The Perfect Parking Spot

So the other day I observed something I have many times before and it has always fascinated me (although it doesn't exactly surprise me.) As I'm walking toward the store to purchase groceries there's a gentleman in his vehicle waiting as a woman loads groceries into her vehicle. Now he's either checking out in a very stalker-like manner or he was simply waiting to take her parking spot. I would imagine he probably waited a least a minute or two to get this wonderful parking spot.

Now I could understand this under certain situations. For example, if available parking was limited then it might make sense to wait for a parking spot to be freed up. Or if the gentleman had some health problems that made walking long distances difficult. But I don't think either was the case here.

(1) There were parking spots, maybe, 20 spots away. So the gentleman was going to sit there and waste gas for a minute or two to alleviate himself from having to walk an additional 30 seconds more.

(2) If there were health issues, then I highly recommend he go see a doctor as it's not too difficult to get a temporary handicap parking pass. This would make available all of the, much closer, handicap parking spots.

But it really fascinates me that people (Americans) are willing to waste more time (and gas) looking for the perfect parking spot than just park somewhere in the back and walk a bit (and heaven forbid, burn a couple of calories.)

loading..

On the Existence of Married Bachelors

In my series on That's an Empirical Question, I noted that philosophers often consider questions which are "empirical" as being outside the scope of philosophy. The domain of philosophy would then be some subset of "non-empirical" questions. Part of my goal has been an attempt to demarcate the empirical from the non-empirical.

Today I will continue this endeavor by exploring it from the other side: what makes a question non-empirical and is there a place for these sorts of questions. This is a very large subject, which could not be treated in one blog alone. I will, however, start with an example (as the title of the blog suggests): All bachelors are unmarried men.

Adam Smith on Equilibrium

The neoclassical conception of "equilibrium" is actually somewhat different than Adam Smith's characterization. In spite of that, neoclassical reasoning often (implicitly) assumes that their equilibrium  has the same implications as Adam Smith's. I would like to briefly describe Adam Smith's notion of equilibrium and would suggest that his notion is far more useful than the neoclassical market clearing equilibrium.

In  An Inquiry into the Nature and Cause of the Wealth of Nations (or simply Wealth of Nations),  Smith described two kinds of prices for commodities. This is all laid out in Chapter VII of Book I. Smith described the Natural Price and the Market Price of commodities. I will begin by looking at the latter as it's the closest concept to the current neoclassical understanding of equilibrium.

Competitive Advantage Types

Economic models often posit the existence of "perfect competition". But in the real world, companies are often able to establish a solid competitive advantage over other companies. This enables them to either be able to charge a higher price than competitors without significantly harming or sales, or it allows them to have lower costs thereby earning them higher profits by charging the same price (or a lower price to compete out competition).

In markets that exhibit "perfect competition", these advantages should be short lived. But in reality, many persist over long periods of time.

The key metrics to look at here are return on capital and cost of capital.  In perfectly competitive markets the two are equal. But sometimes a company can earn a higher return on capital than their cost. If this persists for a long time, it's an indication of a competitive advantage.

In Valuation: Measuring and Managing the Value of Companies, the authors (Koller, Goedhart and Wessels) list a large number of types of competitive advantages. I will reproduce the list here.

On the Subject Matter of Philosophy

Most disciplines have a very specific, known (and in some cases quite narrow) subject matter. The subject matter of the discipline specifies a domain over which research might take place. For biology, for example, the Greek origins of the term suggest the domain of study is life. Psychology is the study of the mind.

While it's not always the case we can define clear-cut boundaries, there are definite subject matters which we can point and say "that's a question that the psychologists should investigate".

This raises the question of what counts as the genuine subject matter of philosophy. In a broad sense, the term philosophy means "love of wisdom". It seems to encompass all that might be learned or discovered. For example, in its early stages, physics was often referred to as "natural philosophy".

While I am very much sympathetic to this idea, in practice, philosophers have tried to separate their discipline from other disciplines. So what is it that makes philosophy a unique discipline?

The Dollar is an Excellent Store of Value

To start off, I don't believe the title of this blog, at least not in the usual sense of how the dollar is defined. I would like to suggest, however, that the dollar has been, historically speaking, a good store of value. Whether or not it will do be so in the future is anyone's guess.

If you've ever had the "privilege"  of reading an economics textbook, it will give you a functional definition of money - money is defined in terms its functions. For example, according to the wikipedia article on money, money serves the following four functions:

1. Medium of Exchange
2. Unit of Account
3. Store of Value
4. Standard of Deferred Payment

The article notes that many economics texts do not list "standard of deferred payment", instead, treating it as parts of the other functions.

As far as the dollar is concerned, it's frequently acknowledged to satisfy 1, 2 an 4 but not 3.  I can use dollars to make all sorts of purchases (medium of exchange), all of the goods and services and debts are denominated in dollars (unit of account) and all of my debts can be dispelled by the use of dollars as a result of legal tender laws (standard of deferred payment).

But regarding store of value, the dollar has not served so well. As I illustrated in Figure 2 from my blog on Currency and Price Stability (reproduced here), the dollar has lost a significant amount of purchasing power over the years.

Einhorn and AAPL's preferred shares

So there's a lot of fuss regarding David Einhorn's proposal that Apple (AAPL) issue preferred shares in order to "unlock value".  To be clear, I like Einhorn and even liked his book, Fooling Some of the People All of the Time (in spite of the fact that it was excruciatingly detailed oriented).

But I concur with Prof Damodaran that this doesn't really create value; it simply changes capital structure. Granted, as Damodaran points out this might unlock price (I suspect it would since the market sometimes overprices leveraged situations. The fact that many analyses of Einhorn's strategy assumes that PE ratios will stay the same in spite of the leverage is evidence of this fact. They make the mistake that one wouldn't make if one understood the ideas in this post.)

But it does enhance value in at least one sense. Cash distributed now is worth more than cash sitting in an account earning next to nothing in interest. 

But I'm more interested in this question: is 4% the correct price for the preferred shares?

Understanding Enterprise Value

There's a procedure used when evaluating stocks of subtracting cash or subtracting "net cash". I don't think it's well understood so I'll give a brief presentation here.

The procedure is actually based upon two observations: