Stocks Are Not Intuitive


Is being the dominant business in its sector good? Would a brand name that everyone knows matter? Would 330 million users help? Sales are over $3 billion and growing. Would $7 billion in cash and marketable investments matter.

After an eight year hold, would that leadership make you a profit as a shareholder?

You’d think so. But, no.

An example

Twitter was founded in 2006 and became a public company in 2013, On 29 November 2013, it traded for $41.57 per share. Eight Years later on 30 November 2021, it traded at $43.94. It paid no dividends in the interim. That’s compound annual growth of 0.7%. Hardly spectacular.

What’s that about?

Market penetration and visibility are important but creating profit matters more.

By the end of six years, 2019, profitability was more than 10% of sales, but the stock was at $33. 2020, recorded a loss from operations, but in early 2021 it traded up to $77.  Later in the year a shareholder class action law suit settled for $800 million. That adversely affected quarterly earnings!

Then at the end of November founder Jack Dorsey resigned as chairman. The stock jumped $5,  11%. That had to hurt the chairman’s ego. Shareholders seemed pleased. Clear skies, new opportunities and all that.

Then they named their new chairman. By noon a day later the stock was under $44. Not much of a vote of confidence.

What’s the lesson?

Not every visible company is profitable. Ones like Coca Cola, or P&G have recognition and are profitable. Others were visible for a while but didn’t convert visibility to profitability. At the end of 2019 Zoom sold for $66.64 and by October 2020 was $559. But then it fell to $337. Now it is barely over $200. Still a nice trade from $66.64

To support high stock valuations you need three things.

  1. Earnings
  2. Cash Flow, and
  3. Growth

A company whose earnings are growing quickly will be valued at a higher multiple than other companies. But not unless those earning spin off some cash. In the early years it will all be reinvested to support the growth but eventually there must be cash. And dividends.

You can judge the success of a company by the ability to return cash to the shareholders. Many valuations systems rely only on that.

You should treat growth by acquisition as a separate decision. Some will be simply tactical. Buying a potential competitor and getting talent as part of the bargain. Others are strategic, real businesses that just happen to be under one roof. It is interesting to see how buying a business with a low earning per share multiple affects the share price of one that has a high multiple. If a company with a multiple of 15x can buy a business at a multiple of 10x, you’d expect it would in crease the acquiring companies total stock value by 5x the earnings of the acquired company. Sometimes it does, sometimes more because the combination is synergistic. Other times not because it dilutes the overall business.

Segmented financial information is helpful to decide future value expectations in terms of earnings and possibly multiples. Not easy to find though.

Your judgement matters. That includes management direction. Are they trying to be a profitable and useful business or trying to optimize short term numbers. Is the product getting better? Does management look after themselves before the shareholders? Are there smart competitors? Is the multiple likely to change because of changes in the economy? Is the company’s brand tarnished or under attack by the media.

The bits to take away

Famous names are not necessarily good stocks.

Have a way to evaluate that matches your needs. Look for the “Goldilocks yield” The one that gets you what you need with a minimum of downside risk. Quick profits are nice but they are more volatile. Be careful listening to stories of other’s successes.

Be like Buffett. Look for situations where you can say, “I don’t care if they close the stock market for 10 years after we buy the stock. We invest in businesses not stocks.” There is a difference.

Beware of Fear Of Missing Out. FOMO. You cannot buy everything. Have a fear of being involved with something with no likelihood of long term success. A single big loss could wipe out a whole series of success.


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I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

Estate Plans Begin Today


Most people don’t make a point of distinguishing between an estate plan and a will plan.

Estate plans should deal with conditions while you are alive. It enhances values to all concerned. Here’s how.

Where your wealth will go

Everything you own now, will end up in one of just three piles.

  • You will leave it in your will, or give it away while living. Maybe to future heirs.
  • While living, you will send it to deliver your preferred lifestyle.
  • You will lose it.

Most people have no trouble that avoiding losses would be productive for their overall family goals.

How do most people lose money?

Weak tax management. The most common problem is they fail to use the graduated rate table effectively. Deferrals work, like RRSPs, unless you defer income to avoid tax at 30% and pay it in your estate at 50%. The same idea with controllable capital gains. Like shares in a business. Even rental real estate. Lowest possible tax paid is often a mistake. Look at a longer time frame.

Failing to invest assets effectively. The conventional idea is an 80-year-old should own bonds and such. Have you ever wondered why that’s wrong. If you have investments that will certainly fall into your estate because you can live comfortably on the income or even less, why does the safe route make the most sense. Think of it as a stewardship idea. You own the assets for the benefit of others. In this case your heirs. Why not invest base don their investment structure. The switch will be troubling. You should have guidance that you can understand.

Failure to recognize that income and cash are not the same thing. Think about cash needs as what matters. Then think about how income can be used to generate the cash flow in up to the point where after tax amounts equal cash flow out. If after tax income is much higher than cash flow out you may want to consider alternate approaches. Overtaxed early reduces both the estate and the security while living.

Failure to anticipate near certain events. One of the couple will die first. There are options that should be ready to implement. Will the survivor know how to manage the family assets? Will medical problems cause problems. Institutional care for example. You may not be able to make another will. The law requires capability. Too little attention paid to the liquidity the estate will require.

Failure to pay attention to the wills. Wills are more complex than people think. Family monuments like cottages, farms, and businesses, are difficult because they are difficult to divide. Heirlooms are usually not of the highest value but some cause unnecessary conflict. Liquidity is always an issue. There are costs to be paid like taxes, fees, and specific bequests like charities. After those are paid and non-liquid assets have been transferred, is the distribution equitable.? You should arrange an accountant to create a pro forma probate. You may be surprised how it works. Only one criteria. You cannot participate. You won’t be there to clarify things when the real thing happens.

Missing opportunities. Some times a person should have more than one will. Not everything you own requires probate. Why pay the fees?

The bits to take away.

Things you can anticipate you can manage.

You live on cash flow not necessarily income.

There are more opportunities to minimize losses than you know.

Early transfers of a little money to heirs may help sooner than more money later will.

Think about how stewardship can benefit you.


Help me please. If you have found this useful, please subscribe and forward it to others.


I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

Build A Margin For Error And Opportunity


Have you ever given any thought to how high level athletes can do what they do.

Football players can run fast, change direction with one step, and get pounded by a linebacker and stay on their feet. Skiers can put the skis within a centimeter of where they want at very high speeds. And then there are gymnasts. Their grace, balance, speed, and creativity amazes me.

What do they have that lets them do it all. 

One thing is common to all. They have a very high strength to weight ratio. They can do whatever they want using only a portion of their limit. They have a reserve. Another gear as one golfer explained it. They use that reserve primarily for balance and recovery from error.

They can achieve excellent results at 70% of capacity. They can dial it up when they need to.

Financial independence works the same way.

You need some reserves. You get those by running your life at a percentage of what’s possible. Take a pro golfer I always liked watching, Tom Weiskopf because he played at about 70% of maximum on every shot. More control. Another gear when he needed but less control. Sometimes you have to risk it.

Using financial reserves.

Reserves give you choices. You can take advantage of opportunities that come along.  You can help others. A reserve gives you a margin for error. People soon learn that not everything works. You can survive an unforeseen change in your context. Even a catastrophic one.

If you end up not needing the resources and reserves to support you own life, you can give your children and grandchildren a leg up on their lives.

Pay some attention time. Money that someone might inherit at 60 is worth much less than is a quarter as much received at 30. People spend the first 25 years of their working life getting out of debt. Student loans, car loans, and mortgages. Money at 30 buys time. Out of debt 10 years sooner is a huge advantage.

The bit to take away.

  1. Financial independence requires a reserve
  2. You get a reserve by having a satisfying life on less than 100% of your earnings. I know a very wealthy individual who spent the first 10 years of his career spending as little as possible. By year 10 he was using about 20% of his income and investing the rest. 30 years later he is spending still about 20% of his income. Now that lifestyle runs about $100,000 a month. And the reserve is still growing. Quickly now.
  3. Teach the value of building not spending. If you do that, helping your heirs sooner will be easy because they will know what to do with it.

There is a fine line between success and failure in life.

Annual income twenty pounds, annual expenditure nineteen nineteen and six , result happiness.
Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery”

Charles Dickens in his novel  “David Copperfield”

You know it’s true.


Help me please. If you have found this useful, please subscribe and forward it to others.


I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

How the World Works


This approach is not instant but it’s a good model for the longer run.

It’s from Shane Parrish at Farnam Street. He’s worth noticing.

Eventually ….

  • Execution beats luck
  • Consistency beats intensity
  • Curiosity beats smart
  • Kind beats clever
  • Together beats alone

Success is about the process or system you use to look for it.

The one Shane suggests above is a good place to think about the idea of systems versus single steps or events.


Help me please. If you have found this useful, please subscribe and forward it to others.


I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

Planning Is Contextual


Some people think there is an objective way to organize financial affairs. There is not. All financial affairs are organized in the particular person’s specific situation. Their context. Understanding context is very important. Physics can provide a guide.

In physics, quantum theory is contextual.

It can help you see the point.

In quantum mechanics, the observation, the observer, and the way chosen to observe, form a system. You cannot establish reality in a general way, just reality in a particular context.

Here is a simple idea

Is the picture right side up or not? Would the image be different if it were rotated? If an experiment were run with this picture, could there be different outcomes depending on which image orientation you used?  Possibly. If you did not include the context, would you have any way to explain the difference?

John Bell did a lot of work on contextuality.  Chris Ferrie sums p his thought on contextuality like this, contextuality is the name for the fact that any real states of the world giving rise to the rules of quantum physics must depend on contexts that no experiment can distinguish.”

How is Financial planning like that?

Obviously it not the same exactly but some ideas soak through.

The planner, what they are trying to do, and what they observe when the implement their plan, form a system and reality (success or failure) is defined by the system’s limits. Bill Gates and I do planning somewhat differently. My tactics and resources will be different and the method used will only have meaning in my context.

Since context matters, what should you pay attention to in order to plan better

Aspects of Context

Personal

  • Your resources including money you have now, money you can earn, for how long, Money you may come into by other means, (inheritance maybe)
  • Possible variances. Illness, injury
  • Non-financial resources. Your home is the most common, but there could be others. Can these become usable money at some point?
  • Obligations. Debt, lease, and commitments to children, or others.
  • Lifestyle commitments. You could think about it as having a negative present value. Could you change it if you had to do so.
  • Health and family history

Relationship context

  • Even the Lone Ranger had other people involved in his life. You should know what assets and expectations others have to contribute and draw from the relationship.
  • Work through the factors in your internal context
  • Anticipate whether there could be others. Parents. Another child.

External Context

  • Could you or any others involved die before completing their obligations to the others
  • What is the economy and the rules and regulations that govern it like in your location.
  • How are rules and laws that affect you changing, income taxes, sales taxes, government programs like pension plans, and Employment Insurance.
  • What regulations are there that could affect your business or employment.
  • How will inflation play out
  • What will happen to interest rates.

Putting it together

When you have a vision of yourself, your family, and what you want to make of your life, you can begin to plan.

Planning will be

  1. Strategic level discovering particular what to do factors., the resources that can get those, the priorities and timing. In physics terms, this is like experimental design.
  2. Tactical is about doing it. The experiment itself, (particular action. save, insure, improve skills and income)  followed by observation of what happened, and the assessment of meaning.
  3. The key part and the one that keeps in touch with your context and the parts of it you missed earlier, revising as you learn more. In physics each experiment adds a little to what can be called reality. In physics there is no “reality” there is only experiments whose observations conform to the known context.
  4. The thought to take away. From Chris Ferrie again, “You may be inclined to believe that when you observe something in the world, you are passively looking at it just the way it would have been had you not been there. But quantum contextuality rules this out. There is no way to define a reality that is independent of the way we choose to look at it.”
  5. You can only see the world form your own platform and you can only develop a better platform by paying attention.

The bit to take away.

Your context changes and so does what you pay attention to.

You will evolve in your ability to employ tactics and to understand your purposes and priorities.

Your plan will evolve too. Done once, done forever is a losing approach.

 


Help me please. If you have found this useful, please subscribe and forward it to others.


I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

Who Are You and What Do You Want?


Build your skills and other resources so you can make the most of what’s important to you.

Socrates died more than 2,400 years ago. He had a remarkable career but found himself on the other side of the political elite of his time.
A thought he expressed before his death sounds like someone addressing some woke autocrat today. Perhaps we should each listen and decide if it applies.
“I prophesy to my murders, that after my death punishment far heavier than you have inflicted on me will surely await you. For the noblest way of life is not to be crushing others, but to be improving yourselves.”
As with buildings statues, monuments and people, tearing down can be accomplished with little skill. Most who tear down could not have built what they destroy.

Time to assess and act on what we learn.

Woke is about group membership. There is no demand for individual responsibility. We have seen retail businesses attacked and robbed. Does the nominal authorities  hold the miscreants responsible. No they do not. They have  by their actions incentivized the behaviour. No arrest under $950 and no cash bail. The obvious rule is you get more of what you reward and less of what you punish.

For many people absence of punishment is the same as reward.

Life is composed of several factors

On the economic side. All decisions relate to incentives and tradeoffs. The key is follow incentives where the return for what you put in is worth more to you than the resources consumed to get that return. It may involve postponing and prioritizing your wants.

On the life side, there is a time for many things. An order if you will. I think the thought I relate to most easily, is “I knew I would get old, I just didn’t think it would happen this fast.” That means you think you have time. Don’t delay doing things that are durable.

  • Learn to look after your body.
  • Learn to build relationships. You’ll need relationships. The rule is “If you want to go fast go alone. If you want to go far, go with others.”
  • Teach what you can to anyone who is interested. Teaching rewards you by helping organize our thoughts.
  • Take time to enjoy things you can appreciate. People, landscapes, trees, flowers, children, your achievements, spirituality, who knows. Be aware of a Coco Chanel’s idea. ” The best things in life are free, but the second best are very expensive.” If you use your resources wisely you’ll understand the necessary tradeoffs.

A bit to take away

An organized life is easier to manage.


Help me please. If you have found this useful, please subscribe and forward it to others.


I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

Why Caring About The Homeless Doesn’t work


Have you heard of the book, San Fransicko: Why Progressives Ruin Cities by Michael Shellenberger. I have not read it, but it sounds interesting. If it foretells the future of progressively governed cities, we have something to fear.

LA Times

This interview with the author will give you some perspective. From The Hub

The highlights of the problem

  1. There are about 10,000 homeless people in San Francisco. In 2020, 700 of them died. The 2021 projection is very similar. To put that in perspective, if you selected 10,000 males, aged 82 at random from the population, the Social Security actuarial table estimates that 700 of them would die within a year. Few of the homeless in San Francisco are 82. If we guessed they were age 30 on average, their death rate is 40 times normal expectation. The problem is clear and yet possible solutions seem scarce.
  2. The underlying issue, according to the city, is poverty. Clearly poverty is a symptom, but the cause? A more circumspect view might look at drug abuse, and mental illness as more likely to be involved. The problem for progressives is poverty is an easier subject. It generates more empathy and allows blame to set at the feet of others.
  3. The author suggests that as religion and its ideas of charity, aid for the poor, self-discipline and self-responsibility have been replaced by compassion. In my view compassion is a cheap virtue unless you do something about it and there are few efforts that do much more than sound good.
  4. Could we assume the victim culture and the assignment of responsibility to others leads nowhere. “predicated on the idea that you can classify real people as either victims or oppressors. Victims should be given whatever they want, without any conditions. The consequences are tragically plain.”
  5. The approaches do not attribute agency to the people involved. Shellenberger points out that concerns like Climate Change are clearly assigned to individuals. The difference is that people used to be attracted to heroes like Gandhi, and Martin Luther King. Today we celebrate Victimhood and assign no individual responsibility.
  6. Should that celebration of victimhood include providing free drugs? Treating symptoms to reduce pain never addresses the fundamental problem.
  7. The author suggests the approach is similar to Munchhausen by Proxy a mental disorder that involves harming one’s children to gain recognition as caregiver hero. I don’t suppose there is much likelihood that progressivism will be included in the The Diagnostic and Statistical Manual of Mental Disorders. (DSM) There could be a case for it though. It would be an interesting debate.
  8. Self-development and independence is an old idea in the United States and Canada, It likely was required to be a farmer in the 1800s. Being independent was crucial. Being and having good neighbours was important. Sometimes you cannot make it alone. Success was being as independent as possible and as neighbourly as possible. Many people today are conditioned to believe they can rely on others exclusively.

The serious questions are around repair and prevention.

Repairing the homeless problem is vast, and strangely the ones who might benefit often don’t participate. Many have mental issues fueled and enhanced by substance abuse of one kind and another.

There are no doubt many programs and policies aimed at the problem. The price for these is not trivial. The problem is there is no objectivity in them. People are measuring what they do not what happens because of what they do.

There are no marks for trying here in “real world.” The only reason you even pay attention is to learn what doesn’t work and move on to something else.

Yoda wisdom, “Do or do not. There is no try.”

RealWorld observations.

  1. The problem is getting bigger not smaller. That seems to indicate there are no viable programs in place.
  2. There is some virtue signalling going on. Compassion is a fine virtue but uncoupled to doing it is useless.
  3. Misunderstanding causation and interaction of the variables is more aimed at preserving the bureaucracy and the people who are compassionately dealing with the problem than it is with solving it. Never assign a problem to people who will be personally harmed by solving it.
  4. The author pointed out a familiar bureaucratic trick when no solution is in the offing. Rename the problem. Homelessness is now the name for what once would have been several problems, Poverty,( maybe as a symptom) drug addiction, criminal activity, and mental illness. Problems that are really a bundle of connected problems cannot be solved at the bundle level. At that level they can feed a bureaucracy forever, though.
  5. There is no measurement system for success or failure. That there are 10,000 people and growing, with a death rate similar to people in their 80s speaks to no operating solution.
  6. Politicians are impatient. No solution that will show effects ten years from now will be approved. They seem to not recognize that each of us will be ten years older then and we will either have the problem or we won’t depending on what we do now. Politicians are not a wise choice for this solution to this problem. The incentives are not appropriate for them.
  7. If you work on the pieces in the bundle, where do you start?  Seriously address addiction? How about mental health. What to do there? Making criminality not criminal as in California provides an incentive. How does that make any sense. Poverty is being addressed by vast other bureaucracies who have proven adept at growing their bureaucracy and inept at solving their problem.

The bits to take away

How your society works is a big part of your personal context. It is impossible to plan effectively if the society changes to far against your interests.

A government and a bureaucracy that promotes or even tolerates dependency  is not your planning friend.


Help me please. If you have found this useful, please subscribe and forward it to others.


I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

War And Motivation


People have been warlike since there were more than a few of us. Cain and Abel in Genesis being the first recorded example. While we seem preprogrammed for war, have we thought it through and decided it is not always in our best interest. Selfishness and greed are part of each of us and usually defeat higher reasoning.

War

Sanskrit is an ancient language found in India. It’s like Latin and Greek to Western civilizations — an ancient classic language. It gives us an insight into the idea of war.

In Sanskrit the word for war is “Gavisti.” It can be translated to mean, “A desire for more cows.” How instructive is that? We can adopt the idea that war is little more than large scale armed robbery. Being the aggressor in such a condition is hard to justify, but not so uncommon..

Wars we have seen or know about

There are many situations where governments, particularly the UN, have instituted action to destroy an opponent with shaky internal programs. Genocide being one. They argue they are doing it for the benefit of the local people and while there may be an element of that, it seems not to work very well.

If we ignore those skirmishes, the rest seem to be aggression with a benefit to the aggressor if successful.

  • Why did Germany invade Russia?
  • Why did Japan attack the United States?
  • Why did the United States defend a position in Viet Nam and Korea?
  • What were the Crusades about?

I am no historian, but it looks like wars fall into two categories

  1. To teach a miscreant rulers a good lesson
  2. To take something the aggressor values from the defender.

Modern warfare is different in style alone

Large scale shooting wars are rare, but that doesn’t mean there are no wars. Shooting is just one tactical choice. Strategy is different. Today there are amazing cultural wars and “cold” wars. These are fought for the same purpose, being to take something from another.

Can we argue that “cancel culture” is like the Germans invading Russia to gain access to oil fields in the south of the country? Did the American “Indian Wars” have any purpose other than to consolidate the use of land? Is cyber warfare, while nearly invisible, different from robbing a bank or blockading a country?

In each case war means “You have something I want. Give it to me or I will kill you and take it.”

That does not seem like a morally persuasive position.

An alternative to aggression

Aggression happens when people run out of options. Some have just that one option.

Have you noticed that martial arts experts seldom fight? One sixth-dan black belt I know has the approach, “Hurting you is the last thing I want to do, but it is still on the list.” Because he knows he can do it, he can permit a much longer list of options ahead of it. Some would see that as weakness, but it is not. It is a clear statement of strength and capability. He doesn’t need surprise on his side.

Learn to negotiate. Learn to persuade. Learn compassion for the others. Help your opponent to be more insightful. Explore options, you’ll be surprised how narrow both your opponent and you have become. Avoid echo chambers and cognitive bubbles and you will be more insightful.

How often do people fall into a trap of “knowing” the right answer. Scott Adams has a thought you should consider. “If you only know what happened, you don’t know anything because you don’t know what didn’t happen

Why is that? Because knowledge is not enough. You must seek and understand meaning. You can only do that if you examine both sides of any story.

Learn what “Cognitive Dissonance” means and avoid it to the extent possible. Learn what “Confirmation Bias” means so you do not seek information that only supports your opinion.

Acceptable solutions that benefit all are not found within thinking bubbles.

The bits to take away

Aggression should be the last instead of first resort.

Improve your empathetic and negotiation skills.

Understand the other side and help them improve their knowledge of your side.

Recognize cultural differences

Unless you are attacked. If that happens, respond skillfully and promptly.


Help me please. If you have found this useful, please subscribe and forward it to others.


I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

What Does Economic Rent Mean?


People know about renting an extension ladder, a car or even a house. That’s not the same idea  as economic rent.

“Economic rent is any payment (in the context of a market transaction) to an owner or factor of production in excess of the costs needed to bring that factor into production.” – Wikipedia.

You may hear economists g about rent seekers. Usually with a  least mild disdain. The level of disdain depending on where they fit on the capitalism to socialism scale. In simplest possible terms “Economic Rent” is profit. What they got paid in excess of what it cost to produce.

Economic rent is good to a point

People everywhere like a profit. If they can reduce costs they can usually outcompete others by lowering the price of the product or service. Total profit is a function of how much you make on one unit times how many you can sell. Suppose, it cost $7 to make a widget and you sell for $10. Suppose further you can reduce your cost to $6.00, maybe by buying a new machine. You could now sell for $9.00 and be as profitable. If your competitors are still at a cost of $7.00 they must lose a dollar per unit or surrender market share to you. The total cost of all product bought by the public falls, yet the total rent of the least competitive business falls, so the public is better off. The most efficient competitor is unharmed and presumably will continue to innovate.

If we go back 160 years we see how it works. When Rockefeller  started in the oil industry, kerosene price exceeded $20. As oil became more available it dropped to about $0.10 and as suppliers failed it recovered to $10. As Rockefeller became dominant in the downstream production of petroleum products, over the next 10 years it fell to about a dollar and stayed there until the 1950s. Despite Standard Oil’s 90% market share of refining and distribution in the late 1800s, the price fell and volume created enormous profits. Monopolies can be efficient when they spread their fixed costs around many more units.

Economic rent can be a problem

Monopolies can be a problem when they use their might to extract extra profit. “Rent.” You will often hear economists talk about “rent seeking” behaviour.

Suppose Standard Oil could produce kerosene for 50 cents and sell for a dollar. With their huge market share they could have charged $2.00 without losing much share. Why did they not? There are many reasons possible. From altruism, (unlikely,) to foresight. Higher prices make it easier for competitors to move in and who knows but one of them might be smart enough to take large shares of the market. Remember how Microsoft came to dominate the word processor market even though WordPerfect had more market share than all the others combined. You cannot enjoy both high rent and no competition.

At least not by economic means.

Where excess rent exists today, and it does, you will find political connections and money hungry politicians. The ways are many and some subtle.

Acquisition of potential competitors is easy enough. Any time you can solve a problem with a cheque, it is just and expense. The antitrust laws don’t seem to apply if the target is small compared to the acquirer, and the other entrants in the space. Another favourite is lobbying for regulation with high fixed costs. If you are large the price effect per unit is tiny. If you are not large  it could be enough to put you out of business. Union rules and permissions affect some more than others. Minimum wage laws affect some states more than others.

Most lobbyists are paid to find ways for businesses to gain advantage without imperilling their profit margins. A little advantage here, and a little disadvantage for the competitors there. It all adds up.

Politically advantage is a real thing and it works. Has any economist calculated the “rent” accruing to politicians, their parties, and the bureaucracy? Not that I’ve seen but it is most certainly there.

High operational leverage.

If it is very expensive to get into a business, but the cost per item or transaction after entry are very low, you have an operationally leveraged business. It is easy to view  rent in more than one way in these businesses.  Take the semiconductor chip manufacturing business. The first chip produced that works will cost at least $15 billion and perhaps more. The second and every one following less. Maybe a few dollars each. What is the fair price in terms of rent? It depends. How many are you going to make? If there will be a million, you will need $15,000 each. For a hundred million, $150. Pricing is  bit of an art-form in this environment.

The rent problem arises when the fab plant has recovered all their costs of making the first one. Should the price fall to $9.95. What if they keep the price at $300 or whatever, even though they cost $2 each to make. Drugs follow the same pattern until the patent runs out. A thorny problem. What should happen?

The customers fight back

Yogi Berra had a thought. “You can observe quite a bit just by watching.”

To wit #1 – Amazon has notified Visa they will refuse to accept their UK cards beginning in January 2022. There argument is the merchant’s card costs are out of control. Most retailers would agree. Visa is a highly operationally leveraged business. There communication and computer system is massively expensive and their fees are not insignificant either. It could be they have over recovered their startup costs and are enjoying excessive rent. Amazon’s merchant charges in the course of a year must be enormous. They would like to use their market influence to lesson that charge and they likely will.

To wit #2 – Berkshire Hathaway, The Buffett company sold a small part of their position in Visa and Mastercard during the third quarter of 2021. Buffett is known for refusing to participate in businesses about to face trouble with their profit margins.

Should you notice when the players customer – intermediary – supplier – government begin to interact to minimize the rent.

The takeaway

Excess profits or excessive economic rent is possible but where do you draw the line.

Some businesses have been enjoying the opportunity and may have problems continuing as competition rises and customers push back on price.

If a business start getting too much press on its pricing and profits, expect changes in their pricing policy. Think Pharma and payment processors like Visa for now. There are others too, but those will do for thinking purposes.

There are far more customers than rent seeking businesses. If government catch on to voters versus campaign contributors are competing with each other it won’t take politicians long to work out the calculus that favours themselves.


I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

Investment Leverage


In the United States, the total amount borrowed in margined brokerage accounts has now surpassed $500 billion. There are no doubt billions more are borrowed from banks and other lenders. For many people, leverage makes sense. For a while. The trick is to know when to stop.

How leverage works

The idea is if you invest more you make more in a rising market. Seems simple enough.

Suppose you have $50,000 and invest it at 7%, in five years you would have $70,000. Plus $20,000. But if you invested $100,000 at 7% and paid 3% interest to get the extra $50,000, in five years you would have $131,000 less the $50,000 you owe. $81,000 A gain of $31,000. $31,000 is more than $20,000 so why not have it?

If you could earn 9% before costs, you clear $43,800.

When the market is raising there seems to be no risk.

“I think without a doubt, that what is called “financial genius” is merely a rising market.” — John Kenneth Galbraith

Many greedy people expect to make far more than 9%. Leverage makes sense to them. Greed is a powerful motivator. But we often find it is a misdirecting motivator.

The other side of leverage

Market don’t always go up. The apparent rule is markets fall faster than they rise. Why? Because fear easily overcomes greed as a motivator.

If you have $50,000 invested and lose 30% you are left with $35,000 to reinvest and grow from the bottom.

If you invest $100,000 with $50,000 borrowed at a debt ratio of 50% of value. The $100,000 becomes $70,000 of stock and a loan of $50,000, so $20,000 is yours. The broker would sell $30,000 so the ratio came into  line and you would have $40,000 working for you with $20,000 still owed to the broker or bank.

Leverage at 50-50 ratio means any losses will be doubled plus the interest you paid.

Fifty-fifty leverage may increase your return or magnify your losses. The losses matter more. They reduce the amount of capital used to recover.

Buffett’s Wisdom

“Over time, markets will do extraordinary, even bizarre, things. A single, big mistake could wipe out a long string of successes. We therefore need someone genetically programmed to recognize and avoid serious risks, including those never before encountered. Certain perils that lurk in investment strategies cannot be spotted by use of the models commonly employed today by financial institutions.”

On Long Term Capital Management’s leverage driven collapse, “.. to make money they didn’t have and didn’t need, they risked what they did have and did need. “”

“If you’re smart you don’t need leverage and if you’re dumb you shouldn’t be using it.”

Buffett leaves a pretty narrow demographic within which someone should be using leverage. Are you in that space?

The bits to take away

Markets adjust, often dramatically.

Leverage works both ways. Consider the downside.

Greed is counterproductive. Eventually, it distorts your viewing point.

Be willing to reduce leverage if you have any left.


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I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

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