The Death of Perfect [Financial] Rationality
Perfect rationality, an indispensable component of
modern portfolio theory,
suffered an intellectual tsunami in 2008, after having been battered by
extreme stress in the real estate markets in 2007. Modern portfolio
theory is
the financial theory that
...Read MoreShareholder Rights and Reverse Dividends
The term "Shareholder Rights" has been around in Wall Street for a very long time. Some states implemented
anti-dilution
laws more than a century ago; they are meant to protect the pro rata
ownership position of corporate shareholders. Even where the law does not require
...Read MoreThe Stock Option Problem
The Stock Option Problem is a very real concern for every co-owner of a publicly-traded company. Stock Options are typically granted by Corporate Boards to Manager-Employees; and the Option-grantee managers are often the the same individuals to whom the Board members owe
...Read MoreCorporations and Legal Fictions
Legal fictions have been around in the United States since its
founding. The fundamental premise behind a legal fiction is that it
facilitates the law, or helps make laws more rational. For example, as correctly noted on Wikipedia, the legal fiction that made corporations
...Read MoreOn Intrinsic Value
Benjamin Graham and David Dodd, writing in their 1934 investment classic,
Security Analysis, opined that
intrinsic value is distinguishable from
price
in the securities markets. Countering the vogue that developed during
the 1920s
...Read MoreA Capital Frame of Reference
A Capital Frame of Reference differs from the mainstream frame of
reference that is espoused by the financial media, often at the behest
of Wall Street-associated advisers, brokers, dealers, planners, commentators, television personalities, and
...Read MoreContractual vs. Capitalist Savers
One very accomplished economist who also had a major impact on the
workings of the American capital markets in the 20th Century was John
Burr Williams.
1 In one of his best works,
Interest, Growth, and Inflation, Williams
...Read MoreCapitalism Berkshire Hathaway Style
In the world of capital allocation, if you aren't going to produce new
capital yourself, the next best idea is to team up with those who do it
best. For more than 40 years, Warren Buffett, the Chairman and largest
shareholder of Berkshire Hathaway has been producing
...Read MoreSmall Business and the Capitalist
Unlike most top executives of very large corporations, the small business owner (SBO) puts his or her
personal capital at risk
into a business; and it is often the SBO's very
life savings
at stake. The person making business decisions that critically affect
...Read MoreTechnical Analysis and Risk
Technical Analysis, or the method of stock buying that has been known
in previous decades as chart reading, holds no sway for the
consummate capitalist. Technical analysts must engage in
active
trading (hyperactive buying and selling) in order to
...Read MoreThe Scourge of Taxes and Inflation
The Consummate Capitalist is ever vigilant in both preparing for and combating the continually debilitating combined effects of
taxes and
inflation. For those less vigilant are doomed to wallow forever in permanently lower
...Read MoreVolatility in the Capital Markets
Are you bemoaning the loss of big money in the stock market because your retirement fund is sagging? Unless you are within
five years of actually liquidating the entire account (few
people actually liquidate the whole thing, even if eligible to do so) . . . then,
...Read MoreTop Factors in the Investment Use of Real Estate
The Consummate Capitalist views real estate in two broad categories:
personal use and investment use. The two are never mixed. That is, if
a dwelling is put to personal use, it is not an investment. A key
criterion that distinguishes investment assets, such as stocks,
...Read MoreTaxes and Inflation: What if You had to Choose?
Two critical financial components that act in deadly unison are the twin evils of taxes and inflation. However, because inflation can actually drive purchasing power into negative territory, making you poorer, it is the bigger enemy of the two. ...Read More
Stopping Bank Runs Forever
Large
numbers of ill-informed bank depositors panicked in 2008 and caused a
problem that should have been snuffed out in the 1930s: Bank Runs. Bad
information circulating at the speed of light greatly contributed to
the sudden
collapse of
...Read More.Reforming the Mortgage Banks
Home prices ballooned far out of proportion to economic reality between
2002-2007 in many U.S. metropolitan areas. Among the leading causes
for the real estate bubble was a widespread collapse in
...Read MoreTaxes: Deductions are Good, but Credits are Much Better
Many people may misunderstand where the focus of their tax savings
efforts should be. That focus should be on tax credits, rather than on
deductions.
Tax credits
allow you to offset your tax liability at a rate of 100 percent per
dollar spent. What this means is
...Read MoreTax-Favored Investments
Allocating capital well involves understanding income tax rules; and you'll make better investment decision about where to place your capital, the better you understand tax on investments. Different rates of tax are charged against varying types...Read More.
The Rule of 72
The Consummate Capitalist uses the Rule of 72 as a very easy mental short-cut to
quickly get a gauge of how long a proposed investment would take to
double in value. Simply divide 72 by the annual rate of return
(expressed in whole numbers) that will be ...Read More
Infrastructure Improvements and Real Estate Investing
This essay is intended to highlight only one key aspect of financially-savvy real estate investing: a targeted area’s improvement of its infrastructure. Significantly improved infrastructure is one key marker for the real estate investor to ...Read More
Savings Bonds and Savings Accounts
The typical savings account, which consists of
demand deposits, offers the convenience of immediate withdrawal;
however, where on-demand withdrawal of funds is not paramount, U.S.
savings bonds, generally, and the Series I Bond, ...Read More
U.S. Savings Bonds
Even aspiring capitalists may want to know some basics about U.S.
savings bonds. Because the awful effects of inflation weighs heavy on
capitalists and invstors' minds alike, there are times when clear
advantage may be found in holding "series I"
...Read MoreFinding Yourself Financially Upside Down
Insolvency: According to Black’s Law
Dictionary, the definition of insolvency is "Such a relative condition
of … assets and liabilities that the former, if all made
immediately available, would not be sufficient to discharge the latter."
Cutting through the arcane language, Black’s definition of
insolvency
(financially upside down) simply means that a person is effectively
bankrupt (declared or undeclared) if he or she cannot pay off all debts
owed, even if all assets owned were liquidated. That is, you may own a
...Read MoreReturn on Investment and the Implications of Leverage
Growth in purchasing power of every dollar that you hold is
indispensable to your wealth-building. The growth of investment assets,
over and above the growth necessary to offset the negative effects of
inflation and income taxes, is the key to ...Read More.
Dollar Cost Averaging
Typically,
changes in the money value of your retirement plan's mutual funds
resemble a roller-coaster when tracked on a short-term basis. Contrary
to public opinion, price fluctuations, sometimes of great magnitude,
are not
...Read More
