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pages: 44 words: 13,346

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Extreme Early Retirement: An Introduction and Guide to Financial Independence (Retirement Books)
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Clayton Geoffreys

asset allocation, dividend-yielding stocks, financial independence, index fund, passive income, risk tolerance

There is another method which you can live with and it is through generating passive income. Throughout the next pages, you will be learning more about passive income but the basic idea is to couple your active income with various sources of passive income. Two of the most common sources that early retirees can live with are dividend-yielding stocks and rental properties. However, every source of passive income requires an investment and nearly all kinds of investments involve risk. It is important for you to calculate your risk tolerances and consider safer options so you do not end up burning your savings. 5 Reasons You Should Consider Extreme Early Retirement You Will Have More Time Enjoying the Goodness in Life The average age when people retire is 65 or 70, and if you think about it, people spend more time working instead of living.

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Your Money Works for You and Not the Other Way Around This is the main subject matter that everyone wants to talk about when it comes to extreme early retirement. It is not easy to achieve, but with a little patience and time spent on learning, you can establish ways to make your money work for you. Early retirees are known to come up with ways of generating passive income apart from their active income. As mentioned earlier, dividend-yielding stocks and rental properties are two of the primary sources of income that early retirees spend most of their investment funds into. There are even some retirees who rely entirely on their rental properties as a source of passive income. Ideally, this is the kind of life everyone might want and although you are not necessarily ‘working’ for it, there is still some work involved but not as much as a regular day job would require.

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However, there is still some more work and risks involved when you are investing in rental properties such as the property’s cost and expenses, the rate of return from your investment, and the financial risks involved from owning the property. The risks we are talking about here are usually that of the damages you may incur from your tenants, the probability of missing payment schedules or rental fees, and the untimely lack of a market for your property. Another interesting source of passive income is that of dividend-yielding stocks because you obtain significant return at regular periods or intervals. The good thing about it is that you are not dragged into any kind of activity other than the opening stages of your investment. Apparently, the slightly complicated part of this type of investment is deciding on which stock to choose.

pages: 333 words: 76,990

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The Long Good Buy: Analysing Cycles in Markets
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Peter Oppenheimer

"Robert Solow", asset allocation, banking crisis, banks create money, barriers to entry, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, business cycle, buy and hold, Cass Sunstein, central bank independence, collective bargaining, computer age, credit crunch, debt deflation, decarbonisation, diversification, dividend-yielding stocks, equity premium, Fall of the Berlin Wall, financial innovation, fixed income, Flash crash, foreign exchange controls, forward guidance, Francis Fukuyama: the end of history, George Akerlof, household responsibility system, housing crisis, index fund, invention of the printing press, Isaac Newton, James Watt: steam engine, joint-stock company, Joseph Schumpeter, Kickstarter, liberal capitalism, light touch regulation, liquidity trap, Live Aid, market bubble, Mikhail Gorbachev, mortgage debt, negative equity, Network effects, new economy, Nikolai Kondratiev, Nixon shock, Nixon triggered the end of the Bretton Woods system, oil shock, open economy, price stability, private sector deleveraging, Productivity paradox, quantitative easing, railway mania, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, Savings and loan crisis, savings glut, secular stagnation, Shenzhen special economic zone , Simon Kuznets, South Sea Bubble, special economic zone, stocks for the long run, tail risk, Tax Reform Act of 1986, technology bubble, The Great Moderation, too big to fail, total factor productivity, trade route, tulip mania, yield curve

Although not all growth stocks outperformed value in Japan's case (the broad growth versus value indices show clear underperformance of growth in Japan right up until 2007/2008), there appear to be some specific reasons for this. First, the lack of yield in both the bond and equity markets in Japan made high dividend yield stocks more attractive than they have been in most other markets since 2007 and, second, relatively few companies in Japan were seen as shareholder friendly, so paying a dividend was a good sign of this attribute. Third, the performance of the growth and value factors in Japan in the past 20 to 30 years has been similar to the performance of those factors globally, while value was outperforming in the rest of the world in the early/mid-1990s.

pages: 219 words: 15,438

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The Essays of Warren Buffett: Lessons for Corporate America
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Warren E. Buffett,
Lawrence A. Cunningham

buy and hold, compensation consultant, compound rate of return, corporate governance, Dissolution of the Soviet Union, diversified portfolio, dividend-yielding stocks, fixed income, George Santayana, index fund, intangible asset, invisible hand, large denomination, low cost airline, low cost carrier, oil shock, passive investing, price stability, Ronald Reagan, Tax Reform Act of 1986, the market place, transaction costs, Yogi Berra, zero-coupon bond

It nevertheless had a silver lining: it shattered the modern finance story being told in business and law schools and faithfully being followed by many on Wall Street. Ensuing market volatility could not be explained by modern finance theory, nor could mountainous other phenomena relating to the behavior of small capitalization stocks, high dividend-yield stocks, and stocks with low price-earnings ratios. Growing numbers of skeptics 1997] THE ESSAYS OF WARREN BUFFETT 13 emerged to say that beta does not really measure the investment risk that matters, and that capital markets are really not efficient enough to make beta meaningful anyway. In stirring up the discussion, people started noticing Buffett's record of successful investing and calling for a return to the Graham-Dodd approach to investing and business.

pages: 353 words: 88,376

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The Investopedia Guide to Wall Speak: The Terms You Need to Know to Talk Like Cramer, Think Like Soros, and Buy Like Buffett
** by
Jack (edited By) Guinan

Albert Einstein, asset allocation, asset-backed security, Brownian motion, business cycle, business process, buy and hold, capital asset pricing model, clean water, collateralized debt obligation, computerized markets, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, discounted cash flows, diversification, diversified portfolio, dividend-yielding stocks, dogs of the Dow, equity premium, fixed income, implied volatility, index fund, intangible asset, interest rate swap, inventory management, London Interbank Offered Rate, margin call, money market fund, mortgage debt, Myron Scholes, passive investing, performance metric, risk free rate, risk tolerance, risk-adjusted returns, risk/return, shareholder value, Sharpe ratio, short selling, statistical model, time value of money, transaction costs, yield curve, zero-coupon bond

The Investopedia Guide to Wall Speak 315 Investopedia explains Value Stock A value investor believes that the stock market is often inefficient and that it is possible to find companies trading for less than what they actually may be worth. One popular way to identify value stocks is to check the “Dogs of the Dow” investing strategy: buying one of the 10 highest dividend-yielding stocks on the Dow Jones at the beginning of each year and adjusting it every year thereafter. Related Terms: • Earnings • Price-to-Book Ratio—P/B Ratio • Value Investing • Growth Stock • Style Variable Cost What Does Variable Cost Mean? A cost that changes in proportion to a change in a company’s activity or business.

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Stocks for the Long Run, 4th Edition: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies
** by
Jeremy J. Siegel

addicted to oil, asset allocation, backtesting, Black-Scholes formula, Bretton Woods, business cycle, buy and hold, buy low sell high, California gold rush, capital asset pricing model, cognitive dissonance, compound rate of return, correlation coefficient, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, dividend-yielding stocks, dogs of the Dow, equity premium, Eugene Fama: efficient market hypothesis, Everybody Ought to Be Rich, fixed income, German hyperinflation, implied volatility, index arbitrage, index fund, Isaac Newton, joint-stock company, Long Term Capital Management, loss aversion, market bubble, mental accounting, Money creation, Myron Scholes, new economy, oil shock, passive investing, Paul Samuelson, popular capitalism, prediction markets, price anchoring, price stability, purchasing power parity, random walk, Richard Thaler, risk free rate, risk tolerance, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, stocks for the long run, survivorship bias, technology bubble, The Great Moderation, The Wisdom of Crowds, transaction costs, tulip mania, Vanguard fund

., New York: McGraw-Hill, 2003. 11 146 PART 2 Valuation, Style Investing, and Global Markets FIGURE 9–2 Historical Analysis of the S&P 500 Index, 1957 to 2006 ber 1957, she would have accumulated $176,134 by the end of 2006, for an annual return of 11.13 percent. An identical investment in the 100 highest dividend yielders accumulated to over $675,000, with a return of 14.22 percent. The highest dividend yielders also had a beta below unity, indicating these stocks were more stable over market cycles, as shown in Table 9-2. The lowest-dividend-yielding stocks not only had the lowest return but also the highest beta. The annual return of the 100 highest dividend yielders in the S&P 500 Index over the past 50 years was 3.78 percentage points per year above what would have been predicted by the efficient markets model while the return of the 100 lowest dividend yielders would have had a return that was 1.68 percentage points per year lower.

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Commodity Trading Advisors: Risk, Performance Analysis, and Selection
** by
Greg N. Gregoriou,
Vassilios Karavas,
François-Serge Lhabitant,
Fabrice Douglas Rouah

Asian financial crisis, asset allocation, backtesting, buy and hold, capital asset pricing model, collateralized debt obligation, commodity trading advisor, compound rate of return, constrained optimization, corporate governance, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, discrete time, distributed generation, diversification, diversified portfolio, dividend-yielding stocks, fixed income, high net worth, implied volatility, index arbitrage, index fund, interest rate swap, iterative process, linear programming, London Interbank Offered Rate, Long Term Capital Management, market fundamentalism, merger arbitrage, Mexican peso crisis / tequila crisis, p-value, Pareto efficiency, Performance of Mutual Funds in the Period, Ponzi scheme, quantitative trading / quantitative ﬁnance, random walk, risk free rate, risk-adjusted returns, risk/return, selection bias, Sharpe ratio, short selling, stochastic process, survivorship bias, systematic trading, tail risk, technology bubble, transaction costs, value at risk, zero-sum game

The equation for the market model is: rt = a + b1Mktt + b2SMBt + b3UMDt + b4HDMZDt + et (6.1) where rt = CTA index return in excess of the 13-week T-Bill rate, Mktt = excess return on the portfolio obtained by averaging the returns of the Fama and French (1993) size and book-tomarket portfolios SMBt = the factor-mimicking portfolio for size (“Small Minus Big”) UMDt = the factor-mimicking portfolio for the momentum effect (“Up Minus Down”) HDMZDt = difference between equally weighted monthly returns of the top 30 percent quantile stocks ranked by dividend yields and of the zero-dividend yield stocks (“High Dividend Minus Low Dividend”). Factors are extracted from French’s web site (http://mba.tuck.dartmouth. edu/pages/faculty/ken.french/data_library.html). Table 6.4 summarizes the results of this regression over the entire period and the four subperiods. For all but one subperiod (Weak Bull), the adjusted R-squared coefficients are extremely low and often negative.

pages: 517 words: 139,477

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Stocks for the Long Run 5/E: the Definitive Guide to Financial Market Returns & Long-Term Investment Strategies
** by
Jeremy Siegel

Asian financial crisis, asset allocation, backtesting, banking crisis, Bear Stearns, Black-Scholes formula, break the buck, Bretton Woods, business cycle, buy and hold, buy low sell high, California gold rush, capital asset pricing model, carried interest, central bank independence, cognitive dissonance, compound rate of return, computer age, computerized trading, corporate governance, correlation coefficient, Credit Default Swap, Daniel Kahneman / Amos Tversky, Deng Xiaoping, discounted cash flows, diversification, diversified portfolio, dividend-yielding stocks, dogs of the Dow, equity premium, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, Financial Instability Hypothesis, fixed income, Flash crash, forward guidance, fundamental attribution error, housing crisis, Hyman Minsky, implied volatility, income inequality, index arbitrage, index fund, indoor plumbing, inflation targeting, invention of the printing press, Isaac Newton, joint-stock company, London Interbank Offered Rate, Long Term Capital Management, loss aversion, market bubble, mental accounting, Money creation, money market fund, mortgage debt, Myron Scholes, new economy, Northern Rock, oil shock, passive investing, Paul Samuelson, Peter Thiel, Ponzi scheme, prediction markets, price anchoring, price stability, purchasing power parity, quantitative easing, random walk, Richard Thaler, risk free rate, risk tolerance, risk/return, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, selling pickaxes during a gold rush, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, stocks for the long run, survivorship bias, technology bubble, The Great Moderation, the payments system, The Wisdom of Crowds, transaction costs, tulip mania, Tyler Cowen: Great Stagnation, Vanguard fund

An identical investment in the 100 highest dividend yielders accumulated to over $678,000, with a return of 12.58 percent. The highest dividend yielders also had a beta below 1, indicating these stocks were more stable over market cycles, as shown in Table 12-3. TABLE 12-3 Return on S&P 500 Stocks Ranked by Dividend Yield, 1957-2012 The lowest-dividend-yielding stocks not only had the lowest return but also the highest beta. The annual return of the 100 highest dividend yielders in the S&P 500 Index since the index was founded in 1957 was 3.42 percentage points per year above what would have been predicted by the efficient market model, while the return of the 100 lowest dividend yielders would have had a return that was 2.58 percentage points per year lower.

pages: 353 words: 148,895

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Triumph of the Optimists: 101 Years of Global Investment Returns
** by
Elroy Dimson,
Paul Marsh,
Mike Staunton

asset allocation, banking crisis, Berlin Wall, Bretton Woods, British Empire, buy and hold, capital asset pricing model, capital controls, central bank independence, colonial rule, corporate governance, correlation coefficient, cuban missile crisis, discounted cash flows, diversification, diversified portfolio, dividend-yielding stocks, equity premium, Eugene Fama: efficient market hypothesis, European colonialism, fixed income, floating exchange rates, German hyperinflation, index fund, information asymmetry, joint-stock company, negative equity, new economy, oil shock, passive investing, purchasing power parity, random walk, risk free rate, risk tolerance, risk/return, selection bias, shareholder value, Sharpe ratio, stocks for the long run, survivorship bias, Tax Reform Act of 1986, technology bubble, transaction costs, yield curve

The performance of the overall market is somewhat closer to growth than to value, standing at £16,160. This reflects the historical tendency of smaller UK companies to have a value orientation, and of large UK companies to have a growth orientation. Over the 101 years covered by the chart, the annualized return on the value index (containing high dividend yield stocks) is 11.5 percent, while the annualized return on the growth index (containing stocks with a low dividend yield) is 8.6 percent. The annualized value-growth premium over the 101 years is 2.7 percent. Over the long term, the historical record of value investing has been positive in the United Kingdom as well as the United States.

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The Volatility Smile
** by
Emanuel Derman,Michael B.Miller

Albert Einstein, Asian financial crisis, Benoit Mandelbrot, Brownian motion, capital asset pricing model, collateralized debt obligation, continuous integration, Credit Default Swap, credit default swaps / collateralized debt obligations, discrete time, diversified portfolio, dividend-yielding stocks, Emanuel Derman, Eugene Fama: efficient market hypothesis, fixed income, implied volatility, incomplete markets, law of one price, London Whale, mandelbrot fractal, market bubble, market friction, Myron Scholes, prediction markets, quantitative trading / quantitative ﬁnance, risk tolerance, riskless arbitrage, Sharpe ratio, statistical arbitrage, stochastic process, stochastic volatility, transaction costs, volatility arbitrage, volatility smile, Wiener process, yield curve, zero-coupon bond

See also Transaction costs Cox, John, 166 Cox-Ross-Rubinstein (CRR) convention: in binomial local volatility models, 252–253 in binomial models, 229–231 local vs. implied volatility in, 258–259 and time-dependent deterministic volatility, 242–243 Credit default swaps, 64 Crepey, Stephane, 307, 308, 317 Currency crisis of 1998, 2 Delta (Δ): and convexity, 49–50 defined, 46 Heaviside and Dirac delta functions, 190–191 of hedge ratios, 291 implied volatility as function of, 137–138 of lookback calls, 297, 300–301 sticky delta rule, 311–315 and strike, 141–143 and volatility smile, 140–143 Delta-hedged portfolios: as bet on variance, 64 defined, 47 Index hedging error in, 110–111 profit and loss with, 101 Demeterfi, Kresimir, 80 Derivatives: as non-independent securities, 35 relative valuation for, 12 Derman, Emanuel, 268 Diffusion, jumps plus, 395–398 Diffusion speed, in implied volatility, 285 Digital European call options, 171–173 Dilution, as risk management strategy, 27 Dirac, Paul, 6 Dirac delta functions: in static replication, 190–191 in stochastic volatility models, 328 Discrete hedging, 105–116 and accurate replication, 115–116 example of, 114–115 hedging error in, 110–114 Monte Carlo simulation for, 105–110 Discrete random variables, 252n.2 Diversification: for jump risk, 397 limitations of, 32 as risk management strategy, 31 Dividends, random, 396 Dividend yield: stock with continuous known, 240–242 zero, in Black-Scholes-Merton model, 237–238 Dominant index paths, 299–300 Down-and-out barrier options, 293f with nonzero riskless rate, 211–212 static hedge for, 212–214 with zero riskless rate and zero dividend yield, 207–211 Drift: in jump-diffusion models, 398–399 in jump modeling, 389 in stochastic volatility models, 349–350, 364–365 Dupire’s equation, 265–277 binomial derivation of, 270–275 formal proof of, 275–277 for local volatility models, 265–270 Dynamic hedging, 64, 204 Dynamic replication, 44–52, 53f and convexity, 49–50 defined, 16 for hedging options, 52, 53f 503 implied vs. realized volatility in, 50–51 notation for implied variables, 51–52 simplified explanation of, 44–49 Efficient market hypothesis (EMH), 17–18 Einstein, Albert, 417 Enterprise value, 165–166 Equities: and enterprise value, 165–166 volatility smile in individual, 148–149 Equity indexes: emergence of smile in, 4–5 jumps in, 383 local volatility model for, 307–308 volatility smile in, 144–148, 375 Error(s): in discrete hedging, 110–114 in replication, 81–82, 219 Euclid, 6 Euler’s equation, 355 European down-and-out call, 42–44 European options: Merton inequalities for, 154–158 sticky delta rule for, 313 value of, 37–38 volatility sensitivity of, 57–58 European up-and-in puts with barrier equal to strike, 206–207 Exact static replication, 37–42 Exotic options: in local volatility models, 292–301 replicating, 187–190 replicating, with vanilla options, 192–194, 195f–196f, 197 valuing, with smile models, 171–173 Fama, Eugene, 18 Financial crisis of 2007-2008, 1–2 Financial engineering, 7–8 challenges of, 417 mathematical finance vs., 5–6 role of, in financial crisis of 2007-2008, 1–2 Financial models, 1–12 Black-Scholes-Merton model, 2–3 and implied volatility smile, 3–5 inherent problems of, 417 purpose of, 8–12 in replication valuation, 15 and theory, 5–8 504 Financial theory, 5–8 Fisk-Stratonovich integral, 424, 427 Foreign exchange (FX) options: jumps in, 383 volatility smile in, 149–150 Formal proof, of Dupire’s equation, 275–277 Forward approach, to stochastic integration, 425–426 Forward integrals, 427–429 Forward Itô integrals, 92–93 Forward numerical integration, 423–424 Forward rates, 260–261 Frequentist probabilities, 19–20 Future expectations, and current values, 51 Future volatility: in Black-Scholes-Merton formula, 131 hedged option strategies as bet on, 89 FX options, see Foreign exchange (FX) options Gains, from convexity, 52.

pages: 1,239 words: 163,625

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The Joys of Compounding: The Passionate Pursuit of Lifelong Learning, Revised and Updated
** by
Gautam Baid

activist fund / activist shareholder / activist investor, Airbnb, Albert Einstein, Andrei Shleifer, asset allocation, Atul Gawande, availability heuristic, backtesting, barriers to entry, beat the dealer, Benoit Mandelbrot, Bernie Madoff, bitcoin, Black Swan, business process, buy and hold, Cal Newport, Cass Sunstein, Checklist Manifesto, Clayton Christensen, cognitive dissonance, collapse of Lehman Brothers, commoditize, corporate governance, correlation does not imply causation, creative destruction, cryptocurrency, Daniel Kahneman / Amos Tversky, delayed gratification, deliberate practice, discounted cash flows, disintermediation, disruptive innovation, Dissolution of the Soviet Union, diversification, diversified portfolio, dividend-yielding stocks, Edward Thorp, Elon Musk, Everything should be made as simple as possible, financial independence, financial innovation, fixed income, follow your passion, framing effect, George Santayana, Hans Rosling, hedonic treadmill, hindsight bias, Hyman Minsky, index fund, intangible asset, invention of the wheel, invisible hand, Isaac Newton, Jeff Bezos, Joseph Schumpeter, Kickstarter, knowledge economy, Lao Tzu, Long Term Capital Management, loss aversion, Louis Pasteur, Mahatma Gandhi, mandelbrot fractal, margin call, Mark Zuckerberg, mental accounting, Milgram experiment, moral hazard, Nate Silver, Network effects, Nicholas Carr, offshore financial centre, oil shock, passive income, passive investing, pattern recognition, Peter Thiel, Ponzi scheme, price anchoring, quantitative trading / quantitative ﬁnance, Ralph Waldo Emerson, Ray Kurzweil, reserve currency, Richard Feynman, Richard Thaler, risk free rate, risk-adjusted returns, Robert Shiller, Robert Shiller, salary depends on his not understanding it, Savings and loan crisis, shareholder value, six sigma, software as a service, software is eating the world, South Sea Bubble, special economic zone, Stanford marshmallow experiment, Steve Jobs, Steven Levy, Steven Pinker, stocks for the long run, sunk-cost fallacy, tail risk, the market place, The Signal and the Noise by Nate Silver, The Wisdom of Crowds, time value of money, transaction costs, tulip mania, Upton Sinclair, Walter Mischel, wealth creators, Yogi Berra, zero-sum game

Think about this before you jump in to buy. Avoid investing in melting ice cubes. What appears to be cheap or relatively inexpensive can continue becoming cheaper if industry headwinds intensify. An irrational fall in price makes a stock cheaper. A rational fall in price makes a stock more expensive. Many of the high dividend-yield stocks in expensive markets eventually turn out to be value traps and destroy wealth. When you see a deep value stock suddenly break down on high volumes with no visible explanation, take notice. You are likely observing a value trap. Value traps are businesses that look cheap but actually are expensive.

pages: 1,088 words: 228,743

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Expected Returns: An Investor's Guide to Harvesting Market Rewards
** by
Antti Ilmanen

Andrei Shleifer, asset allocation, asset-backed security, availability heuristic, backtesting, balance sheet recession, bank run, banking crisis, barriers to entry, Bernie Madoff, Black Swan, bond market vigilante , Bretton Woods, business cycle, buy and hold, buy low sell high, capital asset pricing model, capital controls, Carmen Reinhart, central bank independence, collateralized debt obligation, commoditize, commodity trading advisor, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, deglobalization, delta neutral, demand response, discounted cash flows, disintermediation, diversification, diversified portfolio, dividend-yielding stocks, equity premium, Eugene Fama: efficient market hypothesis, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Flash crash, framing effect, frictionless, frictionless market, G4S, George Akerlof, global reserve currency, Google Earth, high net worth, hindsight bias, Hyman Minsky, implied volatility, income inequality, incomplete markets, index fund, inflation targeting, information asymmetry, interest rate swap, invisible hand, Kenneth Rogoff, laissez-faire capitalism, law of one price, London Interbank Offered Rate, Long Term Capital Management, loss aversion, margin call, market bubble, market clearing, market friction, market fundamentalism, market microstructure, mental accounting, merger arbitrage, mittelstand, moral hazard, Myron Scholes, negative equity, New Journalism, oil shock, p-value, passive investing, Paul Samuelson, performance metric, Ponzi scheme, prediction markets, price anchoring, price stability, principal–agent problem, private sector deleveraging, purchasing power parity, quantitative easing, quantitative trading / quantitative ﬁnance, random walk, reserve currency, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Robert Shiller, Robert Shiller, savings glut, selection bias, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, stochastic volatility, stocks for the long run, survivorship bias, systematic trading, tail risk, The Great Moderation, The Myth of the Rational Market, too big to fail, transaction costs, tulip mania, value at risk, volatility arbitrage, volatility smile, working-age population, Y2K, yield curve, zero-coupon bond, zero-sum game

Active strategies that involve high turnover are less tax efficient than passive strategies that delay taxation. • Changes in tax laws over time can influence absolute and relative pricing. Falling tax rates from the 1980s to the 2000s contributed to rising equity market valuations, while the dividend tax cut in 2003 boosted demand for high-dividend-yield stocks. • Mortgage interest rate deductibility influences both bond and real estate pricing. The yield spreads of mortgages and corporates vs. Treasuries partly reflect differential (state and local) tax treatment. Tax-loss selling contributes to turn-of-the-year and January effects. 28.6 NOTES [1] Clearly, the riskiness of individual investments is not well captured by standalone volatility, which ignores their diversification abilities and timing of losses.

pages: 1,590 words: 353,834

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God's Bankers: A History of Money and Power at the Vatican
** by
Gerald Posner

Albert Einstein, anti-communist, Ayatollah Khomeini, bank run, banking crisis, Bretton Woods, central bank independence, centralized clearinghouse, centre right, credit crunch, disinformation, dividend-yielding stocks, European colonialism, forensic accounting, God and Mammon, Index librorum prohibitorum, Kickstarter, liberation theology, medical malpractice, Murano, Venice glass, offshore financial centre, oil shock, operation paperclip, rent control, Ronald Reagan, Silicon Valley, WikiLeaks, Yom Kippur War

The IOR’s assets were not at risk, Caloia said, because under his nearly nineteen-year tenure the bank had never participated in stock options, much less derivatives (highly leveraged financial instruments). He did not disclose precise numbers, but indicated a recent press report concluding that the IOR’s unadventurous investment philosophy meant 80 percent of its assets were in low-yield AAA government bonds and the rest in a mixture of gold and dividend-yielding stocks, sounded about right.7 The Vatican Bank did not issue loans so it was not facing customers unable to make repayments.I Instead, Caloia noted the bank adhered to conservative investments that were “clear, simple and ethically based.” The IOR did not profit, he emphasized, from any dishonorable endeavor such as trading in international armaments.