cardinals
sizing too big in volatile markets is the biggest sin of the financial markets (you could be right about the longterm trends however you get smashed due to your position size and volatility) |
building efficiency
occupancy rate = |
occupied space / total space ×100%. (above 80% is good) |
space utilisation ratio = |
usable space / total space ×100%. |
cost per square foot (sq) = |
total cost of property / total square footage |
risk management
- "a fool and his money are soon parted." |
- gresham's dynamic: the more the bad practices spread, the more everyone has to mimic them to be competitive. |
- never depend on too much on variables you cannot control. |
power law vs. normal distribution
zone of possible agreement (ZOPA)
the seller determines the price, the consumer determines the value.*
change in capital structure
demonstrates how the use of leverage can significantly increase equity returns as the debt is paid off over time.**
capital structure dynamics
simple v. compound interest
risk profile (primaries vs. secondaries)
risk profile (secondaries)
secondary funds have excellent risk/return profile through the cycle. fewer secondary funds return a loss*
types of secondary transactions
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keys
it is better to observe what governments do rather than listen to what they say* |
good return ton return/risk ratio |
trust but verify |
maximisation of speed (can this be done by the end of the day?) |
low rates can make anyone look good, with regular-high rates you have to really know what you're doing or you'll be exposed for being a hobo |
constant size on various trades |
- know your circle of competence |
financial quarters
quarter |
commences |
final date |
Q1 |
january 1 |
march 31 |
Q2 |
april 1 |
june 30 |
Q3 |
july 1 |
september 30 |
Q4 |
october 1 |
december 31 |
debt
- the debt that is outstanding = someone owns it |
fed
- monetary policy works with long and variable lags. |
- USA = largest collateral hub in the world. |
window guidance
a credit policy allowing central banks to steer bank lending toward certain economic activities. |
in the post-war period, it was common for both developed and emerging economies to employ various forms of credit control and allocation.*
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geometric nature of return
geometric return: compounding effect, where your returns grow on the returns that have already been earned. (snowballing down a hill, picking up more snow as it goes.) |
geometric mean: the nth root of the product of n numbers, used to find the central tendency in multiplicative datasets. |
determining the culprit
who is interested + who is capable |
cui prodest scelus is fecit (for whom the crime advances, he has done it) |
folllow the trail, cui bono? |
counterparty risk
the potential for one party in a financial transaction to default or fail to meet its obligations, leading to financial losses for the other party. |
capital ratios
category |
description |
range |
poor |
capital ratio is below regulatory minimums, indicating significant risk of insolvency and inability to absorb losses. Bank may face regulatory scrutiny and potential intervention. |
less than regulatory minimum |
below average |
capital ratio meets regulatory minimums but is at the lower end of the spectrum. Bank has limited buffer against losses and may struggle during economic downturns. |
regulatory minimum to below 8% |
average |
capital ratio meets regulatory requirements but does not provide a substantial cushion against risks. Bank's stability may be adequate but lacks robustness for unforeseen challenges. |
8% to below 10% |
above average |
capital ratio exceeds regulatory minimums, providing a reasonable buffer against risks. Bank is better positioned to absorb losses and maintain stability in various economic conditions. |
10% to below 12% |
good |
capital ratio is comfortably above regulatory requirements, indicating strong financial health and resilience. Bank can withstand adverse events and has capacity for growth and innovation. |
12% to below 15% |
excellent |
capital ratio significantly exceeds regulatory minimums, demonstrating exceptional financial strength and risk management. Bank is well-prepared for unexpected shocks and has ample capacity for expansion and investment. |
15% and above |
positive ev
- built-in incentive |
- narrative |
profitability?, ROI?, risk management (are there strategies in place to help mitigate potential loses), opportunity assessment (is it the one with the highest yield?), decision making (focus on actions that are expected to add value to the business) |
negative ev
- losses |
- poor ROI |
- high risks (high levels of risk that are not adequately compensated by potential rewards. This could include factors such as market volatility, regulatory uncertainties, or operational challenges.) |
- wasted resources |
- opportunity cost (pursuing opportunities with negative EV may prevent a business from allocating resources to more promising ventures that could generate higher returns.) |
tail risk
the risk of extreme and rare financial events that lead to significant losses, occurring more frequently than predicted by standard models. |
(financial crises, market crashes, natural disasters, pandemics, political upheaval, terrorist attacks, sovereign debt crises.) |
capitalism/socialism
capitalist society = voluntary cooperation, voluntary exchange. |
socialist society = force, no choice, all is decided for you. |
the stripper index
sex industry workers can and do indicate soon to be realised economic downturn. |
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