Stealing wealth: This is a broad ranging topic that spans the acts of mugging omen in a dark alleyway to exaggerating the market value of fixed assets on a balance sheet in order to increase the market price of common stock. Martha Stewart, Bernie Maddox and Michael Milkmen went to Jail for stealing, although they didn’t pull a gun on anyone. Although some have been successful, I would suggest you consider the other options. Successful stealers usually don’t stop until they get caught. Provide a service: This is obvious. I need my car fixed occasionally.But in the time it would take me to fix it, I could earn a days pay as an economist.
A car mechanic, however, might only require a few minutes to fix my car and would therefore only charge me a half day’s pay. It would then be worth both our whiles to have the mechanic fix my car for me. In a world of perfect information, such an exchange is mutually beneficial. As a professor, I earn my income by providing a service. I serve up financial knowledge In a way that is easier to understand than by getting It straight from a textbook.
Add value: A worker In a furniture factory adds value when he uses wood, saws, nails, glue and other resources to produce a table. The table Is worth more than the sum of the resources used to produce it. By doing so, the worker has added value to the pile that he adds. An overpaid worker is a short lived phenomenon.
An underpaid worker will be bid away by another employer in order to take advantage of the “surplus value” that can be exploited. The bidding will continue until the surplus value disappears. It follows, then, that the more value you add, the more you’ll be paid.You know this intuitively, that’s why you’re enrolled in college – to acquire the skills and knowledge that will make you more productive. Gamble: There is no doubt that it is mathematically possible (although in most cases improbable) to win a bet.
Organized betting, whether a casino in Alas Vegas or your NFG bookie, earn a living by providing a service, not by paying out all their revenues. State lotteries are designed to separate you from your hard earned income by paying out Just enough, and not one cent more, to keep you dumping their money into the state coffers. An entrepreneur is also a gambler (as well as a value-adder).A person who owns a business is gambling that he has identified an unfulfilled need or want n the society and (not or) can organize resources efficiently enough to earn a profit. If he is wrong on either count, he will lose.
If he is right on both counts, he will earn a profit. The term entrepreneur is, in fact, a French term referring to a risk taker. Exploit Market Inefficiencies: If the market for a particular asset is efficient, it will be both rational and organized.. In a rational market for an asset, that asset’s price will immediately and accurately reflect all relevant information that can be known.An organized market have “market makers” who facilitate the exchange process. These market makers might be called intermediaries, middlemen or brokers.
If they can’t line up a seller with a buyer, they will, themselves, buy assets for which there is not an immediate buyer. Or, in those cases where they can’t find an immediate seller, will sell you the asset out of their own inventories. The major stock exchanges are efficient markets. When something happens that would affect the profits of a corporation, the price of the stock immediately adjusts to a new price that accurately reflects the present value of the stream of future profits.The real estate market is a title less efficient. Although there are brokers that will help you find a buyer or seller, it is not an organized market in that there are no market makers that will purchase the asset at the current market price themselves if there is not a buyer at a specific moment for every seller, or will sell the asset out of his own inventory at the current market price when there is not a seller for someone who wants to buy. Secondly, information is not always complete.
Home inspections, brokers’ analysis of comparable sales in the area, and the like are valuable, but there are not millions of individuals all over the world investigating every nook and cranny for information they can act on as there are in the stock market. Generally, real estate is a local market with relatively few participants. Often the buyers are swayed by impulses that are not particularly relevant to the investment aspect (shape of the kitchen faucet or proximity to auntie Gertrude), or the buyer has a sentimental attachment and tends to have an inflated estimate of the market value.The antique market is even less efficient. Watch Nannies Road Show on Monday nights and you’ll see that he estimates for people’s assets are given in a broad range. And sure, you can wholesale and retail prices is pretty wide. In other words, you’re paying a hefty premium to dump that old piece of Jejune in the attic. EBay is an relatively efficient market because there are millions of people all over the world taking part.
If you want to know the value of an asset, check eBay – one second before the auction closes.Inherit it or wait for someone to give it to you: Don’t hold your breath. People who put you in their wills tend to live way too long. Returns on Investment How does an investor earn his money? If the investor owns a nominal asset, he is a lender and is therefore providing a service. The lender allows the borrower to have something now rather than making him wait until he saves up enough cash to purchase it outright. A stockholder is a part owner of a company that either provides a service or adds value.
A speculator is a gambler. Because stock markets are extremely (although not perfectly) efficient, a day-trader a speculator and, thus, a gambler. It’s the same for derivative, commodities and futures traders as well. Gamblers win some and lose some, but tend to lose in the long run because their asses tend to be greater than their gains. You’ll see why later in the semester. While it is hard to get rich quickly, it’s easy to get rich slowly. The purpose of this course is to explain the principles of getting rich slowly.
This course does not contain secrets, known only by the experts, to a fabulous lifestyle. If I knew these secrets, I wouldn’t be teaching. I won’t explain to you how to day trade. If I were a successful trader, I wouldn’t be teaching.
I have, however, learned first hand what not to do. There’s only one way I know of to get out of debt – pay off your loans. The hucksters o see on TV touting their financial systems wouldn’t be revealing them to you if they really worked.They earn their money by stealing – selling you something that doesn’t exist. My get-rich-slowly scheme that I’m selling to you this semester is nothing more than common sense, with some math thrown in. You do, however, have one very important (in fact, I could argue the most important) thing going for you as we speak.
That is the all-too-often under utilized resource – TIME. You’ll learn more about this very soon. But let’s start by understanding how fluctuations in the economy can affect your financial decisions.