Apart from traditional economic indicators that will help investors to monitor business cycles, VIX is also touted as a measure that may help investors foresee what is about to befall them.
Previously, I wrote about reliability issues with respect to complex financial models and measures here: https://bit.ly/3M8Lp0S
Is VIX any different from such models and measures? Does VIX really have such a predictive power? Is it reliable? Can VIX be manipulated, too as is the case with other financial securities?
In this article, I will answer these questions.
Category Archives: Finance
Financial Accounting Drill 2: Understanding Microsoft through Form 10-K
Ability to comprehend a company’s financial statements is an important and sought-after skill whether you are a retail investor, a corporate executive, an equity analyst, or an investment banker. These statements are generally full of accounting jargon and long-winded.
In this video, I used Microsoft’s most recent 10-K as an example to show you how to navigate through a 116-page financial document effectively and in a time-saving manner.
Important Note: People knowledgeable about financial accounting and corporate finance will find it easier to wade through such financial statements and in many instances financial accounting and corporate finance knowledge are prerequisites as they facilitate the process immensely. This is also true for this video.
Total duration of the video: Part 1: 33mins 48secs; Part 2: 16mins 45secs
Focusing on understanding and predicting risks rather than calculating them Part 2: Examples from Equities, ETFs and Cryptocurrencies
In the second part, I provide examples from equities, ETFs, and cryptocurrencies. These financial instruments are deemed inherently riskier than some types of fixed income securities are on which, as the name suggests, absolute returns are somewhat fixed. However, within each asset class except for cryptocurrencies, there are equities and ETFs for which perceived risks are lower. An equity that has both a diversified business model and an impeccable track record against downturns may be deemed less risky. By the same token, ETFs containing highly diversified (i.e. in very broad terms fewer perfectly correlated) stocks may be less risky. Obviously, these risks profiles will yield disparate returns in different future events such as upturns and downturns.
My focus will be again more diverted to understanding risks rather than calculating them.
Focusing on understanding and predicting risks rather than calculating them Part 1: Examples from FX and bond markets
In finance, the so-called plain vanilla models to calculate the risk of a financial instrument are sometimes more reliable than the complex models claimed to be “accurate”. Plain vanilla models are criticized because of their backward looking fundamentals; however, complex models allegedly benefitting from “cutting-age” machine learning and/or deep learning still cannot predict the future as the models based on these methods are also being trained on the backward looking data. To that end, for investors who do not have complex tools at their disposal, understanding risks prove to be more practical than calculating them accurately. Furthermore, behavioral aspects of finance, as well as centralization within the financial markets, will distort your trades and investments, more so for short-term than for long-term.
In this first part, I will cover FX and bond markets. In the second part, I will provide additional examples from equities, ETFs, and cryptocurrencies.
Financial Accounting Drill 1: Understanding Amazon through Form 10-K
Ability to comprehend a company’s financial statements is an important and sought-after skill whether you are a retail investor, equity analyst, or an investment banker. These statements are generally full of accounting jargon and long-winded.
In this video, I used Amazon’s most recent 10-K as an example to show you how to navigate through an 80-page financial document effectively and in a time-saving manner.
Important Note: People knowledgeable about financial accounting will find it easier to wade through such financial statements and in many instances financial accounting knowledge is a prerequisite as it facilitates the process immensely. This is also true for this video.
Total duration of the video: 27mins 44secs
Accounting for Crypto Assets: Assessing Current State of Affairs and Hypothesizing about the Future
Crypto assets are facing greater headwind day after day. Among many disparate difficulties and uncertainties they face, how to account for crypto assets is expectedly vague. While almost all definitions under GAAP fall short for the classification of cryptocurrencies, there are still many pressing problems related to investing in and reporting of cryptocurrencies, as well.
In this article, I substantiate current impossibility of accounting for crypto assets under GAAP and how cryptocurrencies, considering their current form, violate underlying foundations and assumptions of GAAP while I also investigate alternative ways of accounting for them and the profile of companies currently investing in them in order to assess the viability of cryptocurrencies. I will conclude my article, by comparing cryptocurrencies to gold with respect to financial accounting and reporting and other imminent problems they may face.
Reliability Issues in Crypto Market Data
Crypto markets have all the wherewithal to be transparent. They can capitalize on utmost digitization. However, despite some problems inherent in their infrastructures, they suffer from the lack of venues where one can find reliable, unbiased, and verifiable data. The number of data providers is limited and cross-checking is still needed and time-consuming. I will provide you with an example of why reliability issues still persist.
Understanding Fraudulent Schemes in Decentralized Crypto Markets: Three Recent Real-World Cases
In this paper, I wrote about three recent initial offerings, two IDOs and one IFO, which were brought to my attention. All offerings were launched on DeFi protocols acting as decentralized exchanges.
I will assess whether it is possible to take a profit either through using an option-like strategy or through participating as a market maker (more commonly known as LPs in crypto markets) in initial offerings.
These offerings, a kind of a zero-sum game, are rife with pump-and-dump schemes. While you are trying to grab a portion of someone else’s get-rich-quick scheme, seeking to sell to the next greater fool, your allegedly impermanent losses may become permanent.
A victim of the pump-and-dump scheme will be the savior of another’s get-rich-quick scheme. In the current market environment, it may seem that there is still plenty of money on the sidelines and that every dump will be followed by another pump. However, both money and time are not limitless in one’s lifetime. Understanding how these schemes are staged and unfold will save you both time and money.
Valuation of cash-flow bearing long-lived assets: Focus on Real Estate Property
In this video, I will explain how to value a real estate property. The method I employ is similar to that used by investment bankers in their enterprise and equity valuations. The complexity of valuing any cash flow bearing asset lies partly in the uncertainties related to cash flows and required rate of return representing the risk profile of the asset. I will show you how to mitigate the impact of these unknowns on the valuation model. With such a tool in your hand, you will be able to make your sell and buy decisions in a more informed and accurate way.
GameStop (GME) Part 2: Concluding remarks on GameStop: Further fact checking and demystifying illusions they want you to believe in & Lessons learned for retail investors
In this paper, I will share some additional facts helping you understand why GME case was hardly a landmark in the financial markets. Similar phenomena happened in the past and it is very likely that they will happen in the future. However, GME case is significant in that it has presented great lessons ranging from how to expect and spot financial irregularities and how to manage your risk capital to recent digitization in finance and its ramifications for retail investors.