Economic Rigor

Its that time again...time to update the Market Risk Premium of the ASX. It's been a crazy time on the markets since April so I expect a drop. Using the same methodology as always (average daily returns over the last 2.5 years), we have a market return (capital) of just 0.52% (pretty ordinary). Adding on the average Divident yield  over that same period of 4.61% gives a grand total for Market Return of 5.13% (down from the April Figure by 2.64%...ouch) Subtract the average 10 year Australian Government Bond rate over that period of 3.98% (again down by around 0.2%)  and we get a Market Risk Premium of 1.15% (a drop of 2.6%)



As you know, I have been looking at whether to invest in Fairfax Media. The elephant in the room, in regards to this decision, is the new News Corp. Would it be better to invest in that company instead? One of the things I like to do is look at the directors...these are the guys who will be maximising shareholder returns (hopefully) so a pretty key part of analysing a business in my opinion. In my opinion, it's great to see independent directors, but I also like to see some experience in the business they are looking after. Fairfax Directors Roger Corbett AO, Chairman - Management Experience: Retail - Other Hobbies: RBA, Walmart Director Michael Anderson - Management Experience: Radio - Other Hobbies Jack Cowin  - Management Experience: Fast Food - Other Hobbies: Director of TEN Media Greg Hywood, Chief Executive Officer and Managing Director Sandra McPhee AM - Management Experience: Aviation. Other Hobbies: Professional Director James Millar AM  - Management Exp...

I was running the ruler over FairFax Media the other day...was thinking about throwing some money at it as it is certainly trading at low levels. But when looking at stocks that have been reduced in value, you need to see whether the stock is undervalued or whether there are legitimate reasons for the decrease. In the case of FXJ, it seems it might be the later. Looking over the 2012 annual report, I just can't see many redeeming features. Intangible assets are still sky high (even after massive impairments in 2012) making up over 62% of total assets and 120% of net assets...meaning effectively it's book value is negative. Even with the massive losses over the last year, it still is paying out a 3 cent dividend meaning $70 million is taken out of the accounts each year that could be spent on...oh well, you know, positive NPV projects that might increase value. Without a dividend cut there won't be be increase in the share price. I calculated the cost of capit...