Apologies

I offer my sincerest apologies for not posting as regularly lately as I have been able to previously. However, for your wait, I am releasing a paper which I have been writing for recent college courses geared towards a degree in finance.

The paper describes the seven fundamental tools that can be used to determine movement in a stock--one which makes money. I am using it as a proof of concept for a program that makes investing accessible by any investor, extremely, and very foolproof.

The paper is in Adobe's Acrobat formatter. The free Adobe Reader or compatible software is required to read the software.

Download the paper here!

Please Take My Survey

As part of a required paper I must write for my forthcoming degree in Finance, I am needing to have a survey completed.

Please take a few moments to fill out my survey.



Please take my online survey here!

Life Economics

Home economics is a dying discipline. When I went through school the classroom existed, but not the corresponding class. Much like civics it is being relegated to a niche of society in such a manner that it is being forgotten…at a price.

For years I have lived by the philosophy that I manage my life like I manage a business. On the surface it may seem cold, perhaps even callous—but that isn’t necessarily the case at all. In fact, improved efficiency and effectiveness makes for a better life. A few examples:

1. The Budget. Face it—you stand to get rich if you suddenly run into a large sum of money, but the chances of that happening aren’t such that you should count on it. Instead, the world of finance stresses the time value of money and leveraging your current assets. Your income is the best wealth-building tool which you have and by reducing your debt obligations you effectively increase the power of your income to produce wealth. You do this most efficiently by producing a budget and watching and managing every dollar that flows through your household. By taking this approach you can “make every dollar scream.” What to do after you get to the point where your debt is paid off and you have extra money lying around? Invest!

2. Buy Like a Business. Once upon a time we’re all financially struggling people—whether that be as a poor college student or in a period of personal financial contraction—but we’re not in that position forever. It is rarely a static condition, however, and we progress onto better financial times. At this point in time we can move from buying-to-survive towards purchasing-to-thrive. We learn to buy in bulk—and start to think like an accountant. Price items on a per-unit basis, for instance. When I worked in a grocery store, once upon a time, I noticed that the tags that accompanied stock on the shelves would always have a “price per ounce” or related entry on the tag. By making some observations a person notices where the “sweet spot” is for purchase of a particular item: To buy the smaller box of cereal or the larger, “value-sized?” The larger the package—think bulk— usually the better value per unit. Take this concept one step further and develop a product mix of products that are economical and meet your personal utility or that of your family. For instance—I purchased the specific Rubbermaid containers meant for cereal and have no problems with purchasing the “bag cereals” which are often very close to the recipe of the corresponding name brand “box cereals.” On the other hand, I am very picky about the hot dogs which I purchase.

Another step in which to take this notion relies upon you realizing that sometimes you pay more in up-front costs to save money across the lifespan of a particular item; a concept which accountants like to refer to as “total cost of ownership.” A good example is the typical inkjet printer: Cheap and comes with some ink; it may or may not come with a USB cable, and certainly comes with a notorious “power brick.” Sure, you may spend $30 on the machine, but you will likely end up purchasing a lot of ink cartridges—just black and color, if you’re lucky—over the course of your time with the printer. On top of this these ink cartridges are fickle in such a way that the printheads can easily become non-working if they aren’t treated right or used correctly. Although they can have great resolution—past 1200x1200 dots per inch—they do so by spitting small ink blobs onto the paper; this makes for a very dirty process. By contrast—if you can do without resolutions higher than 1200x1200 dpi then a laser (or LED) printer is for you. They are much cleaner, have longer lives, and are generally more efficient. Of course, there are makes and models that are better or worse than others, but a little research or stop by your local printer service shop will give you a leg up.

One project which I’m planning is to replace my cans-of-soda drinking ways with a fountain soda machine. Although the initial costs are high (several hundred dollars for the initial setup), the cost of consumables—the soda syrup itself—can be less than half the cost of a serving of its canned alternative.

While this is merely the tip of the iceberg, it is a starting point for to get you to thinking about how you, too, could make your life better!

The Silicon Ball of Finance

Recently I posted a story here about complex algorithms being used to predict acts of terrorism and advise military and state leadership in the conduct of matters of diplomacy. An obvious extension of using such sets of mathematical formulas would be to predict how to win the lottery, as I mentioned in that post.

My view of the lottery, though, has changed since I devised my original concept on the matter: The lottery is a tax on poor people and those with a lesser amount of economic and financial knowledge.

What the lottery-winning seeking public should do, instead, is to use the stock market.

So, without further ado…who is better in the game of investments: A computer or a person?

Let’s start by defining a couple types of investing: There are those that believe in and practice the fundamentals: Observing P/E ratios and, essentially, applying a series of formulas to a company, an industry, their stock picks, etc. Fundamentals’ investing is in my opinion, just that: The fundamentals of investing.

Take a man like Warren Buffet: He is the epitome of someone who believes in behavioral finance. When I was much younger I remember a commercial for some large Wall Street Trading firm which stressed that after they looked at a stock, they would go and investigate it in-depth: Interview managers, examine infrastructure, and perform other in-depth activities which filled in the blanks that a fundamental stock pick couldn’t do.

The comparison and contrast is a simple one: Fundamental investing is a very logical, linear, rational method of investing. Behavioral investing, on the other hand, has a million shades of human emotion involved and, therefore, is open to the irrationalities which we are prone to as humans.

And that’s it: A computer program which attempted to account for the human aspect a investing would need to be exceedingly complex.

The odd part of this whole stock market thing? The irrationalities which incite risk in the system is why the stock market goes up as much as it does over time and is why any money put into the stock market as a portion of Gross Domestic Product adds to GDP by factor of 400 percent; in other words, when constructing the value of GDP if you put $100 into it as a form of investments—anything in the stock market—it is calculated to increase as a portion of GDP at a rate of 4 to 1, making that $100 investment worth $400 in terms of GDP; contrast that against the 1:1 ratio of government spending.

The Value of Money

Money: It’s the root of all evil, right? Not necessarily. Actually, the original quote from The Bible (King James Version) comes from 1 Timothy 6:10—“For the love of money is the root of all evil.” Money, finances, and all which they entail intermittently come up in conversation. Prior to discussing money as a quantitative entity, let’s look at it from a qualitative perspective.

I have seen, over the course of my years, so many people who have seen examples of people whom they do not want to become, exhibiting traits which they do not care to exhibit. For every person who is financially successful, a person can point out an example of someone who they’d ridicule for their actions—because of their wealth. Using this fear as a crutch, they limit themselves from seeking true financial success—often for very irrational reasons.

A culture has developed in this country—something that has been around the world for longer—steeped in the tradition that the various people in their various income classes throughout society have been dealt an unfair hand. Politicians with agendas have long engrained into people of the inequality of income and that it should be re-distributed among the different economic classes of individuals: Transfer payments derived from taxes on the affluent become welfare payments for the poor. Sure, there is a time and place for everything, but when the public is constantly being told that one person’s success over another’s complacency is unfair and that one should be punished to subsidize the other, a perception becomes commonplace amongst people that money can be a bad thing.

I’m a die-hard free enterprise capitalist at heart: In a generally unregulated economy (other than central banks and select industries) that each person is free to lawfully pursue making a dollar either by selling his or her labors to another in return for a salary or hourly wage or going into business and producing and/or selling a product or service to someone willing to purchase it, we are all free to earn as much for as much work and/or innovation which we are willing to put into something. Left and right there are examples of people becoming successful either way, even if you choose to work for someone else. Some statistics from About.com show:

· In 1999, average annual earnings ranged from $18,900 for high school dropouts to $25,900 for high school graduates, $45,400 for college graduates and $99,300 for the holders of professional degrees (medical doctors, dentists, veterinarians and lawyers).

· Over a work life, earnings for a worker with a bachelor's degree compared with one who had just a high school diploma increase by about $1 million.

Additionally, there are fluctuations within degree field & occupation (courtesy of the Royal Society of Chemists):

“The average earnings premium of having a degree relative to those with 2 or more A Levels was approximately £129,000 [about $257,500 USD]. The figure represents the difference in lifetime earnings after tax. Graduates in chemistry or physics on average earn well above this value, with a £185,000 - £190,000 [$370,000 to $380,000 USD] premium above those with no degree…Year-on-year statistics show that these subject differentials start to become apparent in the mid-career years: it is beyond the age of 30 that chemists and physicists start to pull away from their contemporaries in their earning power…For any graduate, the average rate of return is about 12% per annum but rises to 15% per annum for chemistry graduates. Psychology graduates will enjoy only a 10% rate of return.”

Regardless of how much working for someone else will gain you, the hallmark of the great American economy is the stalwart of entrepreneurism fueled with a hefty amount of innovativeness, is the best path to financial success and affluence, even if it can be the most difficult.

At any rate, people often equate money with power. People also tend to equate money—in a financial inequity sense—with greed.

Power: “Possessing or exercising power or influence or authority” or “possession of the qualities (especially mental qualities) required to do something or get something done.”

Greed: “excessive desire to acquire or possess more (especially more material wealth) than one needs or deserves,” or, more generally, “avarice.”

Paul Johnson, British journalist, historian, and author, recently wrote a column published in Forbes Magazine entitled “Greed is Safer Than Power-Seeking” in which he begins, beautifully, by stating:

“Able, industrious, imaginative and creative people— the top 5% of mankind—divide into two broad categories: those who make money and those who make trouble.”

The stage is certainly set for a tour de force comparing and contrasting a potential effect on an individual with wealth versus one with simple enthusiasm, zeal, and an agenda. “It is striking that the hugely wicked are quite innocent of avarice,” Johnson writes, showing that tyrants and dictators such as Adolf Hitler, Joseph Stalin, and Mao Zedong weren’t oriented towards the accumulation of wealth; rather, they were obsessed with the accumulation of power. In people that you and I come across each day, he goes on to categorize groups of individuals which exemplify “troublemaking” through their activities. Among them: Attorneys who are concerned more with their interpretation of justice and fairness than an enriched society; Politicians who exist solely to translate their agendas into legislation; and the self-proclaimed environmentalists who, “buoyed by a sense of mission and high-principled idealism that often make them a little careless about the accuracy of their assertions,” have helped push the world into a shortage of energy supply by zealously convincing anyone they can that alternative sources such as atomic energy should not be pursued.

Oddly enough, he closes his column with the thought that “Of course, we need troublemakers,” in the sense that they have, historically, been the impetus for societal changes in civilizations throughout history. Whereas greed—the excessive desire to acquire wealth—can be a bad thing—the net result can always be reflected through the character of the individual in the sense that money only fuels the flames of character traits, be them good, bad, or ugly.

I once worked with a staff sergeant in the South Dakota Army National Guard who had the saying: “Money is like oxygen—the more you have, the easier it is to breathe.” Try this thought on for size: Money, wealth, does not accomplish things—people do. Money is a tool for accomplishing those things which the individual wants done; in doing so, it accentuates character traits that are already present in the individual: If you are predisposed to be greedy and love to acquire “things,” money will only make it worse; if you are predisposed to not like a certain race of people and believe that your land is home to a “master race,” then chances are that wealth will only fuel your need for power, manifesting itself as genocide and a world war.

If you have a predisposition, however, of trying to benefit humankind, no amount of riches will stand in your way of filling the shoes of purpose, desire, and motivation to accomplish something. However, with wealth as a tool, you might be able to accomplish great things.