Tag Archives: Finance

You Have Time To Achieve Your Dreams!

I was able to earn a graduate degree while working a demanding, full-time job! I was also able to write a 59,000 word book while running a business. If one puts their mind to it, anything is possible, regardless of time constraints!

There are 24 hours a day. How you use them is up to you!
24 Hours per day
Sleep 5 5 5 5 5 5 5 5 5 5 5
Travel 2 2 2 2 2 2 2 2 2 1 0.5
Work 6 7 8 9 10 11 12 13 14 15 16
Dining 2 2 2 2 2 2 2 2 2 2 1.5
Miscellaneous 1 1 1 1 1 1 1 1 1 1 1
Hours Left 8 7 6 5 4 3 2 1 0 0 0
You have the time to achieve your dreams!
24 Hours per day
Sleep 6 6 6 6 6 6 6 6 6 6 6
Travel 1 2 2 1 0.5 1 1 1 1 1 0.5
Work 6 7 8 9 10 11 12 13 14 15 16
Dining 1 2 2 2 2 1 1 1 1 1 1
Miscellaneous 1 1 1 1 1 1 1 1 1 1 0.5
Hours Left 9 6 5 5 4.5 4 3 2 1 0 0
Including a minimum of 1 hour per day for dining, plus 30 minutes
of miscellaneous time, everyone should have time
to achieve their dreams!
24 Hours per day
Sleep 7 7 7 7 7 7 7 7 7 7
Travel 2 2 2 1 0.5 1 1 1 1 0.5
Work 6 7 8 9 10 11 12 13 14 15
Dining 2 2 2 2 2 1 1 1 1 1
Miscellaneous 1 1 1 1 1 1 1 1 1 0.5
Hours Left 6 5 4 4 3.5 3 2 1 0 0
24 Hours per day
Sleep 8 8 8 8 8 8 8 8 8
Travel 0.5 1 2 2 3 3 1 1 0.5
Work 6 7 8 9 10 11 12 13 14
Dining 2 2 2 2 1 1 1 1 1
Miscellaneous 1 1 1 1 1 0.5 1 1 0.5
Hours Left 6.5 5 3 2 1 0.5 1 0 0
24 Hours per day
Sleep 9 9 9 9 9 9 9 9
Travel 3 2 3 2 2 0.5 1 0.5
Work 6 7 8 9 10 11 12 13
Dining 2 2 2 2 2 1 1 1
Miscellaneous 1 1 1 1 1 1 1 0.5
Hours Left 3 3 1 1 0 1.5 0 0
24 Hours per day
Sleep 10 10 10 10 10 10 10
Travel 3 1 1 3 2.5 1.5 0.5
Work 6 7 8 9 10 11 12
Dining 2 2 2 1 1 1 1
Miscellaneous 1 1 1 1 0.5 0.5 0.5
Hours Left 2 3 2 0 0 0 0
24 Hours per day
Sleep 11 11 11 11 11 11
Travel 1 1 2 2.5 1 0.5
Work 6 7 8 9 10 11
Dining 2 2 2 1 1 1
Miscellaneous 1 1 1 0.5 1 0.5
Hours Left 3 2 0 0 0 0

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Educate yourself on Finance!

Everyone should study finance. Quite possibly, it is the most important thing people should learn and teach their children, especially behavioral finance, that is, how emotional factors can impact financial decisions. If more people actually understood finance, I doubt there would have been a global financial crisis.

When I moved into a technology role on Wall Street, many of my coworkers laughed at me because I have a MBA in Finance. Little did most of them understand that many of the senior most technology managers on Wall Street hold MBAs, including the global head of IT at the company where I worked at the time. Now many of my former coworkers question why they didn’t continue to educate themselves (especially in finance).

I didn’t get a MBA to get a higher paying job in corporate America, though higher compensation did come. I did it because I wanted to acquire the same level of formal education many CEOs of the world’s leading companies have. This would not guarantee I rise to the level of CEO, but it would ensure I possessed additional tools with which to capitalize on opportunities.

I also chose to study finance because I sincerely believe the more one knows about finance, the better their life will be. As an example, having started my career in fixed income, I’ve become knowledgeable on the subject. This helps me to structure scenarios whereby individuals can use their money to make money, and based on their level of risk aversion. To structure a bond purchase that allows the accrued interest received to pay all or part of one’s living expenses is a win-win situation. This is a strategy often used by the rich and powerful — those who most often have educated themselves on finance.

Take time to study finance and control your destiny.

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The U.S. Debt Crisis

Yesterday, Standard & Poor’s changed its outlook for U.S. government debt to “negative,” pummeling the financial markets.  According to The Wall Street Journal, “S&P currently rates 19 out of 127 sovereigns AAA. . .the U.S. is the only one among the 19 that has a negative outlook.”

In finance, U.S. government bonds of various maturities represent the “risk free” rate of interest. This is because it’s assumed U.S. government bonds are “risk free,” i.e. there is no chance of default.  With the massive level of U.S. debt, and attempts to slash governments budgets falling short of being able to substantially cut U.S. debt, are we now to assume there is no such thing as a “risk free” rate?

I’ll let the finance professors ponder this question, however, I won’t make any assumptions. When I was a student I learned that you don’t increase taxes or decrease government expenditures during a recession, or times of slow economic growth. However, the U.S. must plan to do so after our economy is back on track, as our current path is not sustainable. Since U.S. government debt remains rated AAA (only the outlook has turned negative), now represents the opportunity for elected officials to move forward by slashing future government expenditures, increasing taxes, and saving America from itself.

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The Financial Literacy of Elected Officials

I recently read an article about a Florida city that’s down millions of dollars as the result of a fuel hedging program. In analyzing the details, a college professor gave an opinion that “the city’s only strategy appeared to be based on the price of natural gas increasing over time.” The city purchased long-term futures contracts on natural gas. However, the price of natural gas decreased over time, losing the city quite a bit of money. In finance, many high risk strategies are one directional. When you’re right about the direction of price movement, you’re a superstar, but when you’re wrong, you can lose your shirt.

A long-term one directional strategy can be a gamble. Hedging is supposed to reduce risks, not increase them. Prices can go up, down, or sideways, this is a matter of fact. Ideally, the possibility of price movement in all directions should be considered if implementing a hedging strategy. With futures, this is more easily achieved by using short-term futures contracts to help protect against short-term price swings. What’s ironic is the city pays a risk management consulting firm to provide advice on hedging risks. Just because one can lock in a future price, does not mean one will save money. The savings gained by a decrease in a commodity’s price, can be more than offset by the loss of premium paid for futures contracts.

I hate to dwell on Florida, but since I relocated to Florida from New York City, I’ll continue to do so.  In 2009, Florida’s State Board of Administration booked a 250 million dollar loss on a questionable investment in New York City real estate.  The board, which manages over $100 billion in state employee retirement assets, was apparently warned during audits about their risky 2007 investment in Manhattan’s largest rental apartment complex.  The risky investment, made at the peak of the real estate market, imploded to create a 100% loss.  Had Florida paid me $5 million for my opinion, I would have produced at least $245 million in savings by advising against losing $250 million, in one of the worst real estate transactions of all time. Note: the total cost of this blunder was closer to $266 million when you account for the fees involved – great revenue for the broker of this deal.

These are just some of the financial blunders government entities have made across the U.S.  The strategic direction set by elected officials, along with the various policies they administer, requires a greater level of financial literacy and prudence. A lack of financial literacy by individuals contributes to reckless behavior. A lack of financial literacy among elected officials is conducive to creating another global financial crisis.

Pensions are busting budgets

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Working hard to make someone else rich?

As I stood in front of the world headquarters of Chemical Bank, circa 1992, a Rolls Royce stopped in front of the building. A small crowd gathered. Before a door opened, the crowd swelled. I thought it might be Elvis Presley on his way to see a private banker, or to give a press conference on the fact that he was still alive. The Rolls Royce was carrying a rock star for sure, but it wasn’t Elvis, it was John McGillicuddy, Chairman and CEO of Chemical Bank, the man who engineered the merger between Manufacturers Hanover Trust Company, and Chemical Bank, creating what was then the second largest bank in the U.S.

I was a young employee at Chemical Bank, recently out of college and learning quickly about the real world.  Should I work hard to make someone else rich? Possibly –  by helping make someone else rich, one can get rich in the process. Also, work experience is a priceless commodity.

An example of why it’s great to be a CEO in corporate America

As an employee in the public or private sector, few achieve the rock star status or compensation of the late John McGillicuddy. Though the same can be said of entrepreneurs, in the context of the psycho dynamics of work and organizations, not only does entrepreneurial freedom yield happiness, but it’s more conducive to allowing one to be the master of their fate, rather than the victim of their circumstances.  I can honestly say that the most miserable people I know either work in corporate America or have been displaced by corporate America. Though entrepreneurialism in and of itself does not create a utopia, the happiest people I know are entrepreneurs, and I’m one of them.


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The Stock Market: How fast is too fast, how high is too high?

The stock market has been surging lately, with few moves to the downside. I’ve rarely been able to lose money for months, except when selling short.  For now I’m staying long. My simple strategy of buying “at the money” call options anywhere from 45 to 60 days to expiration has been highly profitable, and this scares me – things are just too easy now.  Almost everything I’ve bought for months or have been holding long-term is shooting to the moon, and seeing stocks hit their 52 week highs, or come close, is all too common.

What I’m going:

I’m going to continue following the market’s momentum to the upside, but I’m prepared for a big move to the downside. I’ll close any long call option positions when I either achieve my target profit, or as my gains erode due to time decay, a decreasing stock price, or other factors. For my long-term investments, I’m primarily invested in U.S. domestic equities, ETNs and ETFs. For most of my securities, I own put protection, which I usually finance by selling call options, i.e. I’ve created low cost to zero cost collars, having both covered calls and protective put positions.

To clarify, I’ve sold call options with strike prices above the current market prices of my securities to raise cash, and I’ve used the cash to purchase put options with strike prices below the current market prices of my securities. This allows me to protect profits because owning put options on a security gives me the right (but not the obligation) to sell the security at the strike price of the option  until the expiration date of the option (note: most index options are “European style” as opposed to “American style” and  can only be exercised on the expiration date).

If the market price surges above the strike price of a call option I’ve sold, I could miss out on the additional potential market gains as the  price keeps rising. This is because call options give the buyer of a call option the right (but not the obligation) to exercise the option against me, requiring me to sell them the underlying security at the strike price of the respective option.  I could avoid being exercised against by “buying to close” call option contracts, but will likely create a loss on the option transaction because an increase in price creates a more expensive call option, all other factors being equal.

Note: I like using stop orders, particularly stop-limit orders, but I’m anticipating the potential of a fast move to the downside. With a stop-limit order, if the stop price is hit, a limit order is triggered. However, if the market moves quickly below the limit price before my limit order can be executed, I’ll be stuck with the stock because I’ve specified my minimum sales price with the limit order.  And with a stop order, if an event like the “flash crash” occurs, even if less drastic, the stop price may be hit and a market order might not get filled at a price remotely close to the stop price that triggered the market order, leaving me with a large reduction in market value.

Be careful out there folks!

“If something cannot go on forever, it will stop.”

–Herbert Stein

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How to protect yourself from being the victim of a Ponzi scheme or other financial fraud

Selecting an investment adviser requires due diligence on your part. To protect against fraud, I suggest the following:

  1. Do your homework. The SEC has a website with tips on how to check out brokers and investment advisers:  http://www.sec.gov/investor/brokers.htm.
  2. Never write a check or wire funds directly to an investment adviser to fund an account. Custodial accounts offer protection by safekeeping your cash and securities. With custodial accounts, funds are sent to a custodian for further credit to your account at the custodian. Firms offering such 3rdparty accounts are highly regulated, and limit the risk of one being subjected to fraud. You should ask potential custodians questions regarding their ability to protect you from financial crimes, especially their ability to keep crooks from withdrawing cash from your account. Also, make sure the custodian is a member of SIPC (the Securities Investor Protection Corporation), and whether the firm has private insurance to protect you beyond SIPC limits in case the firm fails – the current SIPC limit is up to $500,000 including a $250,000 cash limit. If you’re not sure about the safekeeping of your cash and securities, consider consulting an estate planning attorney who should be able to explain this process in-depth. It’s better to pay for a legal opinion than to become the victim of fraud.

    Protect Yourself from Bad Guys!!!

  3. Understand fiduciary responsibility, that is, an investment adviser’s duty to put your interests first. Brokers often use the title “financial adviser/advisor,” but don’t have fiduciary responsibility. Financial advisers who are registered investment advisers with the SEC or one or more of the 50 states, do have fiduciary responsibility.
  4. If you require a financial adviser to trade for you, the adviser should only be empowered to trade in your custodial account, and not have the ability to transfer funds to other accounts, whether the other accounts are in your name or not. Suppose a corrupt adviser was able to use false identification to open an account elsewhere in your name, and then was able to transfer funds to that account for their personal use?  Restricting transfers can help prevent this scenario.  If you authorize your adviser to extract a “management fee” from your custodial account, according to the SEC’s definition of “custody,” your adviser has “custody” of your assets. If an adviser has custody of your assets, they could potentially divert your assets for their personal use. One can negotiate a fee arrangement whereby a financial adviser is paid via check, rather than direct debit. At minimum, you should be notified of any fund transfer requests immediately. For this scenario, you should consult your custodian regarding the specifics of receiving alerts, and ensuring your adviser can only extract the management fee to which you agreed upon, and at the specific interval agreed upon. Again, if you’re not sure, consider consulting an estate planning attorney.
  5. Educate yourself on fraud. The Association of Certified Fraud Examiners provides anti-fraud training and education http://www.acfe.com/home.asp. Other resources include Fraud College, a non-profit organization devoted to helping protect people from fraud: http://www.fraudcollege.info.
  6. Titles mean nothing. The fact that someone is a Senior Vice President, has a securities license, professional certification or advanced education, does not protect you from fraud. Titles also don’t ensure that a financial adviser is good or reputable. There are Certified Financial Planners (CFPs) and MBAs who cannot manage a portfolio, and people without a college degree who can. Your best defense is your financial knowledge. The greater your financial knowledge, the better your ability to judge the knowledge of others.
  7. Understand risk and returns. “The greater the risk, the greater the return.” If an adviser promises a high return with little or no risk, there’s a strong possibility they are lying. Be careful if considering investing in a business start-up. People hopeful of high returns are often the target of entrepreneurs seeking start-up capital, and most start-ups fail.
  8. Consider managing your own money, there are an abundance of free resources available to help self-directed investors. Most discount brokerage firms and broad-based financial websites offer an abundance of educational resources.

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