The traumas that define us

The brilliant odd lots podcast had Richard Koo on to discuss his theory of a balance sheet recession. The central idea is that when a credit bubble bursts and the private sector and consumers both start to deleverage it causes the economy to go into a demand loss spiral, which is a counterintuitive result. If excess leverage caused the bubble then deleveraging and repairing your balance sheet is the most rational individual choice, but this de-levering in aggregate is the wrong choice for the economy as a whole. I would highly recommend reading this paper that goes into some details and also reading his book.

130829jobless

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Investment products are counter-intutive| do conventional engagement metrics matter?

Product engagement is a hot topic. As a product person, you are always looking for the quantifiable metrics that indicate that your product is solving your user’s problem and that you are on your way to product market fit.

The conventional metrics for product market fit usually sound like the below with the trend line going up and to the right

  • User engagement measured by DAU MAU
  • Time spent on your product (Session time)
  • Core loop (# of times your core customer value transaction is executed)

An area which I’m deeply interested in is – do these same metrics hold true when we are dealing with anything related with money? Our relationship with money is very complicated. In silicon valley we see everything as a technology problem, is that true with money? is the success of digital products that deal with money more of a behavioral finance problem than a technology problem?
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Rule of half

All markets are at *all* time highs. What is an average investor to do? Is it too late to get in? Is it time to take profits if you are fully invested? In the last 15 years there have been two spectacular crashes, the hard memories still linger, which makes these decisions even more gut wrenching.

What to do? How to break the break the cycle of inaction?

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529 Plans – Are they worth it?

One of the biggest expenses to hit households is college education for their kids. 529 plans are the most common vehicle available for parents to save for their kids education. Via the SEC

A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.

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Some truths for the individual investor Part 2

In a previous post there was tough love, lets move on to happier things, what are the things that are going well for the individual investor?

Indexing
Index funds are pretty prevalent and everybody knows about them. Indexing  leads to lower fees and fees are the biggest killer of your portfolio. Lower the fees, less the hit. Today’s investor has many more low cost choices available. You can construct a good diversified portfolio with minimal cost yourself without needing a Phd.

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What is your personal capital structure?

If you ever talk to MBA’s (especially those into finance) you will hear them wax eloquent about a company’s capital structure. Capital structure is nothing but how a firm finances itself. Firms need money to operate. How do they get that money? They have a couple of choices – just rely on the profit they generate, issue shares to investors (issue equity) or borrow money from investors (issue debt). The choices that a firm makes and the mix of self financing vs equity vs debt is what is termed as the capital structure of the firm. Having a structure formalizes things, makes company profitability easy to analyze, brings predictability.
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