Misnomers in Finance

You know what really grinds my gears¹. . .

                                                                 . . . misnomers in finance.

Essentially there is some technical jargon that I think was inappropriately named. Here are a couple of examples.

Ode to Lady Luck

In Roman mythology, Fortuna was the goddess of luck and fortune.

Uncertainty of the Constant Growth Assumption

In Uncertainty and Margin of Safety, I discussed the role uncertainty plays in valuation. Today I want to take a look at one of the assumptions built into many discounted cash flow (DCF) models. That assumption is the constant growth rate assumption.

Minimum Wage and Inequality

One topic that is an interest of mine is the topic of growing income inequality. Over the last 30 years or so, a small fraction of the population in the US has increased its share of income (and even more wealth) while the middle class has been gradually gutted and those on the bottom have been stepped on. Ultimately I don't think it's a sustainable situation and something needs to be done to address those issues.

Today I want to look at a hot topic in politics: the minimum wage. President Barrack Obama has been pushing an increase of the Federal minimum wage to $10.10. And there's plenty of resistance to that but I don't want to focus on that too much. We can really consider two issues:

(1) Is raising the Federal minimum wage a good way to alleviate income inequality?
(2) Assuming (1), where should the Federal minimum wage be?

It's the latter question I'd like to take a look at today.

Return on Invested Time: Developing Understanding

Time is our most valuable possession; and, yet, we trade it for other things.

One thing I noticed relatively early on is my ability to process information better than others. I don't know to what extent this is genetic or learned but I do think part of it comes down to how I engage information.

Many tasks in my early education experience I considered to be pointless or a waste of time. While I jokingly referred to myself as a slacker, to some extent it was deliberate in that I saw some activities as being unproductive and would rather spend my time doing activities either more enjoyable or more productive.

In hindsight, I think I may have misjudged in some cases but in many cases my approach has been successful. Here's a look at my overall approach.

McDonald's and Wages

There's a considerable amount of debate revolving around the minimum wage and the vast number of workers in the US that earn a very low wage. I'm personally of the view that the growing inequality in the US in which the top 1% (and 0.1% which looks even worse) have been taking a larger share of the income.

A good portion of the talk has concerned fast food workers of which McDonald's is the largest and most focused on.  Today I want to take a practical look at McDonald's and wages.

CAPE - An Alternative Calculation

Today I want to look at an alternative way to calculating the Cyclically Adjusted Price to Earnings Ratio or CAPE for short. The standard approach to CAPE suffers from a few drawbacks and I think the calculation I'm proposing can address some of those drawbacks.

My Failed Inflation Prediction

In August 2009 I made some tongue-in-cheek type predictions. To be clear, I roughly believed them but at the same time I knew they were some gut feelings based on some rough models I had in my head.

My inflation prediction was that that CPI would hit 250 by Fall 2011. It was about 215 at the time which put inflation to be close 8% a year. Apparently we're still not there.