February 2012

Spring is Here | 4 Cheap Ways to Spruce Up for a Sale


Spring is here. Yes, snow may still be flying where you live, but the spring market starts at the end of February/beginning of March. So, what do you need to do to get ready? How do you prep for the onslaught (fingers crossed) of new and ready-to-go Buyers?

1.    Keep the walkway clear: Shovel the snow. Sweep the grass clipping. Blow away the dead leaves. Whatever is on your sidewalk, front porch, patio or deck, clean it up. First impressions count!

High-Frequency Trading Causes Market Volatility In The Blink Of An Eye

When there are millions of trades being made thousands of times per second, there is no way for anyone to monitor the impact.

There was a time when the most brilliant and innovative engineers in the workforce were recruited by NASA, the Defense Department, or by some small organization intent on inventing something that would change the world (and frequently did). Now, however, Wall Street employs many of these people to build trading algorithms, formulas punched into super-computer mainframes that measure nano-second fluctuations in the market value of shares, and trade them in the same amount of time. The sheer volume of trades made simultaneously every second now have dangerously destabilized the market, and occur too fast for a human trader to even react to it, let alone understand what is happening.

Got Daily Deal Buyer's Remorse?

How to Unload that Daily Deal Impulse Buy


These days, there are a number of daily deal sites that send the a deal you just "have" to have to your email inbox every day. Groupon, Living Social, Buy with Me, Tippr, Social Buy, and Fresh Guide are the most popular, but there are plenty more where they came from.

But daily deals can be the road to unwanted and unnecessary spending. Whether it's that half-priced massage, free appetizer, or cheap pair of sunglasses, these companies get you to put expenses on your credit card that you otherwise wouldn't have.

Fortunately, there are other sites to the rescue to help you out from that buyer's remorse.

Create Separate Bank Accounts for Different Savings Goals

If you have a solid savings plan, you are probably allocating funds toward multiple savings goals.  This is a great idea to help you achieve multiple goals, such as retirement, a down payment for a house, and an emergency fund.  In addition to specific savings goals, you probably have a general savings fund, and having all of those earmarks can start to get really confusing. 


Benefits of ING Direct

Look into ING Direct if you need a savings account.

One of the greatest financial decisions I have made is opening up accounts with ING Direct. ING Direct is a financial institution that operates entirely online. This makes banking very easy for the customer and it eliminates costs for the company. When a company has low operating costs, the consumers are the ones to benefit.

Stock Market Bubble

Anything that goes up must come down.

There have been two very popular stock market bubbles in the twentieth century which ended in a crash. The first one was the boom and bust of the 1920s which saw the U.S. stock market soar to great heights. The crash came with the Great Depression in 1929. The more recent one was the dot-com bubble that ended with the bubble bursting at the turn of the millennium.

Both these stock market bubbles were attributed to the technological innovations that were introduced during the period with the 1920s seeing the advent of automobiles and radio among other household items. In the 1990s, it was the internet boom and the rapid growth of e-commerce and related technologies.

One thing that investors should be warned about is that in these bubbles investment tends to flow towards speculative areas rather than businesses that are actually great for the long haul and have solid value.

The Herd Instinct

"The herd instinct can really be explained as how investors seek approval from other investors when making their investment decisions."

In my last post on behavioral finance, I mentioned how the herd instinct makes up the major factors of what drives stock markets from an emotional standpoint of the investors in financial markets. What exactly is it?

This is the behavior of investors to act as one during certain business cycles such as stock market bubbles or a stock market crash. I mentioned in that post on behavioral finance that fear and greed were the other emotional factors that influence stock markets. Fear is experienced by individuals during a stock market crash and greed is predominant when there is a bubble.

The herd instinct can really be explained as how investors seek approval from other investors when making their investment decisions. This can be likened to how a woman might seek approval from other women about the desirability of a man who is interested in her.

Speaking of which, the Keynesian beauty contest is a phrase that is used to explain how stock markets perform. Investors are not looking to see what is the right value of a financial instrument and expected payoffs according to their own calculations but rather what the average investor might infer.

Learning from John D. Rockefeller

The first American to amass over a billion dollars.

John D. Rockefeller is arguably the richest person in history when you look at the real value of his wealth. His wealth adjusting for inflation is assessed by Forbes as being worth over $300 billion and that would be five times the net worth of Carlos Slim Helu who is the world’s richest man right now.

Rockefeller had said that the day that he founded the firm Rockefeller & Andrews by buying out Clark Brothers was a very crucial point in his business career. It helped him to benefit from the prosperity after the war and the expansion of the railroads along with the increasing importance of oil really played to Rockefeller’s advantage.

The lesson learned from this is the importance of really owning a business and being ready for that big opportunity. Another thing I learned from Rockefeller’s life is the fact that he borrow heavily. This seems to be a theme among many self-made wealthy people and debt is often encouraged.

Behavioral Finance

Ever wondered what drives markets? How individuals and investment banks go about making their investment decisions? There is a very complex field called behavioral finance and its related cousin behavioral economics that deal with the emotional and cognitive factors that decide market prices and how resources are allocated.

There are three behavioral traits that I’d like to touch on in this post.


Momentum Investing

This is when investors acquire securities that have had above average returns in the previous 3 to 12 months. Successful investors such as George Soros have used this technique to bid up the stock price and profit from it. The widely credited father of momentum investing Richard Driehaus goes against the conventional wisdom of buying low and selling high and instead recommends buying high and selling at higher prices.

Don’t Be Afraid to Haggle

"If you aren’t in a rush to buy something, try offering a really low offer just to see what happens."

Until the past few years, I thought I just had to accept the asking price of an item, whether it be at a store like Sears or a private party sale.  I wince at the thought of how much I surely overpaid all these years.  While haggling at a big box store is not overly common, it is still an acceptable practice and can save you quite a bit of money.

Education - An Investment or Consumption

"There are two things I wish to highlight here."

Economists have defined education as both an investment and a consumption good. It is a consumption good because a lot of the students especially those that go into colleges and graduate schools could be said to enjoy the lectures and the homework including the readings, etc notwithstanding the dreaded final exams.

Education is also an investment good because at its very nature it comes with a lot of uncertainty and risk just like any other financial investment. Moreover, it involves foregoing current consumption to be able to increase consumption sometime in the future.  

I talked about the problem of student loan debt that could potentially plague the country’s economy in the near term, but really education is always a good idea. I know it can have different results, but at the end of the day its always going to give a person a chance.

The economics behind Super Bowl commercials

It was Super Bowl XLVI last Sunday and probably one of the best Super Bowls that I had the privilege of watching. As for the ads that are always important, we had Clint Eastwood’s halftime commercial that I liked, Deion Sanders making an appearance in his du-rag with Troy Aikman for a Bridgestone ad and of course Danica Patrick for Go Daddy.

I was actually taking a marketing class back in college when I read that a 30-second ad costs a whopping $3.5 million. How this is even feasible from an economics standpoint was what was foremost in my mind. The sellers of the ads like this year’s home of the Super Bowl television network NBC seem to think that $3.5 million is a bargain from the research they have done looking at company stock prices, sales, etc after the Super Bowl.

I mentioned GoDaddy which I always liked and it is also a remarkable Super Bowl commercial success story. It actually had only 900 servers and then when it aired its first Super Bowl ad it had to expand and now has over 36,000 servers and facilities across the globe. Looking again at the GoDaddy example, the market share before the ad run was 16 percent and a week after the Super Bowl it was 25 percent.

Getting Your House Ready to Sell

When it comes to selling your home, it can be a stressful situation.  Especially if you have already purchased a new home and are wondering how you will be able to pay for both if the current home does not sell in time.  But there are things you can do to make your current home more appealing so that it will sell faster.

If there are any projects around the house that are waiting to be completed, now is the time to do them.  Half finished projects do not look good to potential buyers and will likely cause you to get a lower offer as they are looking at the time and money that is involved for them to finish them.  Even projects that will not take much to do can cause a potential buyer to decide not to offer on your property.

Another improvement that the house may need is a fresh coat of paint, depending on how long it has been.  This may also mean pulling down al the pictures or other items that may be attached to the wall, fixing the holes and then painting the whole thing.  You can leave up the items that will be staying with the house such as built in shelving, but the paintings should come down.

Make These Phone Calls to Save Money

Don't be embarrassed to make these calls.

Saving money takes a lot of dedication, commitment, and restraint. But it also takes some action on your part. Just an hour of your time can lead to your saving hundreds of dollars a month.

In today's economy, monthly bills have been increasing. Everything from the price of food to the price of gas has been on the rise. With rising expenses, many families are deciding to simply pull the plug from services. Not so fast. You may be able to keep some of your services, along with a reduced rate, simply by making a few phone calls.

Wall Street: "Getting Paid So Much To Do So Little"

A New York Magazine feature has a former Lehman Brothers trader blasting the uselessness of Wall Street in economic growth.

The ferocity of criticism against Wall Street, whether or not one thinks it’s deserved or not, is undeniably a result of the 2008 economic recession. Since that time, even as people on the proverbial “Main Street” have suffered under further stringent and punitive banking practices, “Wall Street” has seen a healthy injection of profit, if not growth, since as early as 2010. The problem, as many see it, is that Wall Street doesn’t seem to actually do anything for either the unemployment, economic growth, or the “real economy”. In fact, all of the nation’s money, talent, and the brainstrust that is invested in the financial sector doesn’t seem to actually help anyone but the small group of people profiting from it; a group of people that may even hide that profit in offshore bank accounts that will never do anything for the rest of the country. A recent feature in New York Magazine entitled The Emasculation of Wall Street seems to corroborate this.

The Next Financial Crisis - Student Loan Debt?

Standard and Poor’s has cautioned that student loan debt is getting out of hand and could be next big financial issue that the recovering United States economy has to deal with. This comes amidst reports that the debt for students who attended public universities is on average $20,000. This number is higher for students that attended private schools and this figure has actually gone up from $27,650 to $33,050.

The problem with these reports is that students will find it hard to pay back these loans given the tough job market. The same report mentioned in the previous paragraph also states that 67 percent of graduates of four-year universities had student loan debt. Student loan debt has grown at an alarming rate and now exceeds even credit card debt as it approaches $1 trillion.

Discounted Cash Flow Analysis

Discounted Cash Flow (DCF) Analysis is actually not as hard as it seems. You are about to learn some advanced financial modeling here that is used in finance for oil and gas modeling and bank and financial institution modeling. It is a concept that is based on the time value of money.

The discount rate is vital here in calculating the Net Present Value and it is generally the Weighted Average Cost of Capital (WACC) which is the rate that a firm has to pay to its shareholders on average for the company to finance its assets. Two important things here are the risk premium and the risk-free rate i.e. the time value of money.

The risk premium has to be paid by a company because investors want to be rewarded for taking risks with a project, etc and the risk-free rate also has to be calculated to compensate the investors for using their cash. The discounted cash flow formula and some explanation can be found on Investopedia which is an excellent resource for finance and especially for those individuals that are looking to make a career out of it.

Stocks that short-term traders should look out for

Inspired by my first post on this blog about day trading, I am going to talk about five stocks that traders who want to make some big moves in the near term should look into. All of these stocks trade above $10 and have the biggest intraday high-low ranges. This is according to observations in the last 50 days of the average percent spread between the intraday high and low.


Diamond Foods (NASDAQ:DMND)

Based in Stockton, CA, this packaged food company has a 52-week range of $21.44 - $96.13. If that doesn’t catch your eye, it is actually the only stock in the S&P 1500 with a stock price higher than $10 that averages a high/low spread of just over 7 percent each day.