The ability to distinguish between the noise and the signal is a rare skill within the confines of the financial markets and investment world. In our modern times, there is too much emphasis on the stock market while this particular market may tend to disguise macroeconomic realities, especially when isolated in the broader context of indices. Especially for a retail investor, there are many other investment vehicles ranging from physical assets such as real estate and precious metals to commodities and other diversified portfolios the underlying assets of which may still be the physical assets. In this article, I will introduce other important financial markets that will be utilized as reliable proxies to understand current market conditions and are generally ignored by retail investors. In these perilous times, ignoring these fundamental markets and solely focusing on stocks may ruin your wealth and derail your plans to financial freedom. The content can also be used as a blueprint for understanding different set of investment vehicles and comprehending the fundamental differences between markets, as well as increasing your financial acumen with respect to removing the noise from the signal.
Tag Archives: Investment Management
Which company is this?
Which company is this?
Hints:
-It operates in a traditionally analog business that is tested by digital challengers.
-However, it continues to beat every one of them in terms of profitability.
-Operational excellence, efficient cash flow management, customer loyalty, and customer service are their hallmarks.
-It also started its digitization initiative, currently comprising 16% of its total net sales at maximum (does not disclose exact number)
-It has a positive book value, so do not mistake it for other companies that are technically accounting insolvent.
-Its stock is currently traded at a P/E of 45-50.
-Its stock is currently traded at a P/B of 15.
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Note: This article is based on a social media post I wrote almost 4 years ago. In the article, I will unveil the company and dissect its operations and its stock. Moreover, we will try to look into whether much has changed since the first time I published my post.
Solution to Management Science Series #212: Real-world example: Determining Portfolio Returns
An ETF created by the investment management firm, Gold Returns (GR) has a normally distributed expected monthly return with μ = 2% and σ = 8%.
a)What is the probability that the return is positive next month?
b)What is the probability that the portfolio’s return exceeds 10%?
c)What is the median return?
d)What is the first quartile of return?
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.
Historical Returns: Commodity Futures vs Equities. Revisiting the work of Gorton and Rouwenhorst
They did not teach you this in your finance classes 💡
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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.
What to (and not to) make of Startups: Introducing additional well-known secrets of venture capital and start-ups
On the 9th of March, 2022 I shared a post on some well-known secrets within the venture capital:
https://bit.ly/3wEc80F
On the 15th of March, 2022, Bloomberg LP published the following:
Homebuying Startup Knock Scraps Plans to Go Public, Lays Off Half Its Staff
· Housing-tech firm instead raises $70 million in private round
· CEO says collapse of Zillow iBuying business spooked investors
“The business is doing great, but we built to be a public company, and there’s no IPO market right now,” Black said. “It does feel like money has gotten very scarce and very expensive.”
Link to the article: https://bloom.bg/3qG0D4O
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Is your start-up ready for the many challenges ahead?
How can you make your start-up more resilient against unexpected circumstances?
Analysts, VCs, underwriters, or even your finance department, may assess a value for your company. Is it reliable?
I will try to answer these questions in this article. Also, we will take a quick look at what happened to Knock.
On investment decision rules in finance and why using payback period method misleads you
On investment decision rules in finance ⚠️
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There are many decision and investment rules in finance.
Although there is only one rule that trumps every other, inferior methods are still being used by many companies, even by the most successful ones.
Granted, regardless of whatever investment rule your company is using, estimating future cash flows is an uncertainty for each method.
However, this reality does not change the fact that there is still only one superior investment rule through which you can make sound decisions.
For example, which project would you choose if you were to use payback period method?
Project A requiring an initial investment of $100MM is projected to yield $20MM, $30MM, $50MM, and $35MM for the next four years.
Project B requiring an initial investment of $100MM is projected to yield $50MM, $30MM, $20MM, and $35MM for the next four years.
While solving the question above, I will also demonstrate why payback period may not be reliable in assessing financial viability of projects and what method you should have used given these inherent problems of the payback period.
If only you had known these before investing in a tech venture (or any private company): Some well-known secrets ;) Part 1 of many
If only you had known these before investing in a tech venture (or any private company)
Some well-known secrets 😉
#1
Tendency to stay private as long as possible not necessarily results from the motivation of glossing over “subpar execution” and “problems concerning financial viability of founders’ business model” although there are many cases in which these have been the real motivations of staying private. It has been driven mainly by excessive private capital, albeit currently drying up, incentivized by supplying easy, i.e. not smart, liquidity so that valuations shoot up before IPOs, which have become just down rounds recently.
So, now you know why many ventures are waiting for a decade or more on average before going public.