Category: Financial Theory

Understanding the Interest Rate Risk in Your Portfolio

Jamie
Interest rates greatly affect many personal finance choices. From refinancing mortgages for more affordable payments to transferring credit card balances for faster payoffs; historically low interest rates are helping Americans improve their finances. However, making investment decisions can be more difficult in a low interest rate economy. It is important to understand the degree of interest rate risk in your portfolio and rebalance investments accordingly if needed. While investment strategies run the gamut, most everyday investors own fixed income in the form of bonds, CDs or savings accounts. Simply avoiding fixed income investments or taking excessive risks for yield can...

The Toyota Way: A Guide to Globalization

Jamie
Welcome to the wonderful world of lean manufacturing and cost cutting initiatives, unfortunately this is here to stay as companies look to increase efficiency.  During my MBA program I took the course MGT 705-50 or Global Economic Climate for short.  One of the course objectives was to be able to evaluate a company that has been successful in going global.  Anyways here was the final assessment of the course we had to do a thorough analysis of a firm and its industry in terms of its actual and potential globalization, and the extent to which the firm’s competitors have global...

How Does My Korean Made TV Arrive in America?

Jamie
Chances are that nice television hanging in your entertainment room was not made in America.  During my MBA program I took some courses that focused on the globalization of the world economy.  There are many advantages to a global economy such as the free flow of capital and technology from one country to another helps with industrialization which in turn increases the global investment. Pre shipment finance may have been used to bring that beautiful 52 inch LED Flat Panel to a store near me.  Sometimes the term may be referred to as packing credit.  A manufacturer of televisions may...

WTF (Wait That’s Finance) Part II: The Down and Dirty on the Naked Put

Jamie
Ok not really about the naked put, but now that I have your attention we are going to talk about put options in general.  Go ahead and check this post out on derivatives to get up to speed.  Wait make sure that you come back.   Are you up to speed now?  Today I decided to take an in-depth look at the put option and try to explain it in layman’s terms.  Sure I cannot cover every possible scenario in this post but I hope to explain it to you and give you a better understanding so next time you hear...

Congratulations: You won $1,000,000 you can claim today or in 5 years, which do you choose?

Jamie
Sure we would all choose take it today, but there is a finance theory behind why you may want to take it today.  Ever heard of the expression a dollar today is worth more than a dollar tomorrow but less than a dollar yesterday.  Well if not, now you have today we look at the time value of money.  What the time value of money calculation and the principle means is that a dollar today is not equivalent in value to a dollar tomorrow or a dollar yesterday.   It is a very simple principle to understand, but can have big...

WTF (Wait That’s Finance) Part I: Deep in the Money Naked Calls

Jamie
Oh no here come the financial concepts, time to clear the cob webs we are going to talk about derivatives.  Want to sound smart at work today, drop the word derivative in some random sentences and wait for the looks you get.  This is how my wife fell in love with me. Except this was back in college and I was a Chemistry major at the time.  I started dropping some names of the elements off the periodic table and the rest is history.  What is a derivative? What does the word mean, let’s take the root, derive.  Derive means...

Shhh…. What do you think of that B*****?

Jamie
Now that I have your attention, you are probably scratching your head wondering why that would be on a personal finance website.  Shame on you for thinking that!! What would your mother say?  The word is in the news all over the world now.  That magical word is BUDGET.  The congressional budget, state budget, city budget, your personal budget, budget for that trip, some websites use that as part of their web address…this budget that budget… What in the world does the word budget even mean?  According to my good friends over at Merriam Webster here are the origins of budget: Middle...

The Peyton Manning Story: A few days short of that big bonus!

Jamie
Peyton Manning – Franchise Quarterback of the Indianapolis Colts is a free agent.  I am not a regular follower of football but I have heard who this gent is.  Potentially the best quarterback to ever play in Indy or maybe best quarterback ever in all of football.  This article isn’t going to talk about all those statistics that he has amassed, but we really could because finance covers stats and various ratios.  If he was on the roster at the start of the league year he was to be owed $28 million dollars as a bonus.  Did you hear that...

Beta is not just your parent’s old videocassette recorder it is a financial ratio

Jamie
What is beta? Why beta?  Well it is the volatility of the stock or portfolio to the market as a whole.  This conversation can get really deep really quick if we start discussing various financial models and the actual calculation of it using regression analysis.  If you would like to know more drop me a line and we can discuss more in depth. What can it really tell us about a stock or portfolio?  Well when you look at a stock that has a beta that has a beta of 1.0, this stock would typically move with the market.  What...