Risk Premium Factor, + Website

STEPHEN D. HASSETT is a corporate development executive with Sage North America, a subsidiary of The Sage Group plc, a leading global supplier of business management software and services. He has published in the Journal of Applied Corporate Finance and is a regular contributing author for the Seeking Alpha investment website. Previously, he was an executive at the Weather Channel, software entrepreneur and consultant with Stern Stewart & Co. He holds an MBA from the Darden School of Business at the University of Virginia.

• List of Figures xi List of Tables xiiiPreface xvEvolution of a Theory xviOverview xviiHow This Book Is Structured xxiAs You Begin xxiiAcknowledgments xxiiiAbout the Author xxvChapter 1 Understanding the Simplicity of Valuation 1Rates, Compounding and Time Value 3Why Time Value Matters for the Stock Market 3Valuing a Perpetuity 4Constant Growth Equation: The Key to Understanding the Stock Market 5Not the First to Try This 6Why Growth Rate and Cost of Capital Matter 9P/E Ratio Expansion and Contraction 10CAPM, Risk Premium and Valuation 11Equity Risk Premium 11Impact of Risk Premium on Valuation 13Chapter Recap 14PART ONE Exploring the Risk Premium Factor Valuation ModelChapter 2 The Risk Premium Factor Valuation Model 18The RPF Model is Simple, but Does it Work? 21Estimating the Risk Premium Factor (RPF) 24Potential Causes for Shifts in the RPF 27Potential Weaknesses in RPF Theory and Methodology 28Adjusted Risk Free Rate 29Comparison to the Fed Model 29Chapter Recap 31Chapter 3 Solving the Equity Premium Puzzle: The Link to Loss Aversion 33Loss Aversion 34Loss Aversion and Corporate Decision Making 34Attempts to Solve the Equity Premium Puzzle 35Impact of Inflation on Value 39Back to Loss Aversion 39Our Reptilian Brain 40Chapter Recap 42Chapter 4 The RPF Model and Major Market Events from 1981 to 2009 43Efficient Market Hypothesis 44How the RPF Valuation Model Explains Black Monday 452000 "Dot Com" Bubble: RPF Model Suggests Significant Bubble for the S&P 500 47How the RPF Valuation Model Explains 2008-2009 Meltdown and Recovery 49Markets Mostly Efficient and Rational, But Prone to Mistakes 52Chapter Recap 53PART TWO Applying the Risk Premium Factor Valuation ModelChapter 5 Application to Market Valuation 57Beware of Interest Rates 58Example: Application to the Market in Late September 2009 59Why the Source of Growth Matters 61Chapter Recap 63Chapter 6 Risk Adjusted Real Implied Growth Rate (RIGR) 65Analyzing Individual Companies with RIGR 66RIGR Analysis of Apple and Google Pre-Earnings Announcement 71Chapter Recap 75Chapter 7 Valuing an Acquisition or Project 77Brief Introduction to Valuing an Acquisition or Project 78Translating Your World View into Numbers 79Setting the Cost of Capital 84Example: Utility Acquiring a Risky Asset 86Selecting the Investment Forecast Time Horizon 87The All Important Terminal Value 89Chapter Recap 96Chapter 8 Case Study 1: Valuation of a High-Growth Business 99Calculating Enterprise Value and Stock Price 107Scenario Analysis 107Chapter Recap 108Chapter 9 Case Study 2: Valuation of a Cyclical Business 109Chapter Recap 118Chapter 10 Using the RPF Model to Translate Punditry 119Read Carefully Then Analyze 119What Have I Got to Lose? 120Beware of Oversimplification 122Confusing Headlines and Misguided Blame 123Almost Nailed It 124Graham and Dodd 125The Wrong Discussion 127Dumb Money and Bubbles 127The Right Discussion 128Chapter Recap 129Chapter 11 Using the RPF Model for Investment and Business Strategy 131Estimating Fair Value: How to Identify and Exploit Bubbles 132Beware of RPF Shifts 137Investing in Individual Companies 137Reported Earnings Can Be Misleading 138How to Apply the RPF Model to Day-to-Day Business Decisions 140Capital Structure and Risk Impact Cost of Capital 141Opportunistic Adjustments to Corporate Capital Structure 141Creating a Sense of Urgency 142Avoiding Value Destruction 143Value Creation 145Key Merger-and-Acquisition Valuation Concepts 147Inflation Is the Enemy of Value 147Final Thoughts 147Appendix A Mobile Apps: The Wave of the Past 149Appendix B Technology on the Horizon: What if Moore's Law Continues for Another 40 Years? 152Appendix C A Simple and Powerful Model Suggests the S&P 500 Is Greatly Underpriced 156Appendix D S&P Index Still Undervalued 160Appendix E 30 Percent Value Gap in S&P 500 Closed by Rise in Treasury Yields, Price 163Appendix F Making a Case for Salesforce.com Valuation 165Glossary 169Notes 171About the Companion Website 177Index 179