Join our investing community

Trading Competitive advantage of the business in the market

Discussion in 'Shares' started by wdongli, 22nd Jul, 2011.

  1. wdongli

    wdongli Well-Known Member

    Joined:
    31st Mar, 2010
    Posts:
    1,292
    Location:
    Perth
    In the context of your business plan, you need to show your competitive advantage. It is easy to be gamblers in the market and hard to be businesslike investors/traders. What's your investment/trading philosophy which will decide your unique competitive advantage of your business and is critical since it would affect the goal of your business and the approach to move toward your goals.

    You have to take the stocks as real business, which should have the competitive advantages. You have to know each business with the competitive advantage has its intrinsic value. You have to pay reasonable and affordable, or lower price for this competitive advantage, so that their competitive advantage would be your competitive advantages in financial and economic output.

    The reasonable price would greatly enhance your business output, the cash stream and also provide the protection for your business. The market fluctuations is not your enemy but is your business advantage. The valley of the price movement of a business stock with competitive advantage would provide the necessary margin of safety, which is the buffer to make your portfolio stay without losses in worst time.

    If you take the stocks as real business rather than the traded papers you would need to know what the competitive advantages of the business of your stocks. These competitive advantages would set their business apart from the competition. It means their business and then your business would have strong platform to do so. If you could identify the excellent business, buy the stocks of the business at their price is lower or much lower than its intrinsic value, your business would produce excellent results in financial terms.

    So as the owner of the investing or trading business you have to develop the capability to identify the competitive advantage of the stocks, conservatively to manage its portfolio with big enough cash reserve in case the market is worse than the price which has provided quite satisfied margin of safety. The cash reserves would give you two advantage.

    1. Never sell on fire, which is the matter all of good business tries to avoid.

    2. Buy or swap the shares for better price so that reduce the costs of the product, the stocks your would like to hold and expect the market does its best to add value to the product.

    I do feel my knowledge base in finance, economy, market sentiment and human psychology, and personal behavior is very weak. So that I have tried to buy in worst time and sell in good time only. Now by thinking about to write my business plan, I start to understand I need to focus on the direct goal of the business. This competitive advantage of the business needs the quality of the stock in the business sense.

    Once I finish the first draft of my business plan I would put my focus on how to identify qualified stocks! Logically I need to do so also. I want my business like a little Casino house to entertain the market warriors or self-called investors who like the swans in the best market time.
     
  2. wdongli

    wdongli Well-Known Member

    Joined:
    31st Mar, 2010
    Posts:
    1,292
    Location:
    Perth
    Marketing, USP, and the investing/trading business

    A unique selling proposition (usp) is a description of the qualities that are unique to a particular product or service and that differentiate it in a way which will make customers purchase it rather than its rivals. It is a marketing issue. We could use it directly since we don't have product. If we take stocks as part of a business, we need to know the UPS of the business which we would buy and hold part of the business.

    Do we sell something? We do sell the stocks to lock the profit. So do we have our own unique selling proposition for our business, which could be sure we would produce good financial result? We want to be businesslike people in the market. Do you just buy and sell the stocks as the traded papers? If so, you are customers of the brokerage houses only? They want to sell the stocks for their fees.

    You need this kind of service but you have to have your own goals to buy and sell with good reasons. You need to think about how to buy so that you could reduce the cost for your business and how to sell so that you would get the reasonable profit for each transaction. Could I say my USP is

    Buy for margin of the safety and growth with competitive advantage with hard fact but not the market dismal sentiment; sell for the profit which become bigger than the value when the client of your business, the market warriors, would like to pay premiums for the stock?

    Yes, marketing experts used to insist that every product and service had to have a usp, at least one unique feature that could be distilled into a 60-second sales spiel, the equivalent of a single written paragraph. If any business could do so, it is great and if its performance shows it is a viable UPS for the years ahead, we need to buy it at reasonable price for the value and growth.

    Could we get a usp for our trading/investing business in all of market environment for successful and profitable selling? It seems impossible so that we need to organize our stock strategically and tactically? We should not sell for selling! We should buy and sell based on our business indirect and direct goals. Think about it!

    Should we sell our stocks even its growth potential of the business is still quite good and protected strongly by its management team and its internal operational system? We need to understand our own market philosophy and approaches, and their application context and conditions. We need our own circles internally and externally as our castles and moan to protect us. We need the plan. We need to accept the underlying logic, that is we need competitive advantages to increase our winning probability of each of our selling!

    Please remember we should not allow the selling to be emotional. That is the logic and rationality with the UPS. We don't need to follow the UPS of a ordinary business but we do need to get the competitive advantage for our business output in financial terms! We need to behave for that. We need to be organized, disciplined, analytical, and self-reliant in our behavior with opened minds, which could be got only if we behave to get this behavior bit by bit!

    We need to be businesslike people in the market so that we need the business plan as the system to guide us to change our behavior. We need to change our business performance day after day in financial terms and the meaning of our market life and life!
     
    Last edited by a moderator: 22nd Jul, 2011
  3. wdongli

    wdongli Well-Known Member

    Joined:
    31st Mar, 2010
    Posts:
    1,292
    Location:
    Perth
    Uniqueness is rare!

    Uniqueness is rare and needed the support of ordinary business practices. Do you understand ordinary business, its management, its board of directors, its balance sheet, income statement, and asset or equity statement, its operation, and how could a business have its castle and moan to protect its castle?

    If you could not know the ordinary matters how could you make your business unique to get excellent financial result as assumed it should do? If we don't understand the business, how could we be businesslike people in the stock market? We are not unique and then we would not take the right part in the stock market. Uniqueness is rare among the market players. Why do we cry so loudly now? We want to tell it is not our faults. You fail to be unique when most of people lose the faith, you fail too.

    It should be surprised to find we are not unique and uniqueness is not rare, shouldn't it? We are not trained for stock market but we tend to show we know all. We are ignorant and arrogant, which results in careless and no prudent in behavior. Why do you google? What's for your google? For being unique? If we tell anyone so, when we chase after the fade and then stay in the traps, could we say we are unique? We are unique to lose the shirts! We are unique to know we should not care about but we do ignore all we should care about!

    ***
    We could put day and night to know a price movement patter or wonder who and what make the pain for us or a tech formula for stopping loss but we rarely try anything to make us behave as a wise, responsible, goal-driven, desired to get the vision and good organized and intelligent business people for chance and the affordable risks!

    You retreat when you should launch the attack. You attack when you should retreat. You never think you should choose your time and position and manage your resource. You are defeated and then you blame all but not yourself. It is common and very popular in the market. Are you different at this point only? If you could not make this basic point unique, you fail is your fate and then you are really common since you prove you are the market warriors!

    Do you want a unique business in the market? You have to unique and wise and responsible first! Could you be so?

    ***
    Uniqueness is rare and coming up with a continuous stream of products or services with unique features is, in practice extremely difficult. The difficulty that people unique business or market ideas, have in creating functional uniqueness has made them “focus on having a unique emotional selling proposition instead of a usp.

    It is true in the stock market, we don't have ideas how to make our business unique so that we follow the market emotion with the hope we could beat the Market by so called emotional control or system or mechanism to stop the losses or get profit. When all of us try to use the similar model to do business, we compete desperately with each other in good time and run away desperately in the bad time. We may be able to set up a business model to play the emotion but the potential risks to lose the shirts is huge! The fact is most of us just simply become the warriors and consumed by the market war!

    Objectively saying, we neither has a distinctive functional uniqueness, but some of us would find a unique emotional association in the consumer’s mind, which actually are the base of some of trading and brokerage business.

    ***
    Uniqueness can be sought in a number of ways for a ordinary business and the investing/trading business need to identify the companies who has the uniqueness for their business and buy them at reasonable price if we could be sure these uniqueness could generate sustainable profit for their business.

    We use others' uniqueness in the market to make ourselves unique. We stick to our ever-modified business plan to make us as conscious business people to get our own uniqueness among the market warriors.

    We could get our uniqueness too since most of market warriors don't know what a business should be! They don't understand they need the plan let alone business plan! We could be not very clever but we could get our competitive advantage in the stock market! We just move much more slowly than the genius in business and market such as Buffett and Soros.

    I don't care about my slowness! I just care I could use my potential in the right way! Dog is dog but if assumed you are a dog but have the chance to get what you really want, do you want to be a happy and responsible dog?
     
    Last edited by a moderator: 22nd Jul, 2011
  4. wdongli

    wdongli Well-Known Member

    Joined:
    31st Mar, 2010
    Posts:
    1,292
    Location:
    Perth
    Don't underestimate how much you need

    Want to do business? You’ll need to figure out how much money it will realistically take to start or acquire your business, as well as how much money you’ll need to sustain it until it becomes profitable.

    It’s easy to underestimate the amount of money you’re going to need. It is a major reason why many businesses fail.

    1. Undercapitalization will constrict your cash flow and limit the opportunities you have to grow your business.

    2. You will also need enough money on the personal side to carry you through the start-up phase.

    3. Sometimes business owners run out of cash to cover their own expenses even when the business is viable.

    Want to do trading/investing business in the stock market? You have to get enough cash to catch the real and true opportunities, not to sell on fire, and not to feel tight for your normal family expenses everyday. Don't forget you could make mistakes or simply no lucky in the market.

    Personal resource to finance your business?

    It is difficult to get other financial resources for your trading/investing business since the stock market is very volatile and very risky as we realize that it is a war place even the return could be great. The high risk to lose the money or worse the business could lose the shirt, it is understandable for this difficulty. You should be very confident on your business idea and take all of prevent and prudent measure to be sure "no loss" for your trading/investing business.
    Personal saving

    Personal savings, including money in savings and checking accounts, CDs, are often tapped for new ventures. The benefit is that there is no interest due on this money, but you also want to be careful that you don’t jeopardize your ability to pay personal expenses, such as mortgage, car, credit card, and other payments, not to mention having a few bucks left over for groceries, clothes, and other essentials.

    I put all of my personal saving into the stock market. I do feel the pressure since the May 2011 since I have made a series of mistakes and used up all of cash reserve, which put great pressure for my cash flow. If anything wrong in my market playing, I would be forced to sell on fire.

    Home-Equity Loans or Lines of Credit

    You might have borrowed against your largest assets, the home houses and property investment in order to fund your businesses. This is a surefire way to get cash, and the interest may be tax-deductible and cheaper; however, you need to be sure that you’re going to be able to repay this additional loan on your home, or you could end up losing it.

    Without matter how we are confident, debt is two-edge sword, it could hurt you and put pressure on your cash flow or cause capital loss or lose your home and property investment.

    Credit Cards


    You can also access your personal credit cards to tap cash to meet your business expenses, either by using them to charge items for your business or by taking cash advances. Be aware that this is usually a very expensive way to borrow for your business, depending on the interest rates on your cards, and running up big balances on multiple cards could also impact your personal credit rating.

    However, if your borrowing options are limited, credit cards can provide a means to get the money and financial flexibility you need, especially for the short term.

    Family and Friends


    Although conventional wisdom says that it’s not a good idea to borrow money from your loved ones, it could be an option if there are no others.

    The key to successfully borrowing money from family or friends is to treat the transaction as you would with a stranger. Draw up paperwork that spells out the terms of the deal, how much is being borrowed, and how and when the principal will be repaid.

    You should also agree upon a fair rate of return. Then, stick to the payment plan. Nothing will sour a relationship more quickly than a money deal with a friend or family member gone bad.

    What do investors and lenders look for?


    Most of us are not investors in the market and since we have little capital we are not lenders too. However if you really want to be a businesslike investor and would like to set up your own trading/investing business, what they want could help you to make a profit business.

    Investors and lenders want to know the borrowers' history. The experience and credit history are important factors in making their decision. What is the borrowers' collateral? What assets do borrowers have and what are the borrowers' willing to risk for their success?

    You want to run your trading/investing business. Have you ever think about what's your history has shown? Do you have the profit experience in the stock market? Have you felt the pressure from cash flow? Have you paid your interests and service your debt responsible and have seriously thought about your personal saving in your trading/investing business as the lenders or investor think about.

    Why do you invest your money into your trading/investing business? Could you trust yourselves you could make the money for your salaries as the income you act a businessman, for the expenses of your overlay to run the business, for the gain or profit from your capital? It is good you like to invest your personal saving in your business but are you a good business people?

    Bottom line, time, and position!

    Yes you have the dreams for your business but you have to count on your capability for the profit, especially future cash flow; you have to think about what the market allow you to make; you have to think about the time and position you have got! From the above words, could you figure out your business bottom line? When you put your personal saving in your business, you have to be prudent, not ignorant and arrogant, hold your bottom line tightly! It should be the bottom line objective and never allow yourself to miss it. Have you ever missed your bottom line objective?

    Never and ever forget your bottom line objective and make your bottom line objective bigger and bigger when you could move around your corners more efficiently and effectively. If your corner is very fragile, such as me, you have to set your bottom line objectives lower than someone else since they have run in their way confidently, consciously, prudently, and profitably!

    Just have the losing shirt history and never think to change the behavior is the way to the hell! Don't forget no one would like to borrow the money for your desire. Don't forget your bottom line in your business. Don't forget you need improve your credit performance. Could you pay off the debt? Could you get the money from your business for your salaries for a reasonable good CEOs? Could you get the money for your overlays? Could you get the profit every year which is never lower than your bottom line, zero?

    How? Be businesslike investor or a investlike business people! Could you figure out your first and last goal for your business?

    Secondary sources of repayment

    Lenders look for secondary sources of repayment. How will they get repaid if things don’t work out as planned? What is the borrowers' repayment plan? The investor wants to know that the borrowers are receptive to his needs for information, and have given consideration to how and when he will be repaid, also.

    It sounds very logic, eh? I lend the money to you and you should pay the interest and my money back. But in behaviors, most of market players in the stock market don't try to get the money back let alone interest. They always follow their felling and if they feel good what market allows and what position they keep are not the matter they would like to think. No plan for things don't work out as plan since they don't care about what the business which use their money plan to do. They never how and when they will repaid. Is it insane or stupid? There are still some veterans who started in IT boom who keep to put their hard earned money in their office and workshop for nothing!

    Term, and goals of the loan

    For a lender, the asset financed should meet the term of the loan. Equipment loans should typically be no longer than five years. Accounts receivable and inventory are usually limited to one year. What is the demand for borrowers' product or services? Demonstrate through sales history, orders or other market data, including surveys and market studies for startups. They don't trust how borrowers feel but would like to see the facts and reasonable future projection!

    Yes, you could not do things without goals for your business. You could not lend out your hard earned money without the term to use it. Using the money to trade? How much you could get from the trade per year with 100% confidence even we could not be sure 100% we could get the goals? Have you tried to do all for your goal and don't allow yourself miss anything you have to do? How could you trust yourself if you keep a very poor trading records? Why do you trust your feeling so much? Why don't push yourselves to be a good business people who could make the business as plan? Behavior make the facts. Do you trust your behavior? What're your behaviors? No plan at all would plan your fail!

    Margin and worst time for your capital and interest

    Is there enough margin for error in your plan? Lenders want room for unplanned events which would not prohibit repayment of their loan. Are your plans and projections reasonable and realistic? Take a conservative approach which you are confident you can achieve. Be able to “out-perform” your projections.

    No margin at all or just have the margin which you have to work in your office and workshop to support your losing shirts one after another. Is it all your plan? You never think you need some room for your money and paper profit. What things could be wrong in the market? What's not what you should not lose? We make too many theories to support our feeling for profit. When you read the chart what you see in good time? When you read the chart what you see in bad time? Why do you believe your buying could be 10 baggers?

    Are there the sign of black swans? Yes we need conservative approach, which is what about your behavior. Want to be a businesslike investor? Use all to increase your winning probability! Don't allow the losses. Stop-the-losses are the last resort and only for if the thing go extremely bad and then you still have enough cash reserves for room!

    It is really boring if you don't care about your dying

    Just think why most of market players do the money losing business! I did find my stupidity and insanity since April 2011. What's stupid I could allow me just following my greed and not taking the profit I should since I worry if I would have locked too much profit I would pay too much tax!

    In half year I had locked more than 50% paper profit to my portfolio. 10 baggers is about 2 of 10 shares which could be after they touch the lowest price. GFC has changed the bottom channel. The market is still very fretted to bad news. I should lock the profit and should be happy to pay the tax.

    Yes you could say I know my story and all of the above, which are bored and repeat as rubbish. However how could you make your behavior unique in the losing being popular market?

    I really don't know what my direct goal. I really don't know my bottom line. It shocked me very much. It is not about the loss. It is about I don't behave rationally in the market. It tells a simple fact I don't have business sense!

    Do we know if a place is your dying place you should not go there? But have you question why you are so dare to go there without protection? How to protect you there? It is a topic you have to think and talk until you are sure you would be OK and put the protection approaches into your plan!

    If you don't care about your dying who will care about it? If we have been in market for a decade, we should know what we should do and should not. Unfortunately it is not true. Why? We don't do the boring but necessary wise things, making the plan, checking the plan, following the plan, and building our financial castle with great moan! We don't have the senses even some of us are genius!
     
    Last edited by a moderator: 24th Jul, 2011
  5. wdongli

    wdongli Well-Known Member

    Joined:
    31st Mar, 2010
    Posts:
    1,292
    Location:
    Perth
    Risk management and one tool perhaps very useful!

    Should I buy? More questions needed!

    Should I buy ABC stock? Should I invest in XYZ? They’re great questions indeed even gamblers always ask questions about when I hold'em and unfold'em. The problem is that no human being can offer an appropriate answer without a whole lot of background knowledge about the person posing the question. It is a question for conclusion and usually need efforts and time for it. With this kind of questions, you need to ask a lot other questions and focus to get the answers before you could know the answer such as "should I buy ABC stock?"

    As you try to set up your trading/investing business you must have a rounded-out picture of the yourself the targeted business you would like to put money in, which would offer a valuable assessment. Without this kind of assessment, you would like blind to touch the elephant in a room, and then you could not raise the elephant for your benefit by yourself. You questions and answers plus how you act for the answers show your personal characters and would make your future good or bad.

    Don't forget you act as a lender but also a business people even you don't know you are. You have to make your business plan and follow your road map to where you want to go. So to gain that fuller understanding, you must consider more than the typical metrics, such as portfolio diversification or levels of debt, or simply buying low and selling high. You must construct a complete inventory of you financial situation that includes often-overlooked items like the value of your labor or your plan for maintaining your lifestyle during you do your trading/investing business.

    Think whom you are and what resource you have

    Simultaneously, you must understand implicit factors about the your situation, such as the nature of your assets and liabilities. Then and only then will you be able to engage in one of the primary tasks of trading/investing business: to manage risk without limiting your reviving in your business. For most people, the term “wealth management” or trading/investing business, is about maximizing returns. For me now, the most important task of wealth management and trading/investing business is about risk management. You can have risk management without wealth management or business, but you can’t manage wealth and your business without managing risk.

    It’s plain and simple, eh? Seriously saying I have known it since I was 16. I just know it but never try to use it in the stock market until a few weeks ago even I have realized something wrong in basics, which I constantly ignore and never follow! You need to be serious about the life logic and common senses. You need to mull them with the market realities. You need to plan to obtain them in your business and write them down in your business plan. You need your behavior to make the fact that you know it in realities not just in words.

    Why genius break their wings in the market?

    Too many market genius know everything in words but they could be crazy in one great idea and throw away all of the life logic and common senses. They should be since they believe they find something for a new world, new age, and new... They could not understand all of new things only could be alive in the old world and universe! If you are very clever to hit your head against the wall, you would not understand how to avoid it with a plan, don't you?

    Genius usually enjoy the gift they have and think they have all of the gifts to do get what they want. It may be true in the office since the scope limitation which usually fit to their gifts. However the market is so wonderful and amazing, gifts themselves could not you are wise and intelligent since nothing is certain in the market. It doesn't tolerate any ignorance and arrogant without necessary protection. Do you know fire? Do you know its good side and bad side to you? Market doesn't care about genius but it does care about when you take your position and what your position is!

    That is why Warren Buffet said you have to choose value, choose the time to buy value or your position patiently and prudently; if it is not your time, you should let the ball pass by; if it is not your position for value and margin of safety, your should let the ball pass by; you need to organize your time and position for your business as a whole with your plan! That is why George Soros set up his trading theory with top-bottom approach, trading the trend but never daring to ignore the fundamental and the interaction among the market sentiment, participants, fundamentals, and himself to his trading results. That is why they move into financial and investing business.

    The genius plus business senses or common senses or life logic is what could make you great in the market. What if you are not great? You could be wise and much wiser than you could expect. You could be different and unique among the dogs since you don't lose! I guess I have some gifts but I didn't have the gifts in spoken language or no time to let the gifts to shine. Could we let the gift shine in the market if we have? Crying is useless. Questions without efforts for answers is hopeless. Who could tell you where the gold is and you just need to take them home without necessary investigation or detection about the possible place and the valley of death in the way to it?

    Genius could be the biggest idiot in the market!
     
    Last edited by a moderator: 24th Jul, 2011
  6. wdongli

    wdongli Well-Known Member

    Joined:
    31st Mar, 2010
    Posts:
    1,292
    Location:
    Perth
    坐吃山空:sit idle and eat, everything will be used up!

    Don't know you need to be alive first

    One important mistake people in market is they do not know some of our most important assets and cannot provide a full overview of an their financial position. You don't know what you have and don't know the market, how could you know what you should do now and how to prepare for your direct goals and indirect goals. Worse if you have not enough resource to get your goals but you believe your have.

    That’s why it is extremely important using a personal balance sheet, that provides an inventory of assets and liabilities in today’s dollars that can highlight an your leverage ratios and inform investment decisions from a risk perspective. Your financial health needs to be monitored and once anything wrong you should take the action to heal it! It is not about how clever you are but the capability to be survival and alive healthily. A genius could be short alive just because he doesn't care about himself!

    This is why Warren Buffestt always hold some great cash reserve and strike to the target "no loss." That is why Soros sold his gold position to lock the profit. He doesn't let any expectation of the gold ultimate bubble to eat the profit away! No loss is not a narrow definition about you just don't lose your capital but you have to get the necessary cash for your life and overlay. Money never be lost than you consumed but no compensation money for your consumption. 坐吃山空:sit idle and eat, everything will be used up!


    All we know but don't care about


    I know the meaning 坐吃山空 but I don't take it very seriously after I decided to be a full-time market student. To avoid the miserable result: everything will be used up rather than to win out in the market game, you could not ignore your bottom line objective: locking the profit to compensate your consumption! It is so urgent but I am so ignorant and use wrong premise to break down the bottom line objective since April 2011!

    IT bust let me know I only could lose my shirt if I could not get the 101s. It helped me to pass the acid test of GFC. The mistakes and its shocked effects in cash flow when I have to depend on my market playing to get the bottom line objective, the similar salary as I work in my office, forced me to think how to be a market player who never lose his bottom line objective. This logically forces me to check the market reality and myself.

    I will try all to get my business plan with great prudence to harness my ignorance and arrogance. It is about survival and business plan would give the road map for my survival and revival in the market, which I hope and believe!

    It is not great news to anyone else but I do feel I get the turning point in my mind. That is I know I should not be a warrior to fight for the cake in the sky; I know I should not ignore my bottom line, survival without deletion of my capital and lower my life style. I may be forced to stop my full-time market study with some unprecedented events but I would go much better within the scope that the market allow me and I would be back. I enjoy the challenge and its fairness without any biases others exert on you!

    A Chinese saying: 山不在高有神则明,水不在深,有龙则灵, which in market means something like if you could be aware yourself and environment in your little circle, you would be enlightened and visionary for future even you could not see. You cold set up a light in the darkness for survival and revival when time passes by.

    So to be survival as a full time market student


    To be alive you have to be survival first. To be revival you have to be survival first. To be anything significant in the stock market you have to be survival first. No survival, nothing but trapping you in the hell in the market! If you could be survival in the war place, you would get reward in peaceful time when the hope, relief, optimism, exciting, thrilling, and euphoria to be alive again!

    I have to out for 101s wide and long enough. The draft of my business plan should be the result I sort out what I have learned since 2001. I should let my behavior prove I am not paralyzed by the load of the knowledge but they are the resources to draw my road map to the gold with details about valley of deaths ahead!

    It is the time to reckon my past and open new way to behave properly in the market! It is time to do the necessary things for the bottom life first and make the better results than the bottom line objectives. To be alive duck not a dead swan so that you may have chances to show you are a swan and wise swan, who knows it is suicide to fly in the fire without protection!
     
    Last edited by a moderator: 24th Jul, 2011
  7. wdongli

    wdongli Well-Known Member

    Joined:
    31st Mar, 2010
    Posts:
    1,292
    Location:
    Perth
    Bottom line for any individual, family, and business

    We don't want to be warriors; we don't want to 坐吃山空; we want to be revive in good time; we love market and enjoy its challenge; and then we don't have too many options to put our focus on the bottom line objectives in the market. It is not surrendering but a realistic,wise, and intelligent option. We could grow up ourselves in minds and do what the market allows. Someday a great black swan could hit you as wish, could hit you. What a market life could be better?

    The bottom line is the cash flow positive, that is in the worst time, you have to get enough cash income to compensate all of your expenses and overlay including your salary as as the CEO of your trading/investing business. How could you know and do that? You have to do a cash flow analysis in which cash inflows over time, such as wages, are compared to cash outflows over time. Such methods allow an investor or a family or a trading/invest business to see where inflows and outflows match up and where they fail to match up, You could not get all from pure analysis. If no judgment and decision could be made and take the corresponding action to be sure the bottom line objective and get the consequences better than the bottom line, you could not provide good enough service in the market for the needs of the warriors. However you have to know the cash flow analysis are the first and regular tasks for your to mask some dimensions of risk.

    Still, a balance sheet of your trading/investing business may not tell the whole story because the “character” of the items it contains may not have been considered, and you may have overlooked certain items. That is fine and you don't need absolutely right but you do need not to be absolutely wrong. We just need to know what we could overlook. Generally saying on the asset side, often-overlooked items include defined-benefit plans, your investment income, and the value of your labor. Often-overlooked liabilities may be the expected costs of health care and maintaining your chosen lifestyle when you work for your business for long enough time and you need to completely close yourself from your business for your deserved happy retirement even it could mean you lose your mind and others should take care most of your work.

    The good news is if you could protect you good enough and don't give chance to break down your bottom line, you have chances to work until you are 70s or longer since mental work and happiness could make more chances for you to be alive longer. If you could get this far, you have got your own legend and you should be happy when you be conscious! What life could be better for a dream realization life even all we have to be gone someday!
     
    Last edited by a moderator: 24th Jul, 2011
  8. wdongli

    wdongli Well-Known Member

    Joined:
    31st Mar, 2010
    Posts:
    1,292
    Location:
    Perth
    Calculating the Value of Your Labor

    Do you know we all have some intangible asset? It is mainly formed by our personal characters, the behavior, and extension how could we use our internal mental power to get what the environment allow. In most of time and to most of us we could be greatly discounted by the limitation of the environment and the discount is so big and so discouraging so that it stops us to use its potential for our life and future. Derived from these intangible asset, you have the value of your labor in your society. It forms the foundation for you, your family, and your part in the society.

    Before we tackle the character of tangible assets and liabilities, let’s look at the value of our labor as an implied asset that may be missed from our balance sheet. We could call it our human capital or employment capital, if we will. Our human capital or employment capital is the most important one to all of us especially if we were born in the ordinary family and are young. So we have to start to be educated to get the capability to work for others. Some would be happy to go so far but some would like to go further. The cost to go further if it is not in the same course you have chosen and happen in your age after 40, would be quite high. Sometimes it is impossible for an individual to sustain!

    After you have driven a type of vehicles too long, your minds and behavior have been formed. To most of retail market players, we have got the way we chose before and we have got some special capacity for our life and labor value. However it generates great inertia to make any change in direction very painful. For most people, the value of their employment exceeds the value of their assets by a wide margin, so that most of market would not dare to give up the job even they put the money in the market. This sometimes cause the splitting of personality since the mental requirement and behavior in office and market are too different.

    We need to know this labor asset has some special characteristics that make it differ from typical items on a balance sheet. We need to know we come to the market with our new dream but most of us fail to get balance between the new challenge and the old behavior we have formed in the past. Most of us may never think about to get balance between the old and new behavior and then too many of use fail to know the Self and the Environment.

    We are driven to the market by our desire, wish, and hungry for the necessary resource. However we have to understand our labor value and then we could understand our new life in the market. You have to do so and then you could have chances to evaluate whether or not it is worthwhile to put you in the market. Some of us go too far too quick; some of us go too slow or too little; some have to know the labor value deep enough and then he could make their minds to move forward in the market or stay in the offices as the environment and their own resources allows.
     
    Last edited by a moderator: 24th Jul, 2011
  9. wdongli

    wdongli Well-Known Member

    Joined:
    31st Mar, 2010
    Posts:
    1,292
    Location:
    Perth
    Characteristic of the labor asset

    Labor is usually undiversified, and the value of your labor is illiquid. You cannot call any one else and say, “Sell everything I’ve got!” Despite labor’s illiquidity, it’s still worth it to calculate the value of your labor and plug it into your balance sheet, because understanding this number helps you gain a fuller picture and thus better engage in risk management.

    There are a number of ways to measure this and it gets complicated easily, but it’s better to be approximately right than totally wrong by not including the asset. The simplest approach is to use a basic present value calculation. If your business could be survival but could not pay you what you believe you could be valued, don't feel disappointed. In this world, all of great labor start to be discounted to sell first.

    Discounted cash flow

    In finance, discounted cash flow (DCF) analysis is a method of valuing a project, company, or asset using the concepts of the time value of money. All future cash flows are estimated and discounted to give their present values (PVs) of the sum of all future cash flows, both incoming and outgoing, is the net present value (NPV), which is taken as the value or price of the cash flows in question.

    Using DCF analysis to compute the NPV takes as input cash flows and a discount rate and gives as output a price; the opposite process, taking cash flows and a price and inferring a discount rate, is called the yield. Discounted cash flow analysis is widely used in investment finance, real estate development, and corporate financial management.

    Discount rate


    The most widely used method of discounting is exponential discounting, which values future cash flows as "how much money would have to be invested currently, at a given rate of return, to yield the cash flow in future."

    The discount rate used is generally the appropriate Weighted average cost of capital (WACC), that reflects the risk of the cashflows. The discount rate reflects two things:

    1. The time value of money (risk-free rate) – according to the theory of time preference, investors would rather have cash immediately than having to wait and must therefore be compensated by paying for the delay.

    2. A risk premium – reflects the extra return investors demand because they want to be compensated for the risk that the cash flow might not materialize after all.

    Discrete cash flows

    The discounted cash flow formula is derived from the future value formula for calculating the time value of moneyand compounding returns.

    FV = DPV / (1+i)^n

    Thus the discounted present value (for one cash flow in one future period) is expressed as:

    DPV = FV / (1+i)^n = (FV) (1-d)^n

    where

    DPV is the discounted present value of the future cash flow (FV), or FV adjusted for the delay in receipt;
    FV is the nominal value of a cash flow amount in a future period;
    i is the interest rate, which reflects the cost of tying up capital and may also allow for the risk that the payment may not be received in full;
    d is the discount rate, which is i/(1+i), i.e. the interest rate expressed as a deduction at the beginning of the year instead of an addition at the end of the year;
    n is the time in years before the future cash flow occurs.

    If your salary is $70,000 per year and you expect the salary will be increased 5% per year and you expect to work for 20 years, so your own future value one year late, FV = 70,000(1+0.05) +...+ 70,000(1+0.05)^^19 = 2,314,617; If we assume the discount rate is 7% so DPV = FV * 0.997 = 2,152,594

    The above is the reason why we say our human capital or employment capital is the most important one to all of us especially if we were born in the ordinary family and are young. It is rational and natural that the number of people who get their living from the market stock should be limited. How could it be possible most of human being don't make material product or service but just click the buttons somewhere for the butters and milk.

    So if you could not get the trading/investing matters as your job and business, it could be hobby to consume your capital or reality to lose the shirts unless you are extremely lucky. If we are extremely lucky, we don't need to be in the market to make the money but find some exciting things one after another until we are bored to do anything.

    Do you want the stock market is your workshop or offices? Do you have the necessary commitment to educate yourself? Do you want to realize your labor value in the extremely risky environment? Should you be make the business plan or career plan in the stock market?

    Discount rate and present value

    Before we move on, it is better for us to qualify one point here. It’s the matter of how we choose the discount rate to use in calculating the value of your employment. To make the right choice, we’ll have to consider the nature of our employment – i.e. whether it is more like a bond or a stock and whether it is diversified.

    If you are a tenured university professor, I’d assign a very low discount rate to your calculation because your labor is very safe. It’s bond-like. On the other hand, if you work in financial services and your employment is linked to macro-economic factors, then your labor’s character is closer to that of an equity investment. I’d use a higher discount rate in the calculation.

    What the discount to me? It should be quite high. I prefer to 0.6 as my discount rate since I have a long way for my full-time study. Before I could make my trading/investing business stable it is high risk career as equity investment. How should I reduce the discount rate for my labor value for my services to the market warriors?

    A lot of losses in the market are the results that we could not put enough time and efforts into it. A lot of losses in the market are the results that you don't know the losses could be very serious. A lot of losses in the market are the results that you don't understand your labor value is linked to what you could be sure for your income from your market career or business. We have to know we have been poorly trained and educated for what market is and what market allows and doesn't allow us to do.

    Think about your labor value in your business plan, which is your root for your market competitive advantages and disadvantages!
     
    Last edited by a moderator: 25th Jul, 2011