By Ross Silver, Principal
The Equity Risk Premium refers to the excess return that investing in the stock market provides over a risk-free rate. Most investment professionals consider the 10 year, whose yield is 1.74% as of 8/9/19, to be the risk free rate. The excess return over the risk free rate compensates investors for taking on the relatively higher risk of equity investing. The size of the premium varies depending on the level of risk in a particular portfolio and also changes over time as market risk fluctuates. As a rule, high-risk investments are compensated with a higher premium. The Equity Risk Premium is one of the bedrock principles of market theory. If you want safety, buy government paper. If you want growth, buy stocks.
The relevant question is this: How much of a premium is required to entice investors away from the safety of government paper and into the risky realm of the stock market? The Equity Risk Premium has varied widely over the last 119 years, which means that timing is important. If you leave the comfort and safety of government paper and begin to dabble in risky assets like stocks, how much of a return will you demand in order to embark on that journey into the unknown?
With equity markets selling off since the start of the month many professional investors have pointed to the attractiveness of the Equity Risk Premium. I agree with them as there is no chance I would want any part of my retirement in a fixed income instrument given yields are less than the rate of inflation, currently 2%. I think investors can use the recent selloff to their advantage given how attractive the Equity Risk Premium stands today.
Not much to report on here other than there are some exciting races coming up at Saratoga and of course my favorite race of the summer, The Pacific Classic at Del Mar. Baseball continues on with its too many games to matter season and football starts next month. Most exciting to me, if I am being honest is the start of my two son’s flag football season this month. This year my oldest son is in the 2nd grade and I am having my middle son play up a year and he will play on the 1st and 2nd grade with his older brother team despite being a kindergartner. Both boys are excellent athletes and love football and I coach their team, which is what I love. I will provide more details on the flag football team and my thoughts on the roster in the newsletter next month but for now, just know I am getting my chalkboard ready!
Enjoy the remainder of the summer!
CleanSpark, Inc. (CLSK) is a fast-growing, well-funded company that provides that provides energy software and control technology in the United States. Their products and services allow organizations and governmental entities to create energy efficient and cost effective micro-power grids. The company’s technology is currently being used by commercial, industrial, mining, defense, campus, and residential customers. The company also provides turnkey microgrid implementation services, micro-grid design and engineering, project development consulting, and solar photovoltaic installation and consulting. In addition, the company offers mPulse software suite, a modular platform that enables fine-grained control of a Microgrid; and microgrid value stream optimizer that provides a robust distributed energy and microgrid system modeling solution. To learn more about CleanSpark, click here.
Emerald Health Therapeutics (EMHTF) is a Health Canada Licensed Producer of medical cannabis, and the company has recently secured recreational sales licenses with several provincial governments. Emerald is vertically integrated, seed-to-sale enterprise, with a 50-50 joint venture ownership in one of the largest indoor cannabis grow operations in the world. Emerald is also positioned to become one of Canada’s leading manufacturers of premium CBD products from hemp. The company has a stellar management team, that is driving the business towards creating cannabis-based formulations for proprietary consumer and medical products. To learn more about Emerald, click here.
One World Pharma Inc. (OWPC) is a global, fully licensed large-scale producer of high-quality cannabis and hemp products for the medical and commercial markets with headquarters in the United States and offices and operations in Colombia. One World Pharma Inc. has already built its first cultivation facility in Popayan, Colombia (135 km south of Cali) with more under contract, and has been granted four licenses for the cultivation of Non-Psychoactive (Low) THC, Psychoactive (High) THC, manufacture of cannabis derivatives & seeds. One World Pharma has a cutting-edge extraction and refinement facility using the most advanced machinery in order to produce high-quality crude oils, distillates and isolates based on customer’s defined requests. Its first Colombian commercial crops are expected as soon as the 4th Quarter of 2019. To learn more about One World Pharma, click here.
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