Category Archives: Paid Content

Retirement, Financial Independence, and Withdrawal Rates 💸

Can a portfolio containing bonds increase the success rate of an orderly retirement?

What is the required withdrawal rate for such a portfolio to succeed?

As riskier securities, stocks may provide more returns and higher sustainable withdrawal rates, however at what cost, i.e. risk?

What may be the composition of a portfolio that would allow you to withdraw at 4% annually, $3500 each month for the next 20 years?

As assets that are more dependent on the current fiat currency rules continue to struggle, the success rate of such portfolios will dwindle.
In this article, I expand on how retirement funds are constructed and why many of them will fail eventually given today’s gloomy conditions while also answering each question mentioned above. In addition, I will also share my thoughts on what I myself do to survive and explain the illusion of measuring your returns in terms of just percentages and fiat currencies.

Solution to Management Science Series #202: Fundamentals of Sampling in Business Context: Kyoto Games

Kyoto Games decided to work with Selim Hasagasioglu Consulting on the launch of its new hybrid gaming console.

The consultancy firm needs to determine whether the customers Kyoto Games is targeting have a different average price preference from that of the overall market.

The consulting firm randomly samples 45 people from the Kyoto Games’ target market. It is known that the mean hardware price for the overall console market is $500 and the standard deviation is $125.

1.Estimate the distribution of the sample means, explaining your rationale.

2.Do you need to know the distribution of the pricing with respect to overall hardware market and with respect to the sample means?

3.What is the expected value and the standard deviation of the sample mean, which is the standard error? Assume that population is so large that you can ignore the finite population correction factor.

4.Assume that the average price for your sample is $465. What is the probability of getting this value or lower if the target market and overall market have the same price preferences?

5.Assume that the average price for your sample is $540. What is the probability of getting this value or higher if the target market and overall market have the same average price preference?

6.Assume that your sample size is actually 120 people and the average price for the sample remains to be $540. What is the probability of getting this value or higher if the target market and overall market have the same average price preference?

7.Your sample size is 250 people and the average price for the sample stays at $540. What is the probability of getting this value or higher if the target market and overall market have the same average price preference?

Solution to Management Science Series #201: One of the building blocks of data analytics: Probability in the Context of Medicine (Hard)

Based on the mother’s demographics, the probability of a baby having a very rare disease called ‘Rare Disease’ is 0.01.

Prenatal test for the Rare Disease is 98% accurate when the baby has the disease and when the baby does not have the disease.

The mother is tested and the test is positive.

Calculate the probability that the baby does not have the disease given that the test is positive.

Solution to Management Science Series #200: One of the building blocks of data analytics: Probability in the Context of Business (Medium)

One of the building blocks of data analytics: Probability in the Context of Business (Medium)

The probability that a customer buys your streaming service, Halo, is 30%.

The probability that a customer buys your streaming service Halo and signs up for your company’s specific loyalty program is 20%. Every other streaming service offers loyalty program.

Loyalty programs differ among service providers. In order to sign up for the loyalty program, a customer must purchase the streaming service first.

a) Given that a customer buys your streaming service, what is the probability that the customer also signs up for your company’s loyalty program?

b) What is the probability that all customers using all kinds of streaming services also sign up for the loyalty programs of these companies if signing up for the loyalty program is independent of the streaming service they subscribed to?

PS: Current AI tools could not solve this problem.

On why statistics, beefed up as ‘Data Analytics’, is an essential tool to model, predict, and solve business problems

On this planet, understanding the nature of a random experiment solves more than half of the problem at hand.

However, this may be a hard task in some particular circumstances and boundaries are blurred.

How many businesses went bankrupt in the past hour is a discrete variable you can count without trying to predict anything.

How many e-commerce companies will record positive operational cash flows next year may be relatively well predicted through a continuous distribution model.

We live in a world that is more continuous than is discrete. In this article, I expand on this fact, which alone requires everyone involved in the world of business (basically almost everyone living on earth) to know, understand, and use statistics and its tools.

Solution to Management Science Series #199: One of the building blocks of data analytics: Probability in the Context of Business (Easy)

One of the building blocks of data analytics: Probability in the Context of Business (Easy)

The board members of the company, Universe, met to share their forecasts and estimates for the company’s future profit and revenue targets.

60% of the board members think that Universe will beat profit targets while 70% believe that Universe will beat sales.

20% believe that Universe will beat neither profits nor revenue targets.

a)What is the probability that a board member believes that Universe will beat profit, revenue targets or both?

b)What is the probability that a board member believes that Universe will beat both profit and revenue targets?

Historical Returns: Commodity Futures vs Equities. Revisiting the work of Gorton and Rouwenhorst

They did not teach you this in your finance classes 💡

⬇️

When using Treasury bills as the margin collateral for the futures position without leverage, fully collateralized commodity futures have essentially the same returns and Sharpe ratio as equities.

Agree or disagree?
In this article, I will investigate how the returns on commodity futures compare with those on Equities.

Solution to Management Science Series #198: Using K-Means Clustering for Customer Segmentation

Using K-Means Clustering for Customer Segmentation
Even Excel, albeit sometimes clumsy, can be a data analytics tool.

Try to solve the following question by using Excel:

Wine retailer, Porto, had 32 different promotion campaigns. You have the information on promotion month, minimum quantity to be purchased to benefit from promotions, discount percentages, varietals, wine’s origin, and whether the wine has passed its peak or not.

All this information is captured by a single Excel spreadsheet.

Then, you also have customer transaction data in a separate spreadsheet. You see that there had been 324 transactions completed.

Segment customers by using k-means clustering method. Use Excel to do so!

Businesses, States, and Governments 🗺️Why a Shinise like Nintendo differs from Boeing

Companies cannot thrive in failed states nor can they become global players.

Those that are relatively successful in a failed state cannot compete in global markets and their insignificant local success is bound by their ability to kowtow to their local governments.

Nonetheless, one should not ignore the fact that many global giants of today, despite them not being founded in failed states, have become such because of their relationships with their respective local governments and their state’s strong economic position in the global markets.

In today’s highly competitive markets, an innate monopoly, a wielder of a patented, well-protected, and inimitable proprietary technology, or a government contractor owning exclusive and never-ending business rights are players whose successes are surest.

Nevertheless, all such sure-to-succeed models, one way or another, are reliant on the very existence of governments and relationships with governments.
In this article, I will explain how companies with close ties to their respective governments thrive through these connections, providing real-world examples of innate monopolies, technology companies, and government contractors. I will elaborate on how these relationships impact the operations of the companies and why such companies succeed regardless of the political and economic system in the original country. I will also expand on why a shinise like Nintendo is an exception and the role of competition.

Solution to Management Science Series #197: Financial accounting as a forensic tool: Selling Receivables, aka pure factoring, Before the Collection Date

Financial accounting as a forensic tool: Selling Receivables, aka pure factoring, Before the Collection Date

Company A sold its receivables to a competitor and was paid in cash. You do not know whether the sale was made on nonrecourse basis or not. How would you label this transaction, financing or operating?

Company B sold its receivables to a bank and agreed to assume the risk of collection while also being granted a loan against the receivables sold. How would you label this transaction, financing or operating?

Company C, a manufacturer of trucks, sold its receivables to a bank on a nonrecourse basis. Nonetheless, if the bank were not able to collect the receivables, Company C should sell trucks in equivalent value to the bank and even repurchase the trucks if the bank were not able to sell them. How would you label this transaction, financing and operating?

As I’ve always been doing, in this article, I will solve this question and demystify the tricky accounts receivable account and what you need to look for lest you not get tricked by financial shenanigans related to receivables.