Friday , December 6 2019
Home / Tag Archives: 05. Investment decisions: Look ahead and reason back

Tag Archives: 05. Investment decisions: Look ahead and reason back

The benefits of being WEIRD (Western, Educated, Industrialized, Rich, Democratic)

Reputation and trust can solve a lot of business problems, like post-investment hold-up or free riding. It turns out that WEIRDo's (about 12% of the planet) have been successful, in part, because they manage to build and maintain reputations and trust more easily than others.   WEIRDos are more individualistic and independent, less conformist and obedient, more likely to favor “impersonal prosociality” — the idea that one set of moral rules should govern how you treat everyone, from the...

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Is predatory pricing profitable?

Predatory pricing is rare, at least in the US, because it is an investment that rarely pays off.  After an incumbent firm drives an entrant out of the market by pricing low (and deliberately losing money), the incumbent must be able to recoup the lost money by raising price--without attracting more entry--when the entrant exits the industry. Perhaps the best examples of predatory pricing come from the airline industry, when the Department of Justice brought several cases in the 1990's....

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Why is PG&E shutting down power in California?

The incentives are clear:  to avoid liability from fires caused by its power lines. PG&E filed for bankruptcy in January after amassing tens of billions of dollars in liability related to two dozen wildfires in recent years. As speculation grew that its equipment might be the cause of the Kincade Fire, its stock price plummeted about 30 percent on Friday to $5.08, a small fraction of its 52-week high of $49.42. Liability laws are designed to give potential wrongdoers (tortfeasors)...

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Do tattoos signal your discount rate?

The NPV theorem (Net Present Value) says that an investment earns more than the opportunity cost of capital required to fund it if, and only if, the discounted stream of profit is positive.  It follows that individuals with higher discount rates will make fewer investments (in education, health, or reputation) than those with lower discount rates.For many jobs, employers may prefer individuals with lower discount rates as they would invest more in becoming better employees in the hope of...

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Anticipate hold-up–China edition

From a friend who worked in China for two years: I was working with an education consulting company, and had signed a contract prior to moving that said I would live and work in Chengdu for two years. After about 4-5 months in Chengdu, my company said they needed to relocate me to Shenzhen. I agreed under the condition that my move would financially covered.   I arrived in Shenzhen the night before starting work. That next morning I received a message from my manager saying that I needed...

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Should you move from Connecticut to Wisconsin?

To figure out how much to save to pay off current and future retirees, public pension defined benefits plans discount future expected liabilities at 7.5-8.5%.  If they earn that much on their investments, then they will have enough to pay the retirees.  However, this year, their investments earned only 6.8%, the lowest since 2016.On average, pension under-funding is close to 50%.  So pension fund managers have tried to earn more by investing in ... riskier, less traditional investments over...

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Pension problems in Connecticut

The ALEC came out with its rankings of pensions, and Connecticut was the worst. Connecticut ranks last with a dismal 19.7 percent funding ratio, down 3.1 percentage points from last year. Connecticut is one of four states to set retiree benefits through collective bargaining and is unique in that the legislature does not have to consent to contracts for them to go into effect.viii A total of 124 contracts have been passed without a vote in either chamber in the legislature  Under these...

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Marketing in China is different [updated]

Article documenting US/Chinese differences in marketing:China merchants have access to consumers over many different media: ... most notably, Baidu, Alibaba, and Tencent, which together are known by the acronym BAT. To put this in a Western context, imagine if Amazon, Bank of America, Google, Facebook, Activision Blizzard, CNN, and ESPN were all owned by one company. That’s essentially how the big conglomerates work in China, with the BAT companies controlling most of the digital content...

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Charlie Munger on why rich people are valuable to a city

From Market Watch:  After Amazon decided to nix its planned HQ2 in New York, with its promise of high paying jobs, Charlie Munger (Warren Buffet's partner) commented on the loss: “They’re old. They keep your hospitals busy. They don’t burden your schools, the police department, your prisons. They give a lot. Who wouldn’t want rich people?"  The nonagenarian’s comments come as Amazon.com Inc. AMZN, -0.91% announced on Thursday that it was canceling plans to build its New York City...

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Why are millennials leaving Illinois?

Because they can: And as millennials come to appreciate the debt load they’re expected to burden over the next two to three decades – the average Chicago household is on the hook for at least $125,000 in state and local pension debt – expect more of them to head for the border. Unfunded pension liabilities are mounting with no relief in sight. Cities like Central Falls have used the threat of bankruptcy to fix funding before they lost all their residents.  Unfortunately for the people of...

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