Who moved my money?
Who moved my money?
You might think that this sounds pretty similar to who moved my cheese
But recently en
Warming Up
Before we start - Lets review one very important bias: the confirmation bias.
Which it is very dangerous when tinkering with data.
“If you torture data long enough, it will confess to anything”
People might want to prove to you different financial thesis, just be aware of the hypothesis they’ve made.
The more hypothesis, the more ideal that model will be.
A friend, who is a data scientist would say that the model os overfit.
In simple words - too good to be truth, meaning that it will work in paper, but life is much more complex than those hypotesis made.
What it is the inflation?
To inflate, so its all about prices getting higher.
But wait, is that all it is?
People from across the society decides that it is time to increase their profit and we are done?
Well, there are couple of things to clarify here:
- Price is a signal
- We have to use FIAT currencies to pay for everything
Guess what happens when we have to pay in something, that there is most of it as we speak.
What are interest rates?
Compound Interest and Leverage
Too broad to get the idea behind it?
Lets see some numbers:
- CAGR - Compound Anual Growth Rate
- Whats a virtual yearly interest that represent the change between 2 moments of time?
- DGR - Dividend Growth Rate
- Because the return in cash can also grow and it matters
- ROI
- ROIC
- This one is affected by leverage!
The cost of Debt
Interest and Time in the Market
How about making this rules work for you?
Temporal preferences and the close to 0% interest rates
Someone Knows better (and have a plan)
Havent you ever been in the situation of having your paycheck 1st of the month and be done with it by 15th?
This can be quite controversial - as are our needs the ones enslaving us.
Food and shelter, then we start to get diminishing returns bu buying things to impress others, sometimes even with money that we dont have now (money from the future - credit).
Now, let me introduce you to the temporal preferences - they are the reason why you prefer to have a brand new iphone now than wait for it 6 months.
It seems that we have a natural tendency to prefer whats materialized, the present.
If the present is more important than the future for each of us, how is it possible that a commitee of experts (very inteligent people, out of our reach) come to the conclusion that interest rates for the money is 0%? even negative in some ocasions?
Can someone explain that to me? is that what they call a market failure? is it really market?
Are we not enforced by law to use that money? Does nt that sounds like a cartel?