor[1]. In publicly traded firms, it is highly likely that the marginal investor is well diversified[2] and hence concerned about only about market risk[3]. It follows therefore, that all investors must also consider only market risk no … Continue reading Why do investors not get compensated for diversifiable risk?

Why net depreciation from capex for computing reinvestment rate

We recently came across a question on Quora about why Prof. Damodaran subtracts “depreciation from capex when computing the reinvestment rate of a business.” It further goes on to state the following: "In his book, [Prof. Damodaran] seems to argue that depreciation is a cash inflow that pays for a part of capex, but I don't … Continue reading Why net depreciation from capex for computing reinvestment rate

Long term vs. short term investors – a correct distinction?

On 14 October, Samir Arora, founder of Helios Capital, posed the following question on his twitter account: It was a nice way of highlighting the apparent contradiction that a lot of market commentators fall into when categorising investors as short term and long term. In our view, there are simply investors on the one hand … Continue reading Long term vs. short term investors – a correct distinction?

The Biggest Problem with Price-to-Sales Ratio

The problem of inconsistency and how it can lead to erroneous conclusions... Ratios (or multiples) are a popular tool that many analysts employ to identify cheap stocks. Similar ratios (such as a Price-to-Earnings, Price-to-Sales, etc.) are compared across firms and a company with a lower multiple is considered cheap relative to one that has a … Continue reading The Biggest Problem with Price-to-Sales Ratio

Record Keeper – Important Financial Information at One Place

We all love our family and would do anything to secure their well being. Their happiness, prosperity and security mean the world to us. We all want them to be well provided for, even in our absence. However, you must realise that savings and investments by themselves will not ensure a smooth and happy life for them. In your absence, it … Continue reading Record Keeper – Important Financial Information at One Place