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what is an executive summary in a marketing plan | the executive summary is a nutshell description of the marketing plan it should contain the key findings of the market research the company s objectives and marketing goals an overview of the marketing trends the description of the product or service being marketed information on the target market and the plan budget | |
what is a top down marketing strategy | a top down marketing strategy is a traditional one in which a business decides how best to sell its product or brand and customers are then spurred to take action through advertisements generally found on radio and or television it is usually determined by company executives which is then communicated with management to delegate to employees these employees then develop tactics to meet the strategy s objectives | |
what is a marketing strategy | a marketing strategy refers to a business s overall plan to convince customers to buy its products or services a marketing strategy determines how to reach prospective consumers and turn them into customers it contains the company s value proposition key brand messaging data on target customer demographics and other high level elements a thorough marketing strategy covers the four ps of marketing product price place and promotion understanding marketing strategiesa clear marketing strategy should revolve around the company s value proposition this communicates to consumers what the company stands for how it operates and why it deserves the customers business a well constructed value proposition provides marketing teams with a template that should inform their initiatives across all of the company s products and services the ultimate goal of a marketing strategy is to achieve and communicate a sustainable competitive advantage over rival companies to do this a business must understand the needs and wants of its customers whether it s a print ad design mass customization or a social media campaign a marketing asset should effectively communicate a company s core value proposition for example walmart wmt is widely known as a discount retailer with everyday low prices low prices are its value proposition so all its business operations and marketing efforts are rooted in that idea which appeals to its core consumer base 1 its marketing strategies may be found on tv in print or on the accounts of social media influencers but they all emphasize the same value proposition of low prices on everyday products many companies use market research to identify what is most important to consumers and how to differentiate their products or services from those of competitors this information can be used to identify untapped audiences and develop a plan for reaching them which will increase sales and improve a company s bottom line marketing strategies vs marketing plansthe marketing strategy is outlined in the marketing plan this is a document that details the specific types of marketing activities a company will conduct in a given timeframe it contains important information such as what the current and near future marketing initiatives will be how they will be conducted what their goals are and the timetables for enacting them a company may have separate marketing initiatives for each of its products or services it may also have multiple marketing initiatives for the same product or service that are implemented at different times or on different platforms marketing strategies inform a business s marketing across many verticals and over a longer period of time these strategies should ideally have longer life spans than individual marketing plans because they contain value propositions and other key elements of a company s brand which generally hold constant over the long haul marketing strategies cover big picture messaging while marketing plans delineate the logistical details of specific campaigns for example a marketing strategy might say that a company aims to increase authority in niche circles where their clients visit the marketing plan puts that into action by commissioning thought leadership pieces on linkedin | |
how to create a marketing strategy | creating a thoughtful and effective marketing strategy requires several steps while sales are the ultimate goal for every company a marketing strategy can also include short term goals such as these smaller goals offer measurable benchmarks for the progress of your marketing plan think of strategy as the high level ideology and planning as how you accomplish your goals every product or service has an ideal customer and you should have a profile outlining what you know about yours it can include if you sell power tools for example you ll choose marketing channels where general contractors may see your messaging this could be tv ads or it might be social media accounts focused on home renovation and diy now that you know your goals and who you re pitching to it s time to create your message your clients have a problem that needs to be solved and something that is standing in the way of that solution your marketing message needs to communicate how your product or service will solve their problem and improve their lives this is also when you differentiate your solution from the one provided by your competitors and show how it s the best option for your customers | |
how you disperse your messaging may depend on how much you can afford will you be purchasing advertising working with thought leaders or influencers hoping for a viral moment on social media organically sending out press releases to the media to try to gain coverage | your budget will dictate what you can afford to do even the best message won t work unless it is communicated through the appropriate medium selecting the best channel for your marketing efforts will depend on who your customers are who they trust what types of media they consume and what budget you have to work with some companies may find the most value in creating blog posts for their website others may find success with paid ads on social media channels find the most appropriate venue for your content to target your marketing you need to know whether it is reaching its audience determine your metrics and how you ll judge the success of your marketing efforts make sure these are clearly defined and measurable for example you may decide to track | |
what do the four ps mean in a marketing strategy | the four ps are product price promotion and place these are the key factors that are involved in the marketing of a good or service the four ps can be used when planning a new business venture evaluating an existing offer or trying to optimize sales with a target audience they also can be used to test a current marketing strategy on a new audience | |
what does a marketing strategy look like | a marketing strategy will detail the advertising outreach and public relations campaigns to be carried out by a firm including how the company will measure the effect of these initiatives the functions and components of a marketing plan include market research tailored messaging that targets certain demographics and geographic areas platform selection and metrics that measure the results of marketing efforts and their reporting timelines | |
is a marketing strategy the same as a marketing plan | the terms marketing plan and marketing strategy are often used interchangeably because a marketing plan is developed based on an overarching strategic framework the plan outlines marketing activities on a monthly quarterly or annual basis while the marketing strategy outlines the overall value proposition in some cases the strategy and the plan may be incorporated into one document particularly for smaller companies that may only run one or two major campaigns in a year the bottom linecompanies need to sell their products and services to generate revenue and put them on the path of being a successful business to sell their products or services they have to let consumers know of them they must also convince consumers to buy them as well as convert consumers from competitors having a marketing strategy that outlines this process and more is a crucial step in converting consumers into customers | |
what is the markets in financial instruments directive mifid | the markets in financial instruments directive mifid is a european regulation that increases the transparency across the european union s financial markets and standardizes the regulatory disclosures required for firms operating there mifid implemented new measures such as pre and post trade transparency requirements and set out the standards of conduct to be followed by financial firms mifid has a defined scope that primarily focuses on stocks the directive was drafted in 2004 and has been in force across the european union eu since 2007 mifid was replaced by mifid ii in 2018 understanding the markets in financial instruments directive mifid the stated aim of mifid is for all eu members to share a common robust regulatory framework that protects investors mifid came into effect a year before the 2008 financial crisis but changes were made following it that took shape in mifid ii one issue in the original drafts was that the regulatory approach in dealing with countries outside of the european union was left up to each member state this meant that some firms outside of the eu could have a competitive advantage over firms inside the union because of the easier regulatory oversight this issue was addressed through mifid ii implemented in january 2018 which harmonized the rules for all firms with eu clients mifid focused primarily on stocks which was seen as a limitation because it did not include the vast amount of financial products available in the market such as over the counter otc derivatives otc transactions are done between two parties without any exchange in the middle to act as a supervisor as a result there was less regulatory oversight and transparency for the parties engaging in an otc trade implementing mifid ii brought many more financial products under its purview the markets in financial instruments regulation mifir works in conjunction with mifid and mifid ii as a regulation rather than a directive to extend the codes of conduct beyond stocks to other types of assets the european union began enforcing the markets in crypto asset regulation mica in july 2023 which complements the 2022 mifid ii amendment that added crypto assets regulation 2022 858 12client classifications under the mifidone of the key aspects of mifid is the classification of clients into specific client types there are three client types professional clients retail clients and eligible counterparties the goal for the classifications is that the regulatory protection for the clients should reflect the different levels of risks for each client type the idea is that different types of clients or investors will have different levels of financial knowledge and should be given different levels of protection when dealing with a financial body such as a bank eligible counterparties are provided the least protection and retail clients are provided the highest depending on the client type they are provided with different levels of information necessary for their understanding of the specific risks overall explanations and details of that transaction european union regulatory harmonizationmifid is just one part of the regulatory changes sweeping the eu and impacting the financial firms compliance departments e g insurers mutual fund providers and banks operating there taken together with other regulatory initiatives like the general data protection regulation gdpr and mifir the eu is following through on its vision of a transparent market with clear rights and protections for eu citizens as with any regulatory framework many rules are tweaks to existing regulations such as the requirements for disclosure where a conflict of interest exists however several best practices like appointing a single officer to protect client interests from inside the firm are now explicit requirements for firms that want to access the eu market mifid iiin 2018 the european commission enacted a revised directive called mifid ii first proposed in 2012 the revised directive was intended to restore confidence in the markets following the 2008 market crash while mifid was limited to equity stocks mifid ii extended the requirements to issuers of all types of securities including debt securities derivatives and structured instruments the new regulation enhanced the transparency and reporting requirements of securities trades reducing the use of dark pools and otc trading it also extended investor protection for all types of securities trades whether the investor was located inside or outside of the european union in 2022 mifid ii was amended to include tokenized securities crypto assets and other distributed ledger based instruments 2 | |
how did mifid ii affect investment banks | for banks that provide asset management or investment services mifid ii requires financial instruments to be traded only in multilateral and regulated trading platforms or those that adhere to the transparency requirements of otc trading these rules are intended to protect investors and eliminate dark trading of securities | |
what is the difference between mifid and mifid ii | mifid ii enhanced the transparency and reporting requirements of the older mifid regulation one key difference is the expansion of its scope while mifid applied largely to equities markets mifid ii applies to all types of securities and derivatives | |
how does brexit affect mifid ii | after the united kingdom left the european union the two economies had two substantially similar regulatory regimes but they lost their ability to trade easily british firms lost their license to provide financial services to eu clients and vice versa it also created duplicate reporting requirements for the two areas 3the bottom linemifid or the markets in financial instruments directive was a set of european regulations governing equities markets in the european union it was intended to enhance transparency and reporting requirements to protect european investors these rules were replaced by the revised mifid ii regulation in 2018 and the amendment of 2022 | |
what is a markup | a markup is the difference between an investment s lowest current offering price among broker dealers and the price charged to the customer for said investment markups occur when brokers act as principals buying and selling securities from their own accounts at their own risk rather than receiving a fee for facilitating a transaction most dealers are brokers and vice versa and so the term broker dealer is common markups also appear in retail settings where retailers mark up the selling price of merchandise by a certain amount or percentage in order to earn a profit a pricing method whereby a retailer establishes a selling price by adding a markup to total variable costs is called the variable cost plus pricing method understanding markupsmarkups occur when certain marketable securities are available for purchase by retail investors from dealers who sell the securities directly from their own accounts the dealer s only compensation comes in the form of the markup the difference between the security s purchase price and the price the dealer charges to the retail investor the dealer assumes some risk as the market price of the security could drop before being sold to investors in business the markup is the price spread between the cost to produce a good or service and its selling price in order to ensure a profit and recover the costs to create a product or service producers must add a markup to their total costs they will express the markup as either a fixed amount or a percentage over the cost markups vs markdownsa markdown on the other hand occurs when a broker purchases a security from a customer at a price lower than its market value markdowns also occur when a dealer charges a customer a lower price for a security than the current bid price among dealers dealers might offer lower prices to customers in order to stimulate additional buying which will offset their initial losses by earning them extra commissions for retailers a price markdown is a deliberate reduction in the selling price of a good there are several reasons why a retailer may decide to markdown its goods for seasonal merchandise the retailer may be eager to clear the shelves of old merchandise to make room for the next season s goods they may slash prices to do so even if it means they take a loss on the sale some manufacturers may come out with new models of products each year or every few years in which case they will offer markdowns on older products rather than risk being stuck with obsolete inventory benefits of markupsmarkups are a legitimate way for broker dealers to make a profit on the sale of securities securities such as bonds bought or sold on the market are offered with a spread the spread is determined by the bid price what someone is willing to pay for the bonds and the ask price which is what someone is willing to accept for the bonds | |
when a dealer acts a principal in the transaction he can mark up the bid price which creates a wider bid ask spread the difference between the market spread and the dealer s marked up spread is the profit | in lieu of charging a flat fee brokers acting as principals can be compensated from the markup gross profits of securities held and later sold to customers special considerations for markupsthe dealer is only required to disclose the transaction fee which is typically a nominal cost in doing so the buyer isn t privy to the dealer s original transaction or the markup from the buyer s perspective the only cost for the bond purchase is the small transaction fee should bond buyers try to immediately sell the bonds on the open market they would have to make up the dealer s markup on the spread or incur a loss the lack of transparency places the burden on the bond buyers to determine whether they are receiving a fair deal dealers compete with each other by reducing the amount of their markups it is possible for bond buyers to compare the price the dealer paid for the bond with its actual price bond buyers can have access to bond transaction details through various sources such as investinginbonds com which reports all information related to bond transactions daily | |
what is married filing jointly | married filing jointly is a tax filing status that allows a married couple to file a single tax return that records both of their taxable income deductions credits and exemptions the main alternative is married filing separately married filing jointly is generally a better choice for couples as it makes them eligible for some advantageous tax credits and deductions however separate filings are preferable in some cases for example if there is a great disparity in earned income between the two filing separately may allow the lower earner to maximize certain deductions | |
how married filing jointly works | taxpayers are required to indicate their tax filing status on the top of the first page of form 1040 by checking off the appropriate box the options include 1married couples filing jointly generally have access to more tax benefits | |
when using the married filing jointly filing status both spouses are equally responsible for the return and the taxes if either one understates the taxes due both are equally liable for the penalties unless the other spouse can prove they were unaware of the mistake and did not benefit from it 2 | married filing jointly vs married filing separately | |
when using married filing jointly status your total combined tax liability is often lower than the sum of your individual tax liabilities if you had filed separately 3 the internal revenue service irs encourages couples to file together by offering them various tax benefits that don t apply to other filing statuses 4 | couples who file together qualify for multiple tax credits including 3a joint tax return often provides a bigger tax refund or a lower tax liability however this is not always the case a couple may want to investigate their options by calculating the refund or balance due when filing jointly and separately then use the one that provides the biggest refund or the lowest tax liability taxes can get pretty tricky when in doubt see a professional tax preparer married filing jointly requirementsyou can use the married filing jointly status if both of the following statements are true 5before filing taxes married couples should run some calculations to determine whether it makes more sense financially for them to file jointly or separately filing jointly is usually more rewarding although not in every case if you were not divorced or legally separated on dec 31 you are still considered unmarried if all of the following apply 3 | |
is it better to file taxes as married filing jointly | most couples find that filing jointly makes sense financially the tax code is written to benefit married couples and families and this status is the one that maximizes those generous tax breaks there are exceptions when filing separately saves you more for example if there s a big disparity in income and the lower earning individual has substantial itemizable deductions filing separately can save the couple money | |
when should married couples file taxes separately | despite the many benefits of filing jointly there are instances in which filing separately may be more beneficial this may be the case for example if one of you has significant miscellaneous deductions or medical expenses to claim | |
what is the standard deduction for married filing jointly | the standard deduction for married couples filing jointly in the 2023 tax year is 27 700 this is the amount that is not subject to taxation this threshold increases to 29 200 in 2024 46the bottom linemarried filing jointly is one of the statuses that taxpayers can choose when they file their annual tax returns this status is used by married couples who decide to file a single return the couple must include their total income deductions and credits on that return for most couples filing jointly has advantages including a lower tax bill or a higher refund | |
what is married filing separately | married filing separately is a tax status for married couples who choose to record their respective incomes exemptions and deductions on separate tax returns this means both married spouses file separate tax returns when one spouse has significant medical expenses or miscellaneous itemized deductions or when both spouses have about the same amount of income it might be wiser to file separately the alternative to married filing separately is married filing jointly it usually makes sense financially for married couples to file jointly | |
how married filing separately works | the internal revenue service irs gives taxpayers five tax filing status options when they submit their annual tax returns single married filing jointly married filing separately head of household or qualifying widow er 1anyone who files as married in either category filing separately or filing jointly must be married as of the last day of that tax year in other words someone who filed taxes for the year 2022 as married must have been married no later than dec 31 2022 2using the married filing separately status may be appealing and offer financial advantages to certain couples combining incomes and filing jointly might push them into a higher tax bracket and thus increase their tax bill | |
when couples file separately they must include their spouse s information on their returns according to the irs if you and your spouse file separate returns and one of you itemizes deductions then the other spouse will have a standard deduction of zero therefore the other spouse should also itemize deductions 3 | although there are financial advantages to filing separately couples miss out on tax credits meant for couples who file jointly if you and your spouse both generated taxable income calculate your tax bill as a joint and separate filer before filing to determine which of the two will save you more money special considerationsif you live in community property states arizona california idaho louisiana nevada new mexico texas washington and wisconsin you may need to see a tax professional because the rules about separate incomes can be tricky 4in most cases it makes sense for married couples to file jointly especially since the tax cuts and jobs act tcja of 2017 was passed however there are exceptions including when one spouse has significant miscellaneous deductions or medical expenses standard deduction for married filing separatelyas a result of the tax cuts and jobs act tcja of 2017 the standard deduction rose substantially in the 2018 tax year 5a standard deduction is a portion of income that s not subject to tax thereby reducing taxable income the irs allows tax filers to take a standard deduction however the deduction amount is dependent on your filing status age and whether you are disabled or claimed as a dependent on someone else s tax return 6 the standard deduction for the 2023 tax year is as a result one spouse must have significant miscellaneous deductions or medical expenses for the couple to gain any advantage from filing separately the irs introduced direct file which allows qualifying taxpayers to file their federal tax returns directly for free the pilot is available to taxpayers who lived in arizona california florida massachusetts nevada new hampshire new york south dakota tennessee texas washington state and wyoming in 2023 refer to the irs website to see if you qualify 8married filing separately vs married filing jointlymarried filing jointly offers the most tax savings especially when spouses have different income levels if you use the married filing separately status then you may be unable to take advantage of a number of potentially valuable tax breaks such as the following 910the child and dependent care credit is a nonrefundable tax credit used by taxpayers to claim unreimbursed childcare expenses childcare can include fees paid for babysitters daycare summer camps provided that they aren t overnight and other care providers for children under the age of 13 or dependents of any age who aren t physically or mentally able to care for themselves 1112the american opportunity tax credit aotc helps offset costs for post secondary education it was introduced in 2009 and requires that couples filing jointly have a modified adjusted gross income magi of no more than 160 000 to be eligible for full credit 13 couples who make 160 000 to 180 000 meanwhile can apply for a partial aotc 14the maximum reward is an annual credit of 2 500 on qualified educational expenses for the first four years that a student attends an approved postsecondary institution 14the lifetime learning credit llc allows parents to claim the amount spent on tuition and receive a 20 tax credit on the first 10 000 of qualified education expenses resulting in savings of up to 2 000 on each tax return qualifying tuition includes undergraduate graduate or professional degree courses 15there is an income limit to qualify for the llc 15 the magi is 80 000 for 2023 for single filers and 160 000 for married couples filing jointly 716a couple who files a separate tax return can also take deductions for their contributions to a traditional individual retirement account ira but the income limits for taking them as a deduction if they or their spouse has a retirement plan at work are much lower than for those who file jointly 17 the maximum contribution permitted in 2023 is 6 500 and 7 500 for those aged 50 and over 18any expenses related to the adoption of a qualifying child can be taken if couples file jointly but probably not if they file separately check with a tax expert 19 the maximum credit allowed for adoptions is the total amount of qualified adoption expenses up to 15 950 in 2023 7benefits of married filing separatelytax bills aside there is one scenario in which married filing separately may be especially wise if you don t want to be liable for your spouse s taxes and suspect that they are hiding income or claiming deductions or credits falsely then filing separately is probably the best option 6signing a joint return means that both spouses are responsible for the accuracy of the return and for any tax liabilities or penalties that may apply by signing your return and not a joint one you are only responsible for the accuracy of the information on your return and for any tax liability and penalties that may ensue 6 | |
do you need your spouse s income for married filing separately | it s not necessary for married couples to declare their spouse s income when filing separately unless they live in a community property state 6can you file separately after filing jointly yes married couples are permitted to file jointly one year and separately the next year 6 | |
what are the drawbacks to married filing separately | married filing separately is the ideal tax filing status if both spouses want to keep their tax liabilities separate but if you file separate returns you miss out on a number of tax credits and deductions that are meant for married couples such as the earned income tax credit and the american opportunity tax credit the bottom linechoosing your tax filing status may be easy if you re single or widowed but if you re married it may be a little more complicated that s because you can file jointly or separately if you file jointly you can take advantage of certain tax credits and deductions if on the other hand you don t want to be responsible for your spouse s taxes consider filing your returns separately | |
what is a married put | married put is the name given to an options trading strategy where an investor holding a long position in a stock purchases an at the money put option on the same stock to protect against depreciation in the stock s price the benefit is that the investor can lose a small but limited amount of money on the stock in the worst price drop scenario yet still can participate in any gains from price appreciation the downside is that the put option costs a premium and it is usually significant in terms of downside protection a married put may be compared with a covered call | |
how a married put works | a married put works similarly to an insurance policy it is a bullish strategy used when the investor is concerned about potential near term uncertainties in the stock price by owning the stock with a protective put option the investor receives the benefits of stock ownership such as dividends and the right to vote in contrast just owning a call option while equally as bullish as owning the stock does not confer the same benefits of stock ownership a married put behaves synthetically like a long call and as a result will have unlimited profit potential as there is no ceiling on the price appreciation of the underlying stock however profit is always lower than it would be by owning just the stock it s decreased by the cost or premium of the put option reaching breakeven for the strategy occurs when the underlying stock rises by the amount of the options premium paid anything above that amount is profit the benefit of a married put is that there is now a floor under the stock limiting downside risk the floor is the difference between the price of the underlying stock at the time the married put was bought and the strike price of the put put another way when an investor purchased the option if the underlying stock traded exactly at the strike price the loss for the strategy is capped at exactly the price paid for the option a married put is also considered a synthetic long call since it has the same profit profile the strategy is similar to buying a regular call option without the underlying stock because the same dynamic is true for both limited loss unlimited potential for profit the difference between these strategies is simply how much less capital is required to buy a long call a put is considered married when the stock and the put option are bought at the same time the trader would instruct the broker that the stock will be delivered if the put is exercised married put examplelet s say a trader chooses to buy 100 shares of xyz stock for 20 per share and one xyz 17 50 put for 0 50 100 shares x 0 50 50 with this combination they have purchased a stock position with a cost of 20 per share but have also bought a form of insurance to protect themselves in case the stock declines below 17 50 before the put s expiration so say the stock price drops unexpectedly to 15 per share the trader s loss of 5 per share on the long position could be partially offset by the put s profit of 2 50 | |
when to use a married put | rather than a pure profit making strategy a married put is a capital preserving strategy the downside loss potential is limited bear in mind that the premium paid for the put is a built in cost that reduces the strategy s savings potential therefore investors typically use a married put as an insurance policy against near term uncertainty in an otherwise bullish stock or as protection against an unforeseen price breakdown newer investors can benefit from knowing that their losses in the stock will be limited this can give them confidence as they learn more about different investing strategies of course this protection comes at a cost which includes the price of the option commissions and possibly other fees | |
what s a married put option | a married put option is a put option purchased at the same time an investor buys the underlying asset it s also known as a protective put option | |
how does a married put help investors | a married put provides a hedge against loss essentially owning the actual stock and owning a put option means that an investor has opposite positions at the same time in the same stock so if the stock price goes down the trader will lose money on the one hand but gain money on the other so a loss can be at least partially offset what s more while the loss potential is limited the upside price potential of the stock is unlimited who uses married puts married puts can be used by short term traders or investors who believe that an asset s price will rise but at the same time want to protect against unexpected near term losses married puts aren t usually used by people investing for the long term who don t care about short term market aberrations | |
what is martial law | martial law is the substitution of a civil government by military authorities with unlimited powers to suspend the ordinary legal protections of civilian rights a state of martial law may be declared in response to a crisis or imposed during a coup in times of disaster or civil unrest a declaration of emergency is more common than a declaration of martial law because it is easier to reverse an emergency declaration allows the government to expand its powers temporarily to deal with a crisis suspending some civil liberties but avoiding military control understanding martial lawthe declaration of martial law is a rare and momentous decision for a civilian government to make and for good reason when martial law is declared civilian control of some or all aspects of government operations is ceded to the military this means that in the case of elected governments the representatives chosen by the voting population are no longer in power civilians have ceded control of the country in exchange for the potential restoration of order with the possibility that control may not be reclaimed in the future | |
when martial law is declared civil liberties such as the right to free movement free speech or protection from unreasonable searches can be suspended the justice system that typically handles issues of criminal and civil law is replaced with a military justice system such as a military tribunal | civilians may be arrested for violating curfews or for offenses that in normal times would not be considered serious enough to warrant detention laws relating to habeas corpus that are designed to prevent unlawful detention may also be suspended allowing the military to detain individuals indefinitely without the possibility of recourse considering the negative ramifications martial law can have on a country and its citizens declaring martial law is a last resort reserved for situations where law and order are rapidly deteriorating for example in 1892 the governor of idaho instituted martial law after a group of rebellious mine workers blew up a mill which leveled a four story building and killed several people 1martial law may be declared to reign in protests civil unrest coup d tats or insurrections it may also be declared when a country s military occupies foreign territory such as at the end of a war typically the power to declare martial law rests with a nation s president or other top civilian leader the circumstances in which it may be declared and other limiting factors such as the amount of time it may be left in effect are governed by legislation or a country s constitution for example a president may be authorized to declare martial law during a time of violent civil unrest but only for 60 days international laws may also limit the scope and duration of martial law if a country has signed onto a multilateral treaty special considerations states of emergency vs martial lawthe use of martial law in the wake of natural disasters is less common than during situations of civil unrest or disorder rather than declaring martial law and handing over power to the military in the case of a hurricane or earthquake governments are much more likely to declare a state of emergency | |
what is marxian economics | marxian economics is a school of economic thought based on the work of 19th century economist and philosopher karl marx marxian or marxist economics focuses on the role of labor in the development of an economy it s critical of the classical approach to wages and productivity developed by adam smith marx argued that the specialization of the labor force coupled with a growing population pushes wages down he added that the value placed on goods and services doesn t accurately account for the true cost of labor understanding marxian economicsmuch of marxian economics is drawn from karl marx s seminal work das kapital it was his magnum opus first published in 1867 marx described his theory of the capitalist system its dynamism and its tendencies toward self destruction in the book 1much of das kapital spells out marx s concept of the surplus value of labor and its consequences for capitalism it wasn t the pressure of labor pools that drove wages to the subsistence level according to marx it was the existence of a large army of unemployed and he blamed this on capitalists he maintained that labor was a mere commodity that could gain only subsistence wages within the capitalist system capitalists could force workers to spend more time on the job than was necessary to earn their subsistence however they could then appropriate the excess product or surplus value created by the workers marx argued that workers create value through their labor but aren t properly compensated he said that their hard work is exploited by the ruling classes who generate profits not by selling their products at a higher price but by paying staff less than the value of their labor marx claimed that there are two major flaws inherent in capitalism that lead to exploitation the chaotic nature of the free market and surplus labor marxian economics vs classical economicsmarxian economics is a rejection of the classical view of economics developed by economists such as adam smith smith and his peers believed that the free market an economic system powered by supply and demand with little or no government control and an onus on maximizing profit automatically benefits society marx disagreed arguing that capitalism consistently only benefits a select few he argued that the ruling class becomes richer by extracting value out of cheap labor provided by the working class under this economic model in contrast to classical approaches to economic theory marx favored government intervention he said that economic decisions shouldn t be made by producers and consumers they ought to be carefully managed by the state to ensure that everyone benefits he predicted that capitalism would eventually destroy itself as more people become relegated to worker status leading to a revolution and production being turned over to the state special considerationsmarxian economics is considered separate from marxism even if the two ideologies are closely related it focuses less on social and political matters marxian economic principles clash with the virtues of capitalist pursuits it seemed the marxist dream had finally and firmly taken root during the first half of the twentieth century with the bolshevik revolution in russia and the spread of communism throughout eastern europe that dream collapsed before the century had ended the people of poland hungary czechoslovakia east germany romania yugoslavia bulgaria albania and the ussr rejected marxist ideology and entered a remarkable transition toward private property rights and a market exchange based system | |
what is a free market | a free market is an economic system over which the government has minimal control it s also referred to as an open market prices of goods and services result from supply and demand rather than from government intervention 2 | |
what did marx consider to be a fair wage | marx held that a fair equitable and necessary wage allows workers to pay for their basic needs of existence plus a sufficient amount to provide support for their families this amount necessarily varies based on factors within the economy location and a worker s skillsets 3 | |
what is the unemployment rate in the u s in 2024 | the u s unemployment rate was 3 9 in april 2024 average hourly earnings for nonfarm employees increased by 0 2 in april 4the bottom linethe marxian economics theory focuses on what marx claimed were two major flaws in capitalism the ups and downs of the free market and an abundance of labor he argued that the availability of more specialized workers drives wages downward and that the value of goods and services doesn t match the true cost of labor marx favored government intervention to intercede with these dilemmas | |
what is marxism | marxism is a social political and economic philosophy named after the 19th century german philosopher and economist karl marx his work examines the historical effects of capitalism on labor productivity and economic development and argues that a worker revolution is needed to replace capitalism with a communist system marxism posits that the struggle between social classes specifically between the bourgeoisie or capitalists and the proletariat or workers defines economic relations in a capitalist economy and will lead inevitably to a communist revolution understanding marxismmarxism is both a social and political theory and it encompasses marxist class conflict theory and marxian economics marxism was first publicly formulated in 1848 in the pamphlet the communist manifesto by karl marx and friedrich engels which lays out the theory of class struggle and revolution marxian economics focuses on criticism of capitalism detailed by marx in his book das kapital published in 1867 23generally marxism argues that capitalism as a form of economic and social reproduction is inherently flawed and will ultimately fail capitalism is defined as a mode of production in which business owners the capitalists own all of the means of production including the factory the tools and machinery the raw materials the final product and the profits earned from their sale workers labor are hired for wages and have no ownership stake and no share in the profits moreover the wages paid to workers are lower than the economic value that their work creates for the capitalist this is the source of capitalists profits and it is at the root of the inherent class struggle between labor and capital another theory developed by marx is historical materialism this theory proposes that society at any given point in time is ordered by the type of organization and technology used in the processes of production in the modern era of industrial capitalism capitalists organize labor in factories or offices where they work for wages using modern tools and machines marxian economicslike other classical economists karl marx believed in a labor theory of value ltv to explain relative differences in market prices this theory stated that the value of a product can be measured objectively by the average number of hours of labor required to produce it in other words if a table takes twice as long to make as a chair then the table should be considered twice as valuable what marx added to this theory was the conclusion that this labor value represented the exploitation of workers marx claimed that there are two major flaws in capitalism that lead to the exploitation of workers by employers the chaotic nature of free market competition and the extraction of surplus labor marx predicted that capitalism would eventually destroy itself as more people become relegated to working class status inequality rises and competition drives corporate profits to zero this would lead he surmised to a revolution after which production would be turned over to the working class as a whole class conflict and the demise of capitalismmarx s class theory portrays capitalism as one step in a historical progression of economic systems that follow one another in a natural sequence they are driven he posited by vast impersonal forces of history that play out through the behavior and conflict among social classes according to marx every society is divided into social classes whose members have more in common with one another than with members of other social classes the following are some key elements of marx s theories of how class conflict would play out in a capitalist system thus marx thought that the capitalist system contained the seeds of its own destruction the alienation and exploitation of the proletariat that are fundamental to capitalist relations would inevitably drive the working class to rebel against the bourgeoisie and seize control of the means of production this revolution would be led by enlightened leaders known as the vanguard of the proletariat who understood the class structure of society and would unite the working class by raising awareness and class consciousness after the revolution marx predicted private ownership of the means of production would be replaced by collective ownership first under socialism and then under communism in the final stage of human development social classes and class struggle would no longer exist karl marx believed that the proletariat would overthrow capitalism in a violent revolution communism vs socialism vs capitalismmarx and engels ideas laid the groundwork for the theory and practice of communism which advocates for a classless system in which all property and wealth are communally rather than privately owned china cuba laos north korea and vietnam are the only nations that have communist systems today 5 notably most of these nations have relaxed some of their most rigid policies in the name of economic progress and global trade the soviet union was an experiment in communism that was created in 1921 and collapsed in 1991 leaving behind 15 former soviet socialist republics to rebuild their economies from scratch none chose communism as a model notably marx and engels didn t consistently differentiate between socialism and communism 6 today there is often confusion about the ways they are distinct socialism predates communism by several decades its early adherents called for a more egalitarian distribution of wealth solidarity among workers better working conditions and common ownership of land and manufacturing equipment socialism is based on the concept of public ownership and regulation of the means of production but individuals may still own property rather than rising out of a class revolution socialist reform has taken place within existing social and political structures whether they are democratic technocratic oligarchic or totalitarian both communism and socialism oppose capitalism an economic system characterized by private ownership and a system of laws that protect the right to own or transfer private property in a capitalist economy private individuals or the companies they create own the means of production and the right to profit from them communism and socialism aim to right the wrongs of capitalism s free market system these include worker exploitation inequities between classes and outright poverty critiques of marxismmarx inspired multitudes of followers but many of his predictions have not come to pass marx believed that increasing competition would not produce better goods for consumers but would lead to bankruptcies and the rise of monopolies with control of production in fewer and fewer hands bankrupt former capitalists he thought would join the proletariat eventually creating an army of the unemployed in addition the market economy which by its nature is unplanned would experience crippling supply and demand problems and cause severe economic depressions 7capitalism has not collapsed but it has changed since marx s time governments in many capitalist countries including the u s have the power to crack down on monopolies and monopolistic business practices governments set minimum wages and regulatory agencies set standards for worker protection economic inequality has increased in many capitalist societies there have been recessions periodically as well as one great depression but they are not thought to be an inherent feature of free markets indeed a society entirely without competition money or private property has not materialized in the modern world and recent history suggests it is unlikely to emerge in the future 7 | |
what kind of philosophy is marxism | marxism is a philosophy developed by karl marx in the second half of the 19th century that unifies social political and economic theory it is mainly concerned with the consequences of a society divided between an ownership class and a working class and proposes a new system of shared ownership of the means of production as a solution to the inevitable inequality that capitalism fosters | |
what did marx predict for the future | marx thought that the capitalistic system would inevitably self destruct competition would grow so fierce that most businesses would fold and be absorbed into unwieldy monopolies workers would reject a system that exploited them the oppressed workers would ultimately overthrow the owners to take control of the means of production ushering in a classless society of shared ownership was karl marx right not so far since the collapse of the soviet union in 1991 the most successful of the few remaining communist countries notably china and vietnam have reformed some of their most rigid practices none has been able to entirely eliminate personal property money and class systems in the way that karl marx envisioned capitalism in its various forms remains the dominant economic system but it has changed too since marx s time with some of the worst excesses addressed worker safety standards child labor laws minimum wage laws and anti poverty programs are all examples | |
is marxism the same thing as communism | marxism is a philosophy while communism is a system of government based on marxist principles marx envisioned a society in which workers owned the means of production in real world communism governments own the means of production the bottom linemarxism is the social and economic theory developed by karl marx in the 19th century marxian economics describes the capitalist system of production as inherently unfair to the workers who represent most of the population marx s social theories connected these flaws of capitalism with a growing class conflict between labor and business owners ultimately leading to a revolution that would empower the working class and create communal ownership of the means of production his theories have been tested in the real world the communist experiment in the soviet union ended in 1991 it continues to be tested in china which is creating a hybrid social and economic system that marx might not recognize | |
what is mass customization | mass customization is the process of delivering market goods and services that are modified to satisfy a specific customer s needs mass customization is a marketing and manufacturing technique that combines the flexibility and personalization of custom made products with the low unit costs associated with mass production other names for mass customization include made to order or built to order understanding mass customizationmass customization allows a customer to design certain made to order features of a product while still keeping costs closer to that of mass produced products in some cases the components of the product are modular this flexibility allows the client to mix and match options to create a semi custom final product mass customization may apply to many fields but many connect it to the retail industry software creators may use this method to include software based product configurations that enable end users to add or change specific functions of a core product even the financial services industry embraces mass customization through the growth of independent fee only advisory firms the growth of mass customizationb joseph pine ii looked at the growth of the american economy due to mass production in his book mass customization the new frontier in business competition harvard business review press 1992 he describes four primary types of mass customization that took the concept of mass production to a new level pine focused on the concept of creating a small number of interchangeable pieces the individual parts may be combined in a variety of ways that produce a cost efficient production model and still allow consumers to choose how the pieces go together examples of mass customizationfee only independent financial advisors allow their clients to customize their portfolio holdings to match their unique situations the consumer may choose products that match their investment risk tolerance time horizon investment style and future goals certain furniture companies offer mass customization by providing multiple options for various components or features this flexibility may include different fabrics furniture legs or pieces that combine in numerous configurations also modular home builders use mass customization models by allowing customers to make changes to the base home package benefits of mass customizationmass customization enables manufacturers to delay the step of product differentiation until the final phase of manufacturing rather than the manufacturer deciding on the features that make the product unique mass customization allows the consumer to make these decisions for some consumers the ability to customize a product is enough to sway their buying decision in favor of one company over another mass customization can then become part of a lucrative marketing strategy for a company companies that offer customization can give themselves a competitive advantage over their rivals they can tout their ability to produce a semi custom product at a reasonable price to consumers who are looking for an upgrade over a generic product as long as the company is able to deliver a product that does not compromise on quality they have an opportunity to increase sales profits and brand loyalty for their one of a kind products mass customization can also help a company with the costs associated with excess inventory implementing a just in time jit approach to manufacturing can assist companies in minimizing inventory and increasing efficiency companies that take a jit approach to mass customization will need reliable suppliers and an inventory replenishment system that notifies them exactly when new materials need to be ordered | |
how does mass customization work | a customer designs certain made to order features of a product but keeps costs closer to that of mass produced products with mass customization the client can mix and match options to create a semi custom final product | |
what industries use mass customization | industries that use mass customization include | |
how does mass customization benefit a company | manufacturers can delay product differentiation until the final manufacturing phase also the customer can decide on the features that make the product unique which may sway their buying decision as a result a company can use mass customization as a marketing strategy the bottom linemass customization lets a customer personalize certain features of a product while still keeping costs at or near mass production prices the process is also known as made to order or built to order | |
what is mass production | mass production is the manufacturing of large quantities of standardized products often using assembly lines or automation technology mass production facilitates the efficient production of a large number of similar products mass production is also referred to as flow production repetitive flow production series production or serial production in mass production mechanization is used to achieve high volume detailed organization of material flow careful control of quality standards and division of labor an early example of the demand for standardized products in large quantities came from military organizations and their need for uniforms and other supplies precision machining equipment has led to large scale demand for mass produced products created cheaply with small workforces understanding mass productionhenry ford founder of ford motor co f developed the assembly line technique of mass production in 1913 he pioneered the moving assembly line for production of the ford model t automobile the reduced manufacturing time for parts allowed the company to apply the same method to chassis assembly and drastically reduced the time it took to build the model t automobile 1ford continued to refine the process even hiring someone who studied the way people moved most efficiently from 1908 to 1927 ford built more than 15 million model t cars 2 as a result of ford s mass production cars became something that the general public could afford rather than a luxury item that only a limited number of people had access to since then ford s concept of time and space efficient production has been adopted by most industries lowering the costs of everyday items advantages of mass productionmass production has many advantages if production is stringently monitored mass production can result in a high level of precision because production line machines have preset parameters mass production also results in lower costs because the automated assembly line production process requires fewer workers manufacturers can produce products in batches thereby reducing the time and cost of machine setup in addition mass production can create higher levels of efficiency because mass produced items can be assembled at a quicker rate through automation rapid assembly aids the prompt distribution and marketing of an organization s products that in turn can create a competitive advantage and higher profits for a company for example mcdonald s mcd has a competitive advantage in the fast food industry because of the speed at which it can produce a meal for time conscious customers disadvantages of mass productionhowever not everything about mass production is beneficial establishing an automated assembly line is capital intensive and requires a significant up front investment of time and resources if there is an error in the production design an extensive investment of time and money may be necessary to redesign and rebuild mass production processes a revision of the mass production processes may be required for reasons other than errors for example if a pharmaceutical company has a comprehensive assembly line in place for the production of a popular drug it would be time consuming and expensive for them to respond to a u s food and drug administration fda regulatory change requiring a different production process while an advantage of mass production is that it can reduce labor costs employees who remain part of an assembly line may lack motivation because their tasks are repetitive the boredom caused by repetitive work can lead to low employee morale and increased levels of turnover manufacturers are experimenting with the integration of three dimensional 3d printers in the mass production of everyday products example of mass productionmass production now touches most of what american consumers buy from cars to clothing to toothbrushes for example in 1954 every marshmallow peep took 27 hours to make by hand with the introduction of the assembly line this time requirement had been reduced to six minutes per peep and an average of 5 5 million peeps are made every day as of 2024 3ford took its assembly lines one step further introducing robots that could unload a die casting press in 1961 now robotics play a major part in much mass production with humans standing in as quality assurance 4 | |
does mass production mean lower wages for workers | in some areas factory workers are paid less and work in dismal conditions however this does not have to be the case workers in the united states tend to make higher wages and often have unions to advocate for better working conditions elsewhere mass production jobs may come with poor wages and working conditions | |
is mass production expensive to set up | creating a mass production system can be expensive to set up and even more expensive to alter if changes need to be made after the production has already started the cost of setup is generally offset by the efficiency with which products are made once the system is up and running | |
does mass production produce quality items | it can as henry ford proved very complex products can be made successfully using assembly line techniques however if there are unforeseen problems with an element of your product that issue can be replicated thousands of times before it may be noticed this is why product recalls are frequent among mass produced items the bottom linemass production also known as flow production repetitive flow production series production or serial production is a manufacturing process where goods are produced in large quantities using standardized designs machinery and assembly line techniques the goal of mass production is to produce goods at a lower cost making them more affordable and accessible to consumers this is achieved by dividing the production process into smaller specialized tasks that can be performed by unskilled or semi skilled workers using specialized machinery it should be noted that mass production is capital intensive mass production has revolutionized many industries including automotive electronics and consumer goods and has enabled the production of large quantities of goods quickly and efficiently | |
what is a master feeder structure | a master feeder structure is a device commonly used by hedge funds to pool taxable and tax exempt capital raised from investors in the united states and overseas into a master fund separate investment vehicles otherwise known as feeders are established for each group of investors investors put capital into their respective feeder funds which ultimately invest assets into a centralized vehicle known as the master fund the master fund is responsible for making all portfolio investments and conducting all trading activity management and performance fees are paid at the feeder fund level | |
how the master feeder structure works | the master feeder structure begins with the investors who deposit capital into the feeder fund the feeder fund containing all the limited partnership shareholder capital then purchases shares of the master fund much like it would buy shares of any company s stock the primary difference of course is that a feeder fund by buying into the master fund receives all of the master fund s income attributes including interest gains tax adjustments and dividends although this two tiered structure can exist in a variety of forms like funds of funds mutual funds the master feeder structure is especially common among hedge funds catering to both u s and offshore or overseas investors the use of the master feeder fund structure allows asset managers to benefit from a large capital pool while also being able to fashion investment funds that cater to niche markets composition of master feedersthe average master feeder structure involves one offshore master fund with one onshore feeder and one offshore feeder feeder funds investing in the same master fund have the option of choice and variation in other words the feeders may differ in investor type fee structures investment minimums net asset values and various other operational attributes 1in this way the feeder funds do not have to adhere to a specific master fund but can function legally as independent entities with the ability to invest in various master funds for example if feeder fund a s 100 contribution and feeder fund b s 200 contribution provided the total investments to a master fund then fund a would receive one third of the master fund returns while fund b would receive two thirds of the returns advantages of the master feeder structureone significant advantage of the master feeder structure is the consolidation of various portfolios into one entity consolidation allows for reductions of operation and trading costs a larger portfolio has the benefit of economies of scale also because of its size the portfolio has better options when it comes to service and more favorable terms offered by prime brokers and other institutions economies of scaletax advantaged partnership statusconvenient for both domestic and international investorsdividends subject to witholding tax if offshore difficulty of setting universal investment strategydisadvantages of the master feeder structurethe primary drawback to the master feeder structure is that funds held offshore are typically subjected to a 30 withholding tax on u s dividends 2 there is another disadvantage inherent in the structure as it pools together a combination of investors that often have a wide spectrum of characteristics as well as investment priorities often the battle to find a middle ground is uphill if not entirely impossible as investments and strategies that are suitable to one specific type of investor will be unsuited if not oppositional to the requirements of a different type of investor real world example of master feeder structurerelationships between a master fund and its feeder funds can be complex as a 2018 court case showed at issue was how redemptions by a feeder fund from a master fund are treated in a liquidation scenario the ardon maroon asia dragon feeder fund was a feeder fund to the ardon maroon asia master fund the same people served as directors of two funds also both funds appointed the same investment manager administrator and transfer agent in 2014 one of the feeder fund s investors submitted a redemption notice the feeder fund which held no assets of its own assumed the master fund would automatically satisfy the redemption request something called a back to back redemption however both funds went into liquidation a few months later when the original investor submitted a proof of debt seeking to collect their money it was rejected by the liquidators of the ardon maroon asia master fund on the basis that asia dragon had never officially submitted a separate redemption request notice to it a lawsuit ensued filed in the cayman islands where the funds were based in mid 2018 the grand court of the cayman islands decided in favor of the master fund although back to back redemptions are common industry practices the court noted that the constitutional documents of ardon maroon asia did require a written notice of redemption from its feeder funds so asia dragon had been remiss in not separately notifying its master fund even though the same people served as directors of two funds and both appointed the same investment manager administrator and transfer agent | |
what is a master limited partnership mlp | a master limited partnership mlp is a business venture in the form of a publicly traded limited partnership it combines the tax benefits of a private partnership with the liquidity of a publicly traded company a master limited partnership trades on national exchanges mlps generally experience cash flow stability and are required by the partnership agreement to distribute a set amount of cash to investors their structure can also help reduce the cost of capital in capital intensive businesses such as the energy sector the first mlp was organized in 1981 however by 1987 congress effectively limited the use of them to the real estate and natural resources sectors these limitations were put into place out of concern over too much lost corporate tax revenue mlps do not pay federal income taxes 12understanding master limited partnerships mlps the mlp is a hybrid legal entity that combines elements of two business structures a partnership and a corporation first of all it is considered the aggregate of its partners rather than a separate legal entity as is the case with a corporation second it technically has no employees the general partners are responsible for providing all necessary operational services general partners usually hold an approximate 2 stake in the venture and have the option to increase their ownership 13an mlp issues units instead of shares however these units are often traded on national stock exchanges as a result they are a liquid security traditional partnerships cannot offer the same level of liquidity since an mlp s publicly traded units are not stock shares those who invest in mlps are commonly referred to as unitholders rather than shareholders those who buy into an mlp are called limited partners these unitholders are allocated a share of the mlp s income deductions losses and credits 31mlps have two classes of partners tax treatment of mlpsan mlp is treated as a limited partnership for tax purposes which is a significant tax advantage for investors a limited partnership has a pass through or flow through tax structure this means that all profits and losses are passed through to the limited partners the mlp itself pays no taxes on its revenues as most incorporated businesses do instead the limited partners pay income taxes only on their portions of the mlp s earnings 51further deductions such as depreciation and depletion also pass through to the limited partners limited partners can use these deductions to reduce their taxable income 6to maintain its pass through status at least 90 of the mlp s income must be qualifying income qualifying income includes income realized from the exploration production or transportation of natural resources or real estate in other words to qualify as a master limited partnership a company must generate all but 10 of its revenues from natural resources or real estate activities this definition of qualifying income reduces the sectors in which mlps can operate 7quarterly distributions from the mlp are not unlike quarterly stock dividends however a portion of a distribution is treated as a return of capital roc as opposed to dividend income so the unitholder does not pay income tax on the distribution instead the distribution reduces the cost basis of units 8the distributions remain tax deferred until unitholders sell their interests in the mlp then the difference between the cost basis and sale price is taxed at a combination of the ordinary income tax rate on the return of capital distribution and the capital gains tax rate on the appreciation of the units since purchase this offers a significant additional tax benefit 89mlps are taxed as partnerships not corporations so their profits are not subject to the double taxation that corporations face corporations pay corporate tax and then the shareholders must pay personal taxes on the income from their holdings advantages and disadvantages of mlpslike any investment mlps have their pros and cons mlps may not work for all investors an investor must weigh the disadvantages against the benefits of holding units of mlps before they invest steady incomerelatively low risktax advantaged treatmentliquiditylimited liability for debtscomplex tax filinglimited capital appreciationlimited to a few sectorsexamples of mlpscurrently most mlps operate in the energy industry an energy master limited partnership emlp typically provides and manages resources for other energy based businesses examples might include firms that provide pipeline transportation refinery services and supply and logistics support services for oil companies many oil and gas firms will organize mlps instead of issuing shares of stock using the mlp structure they can both raise capital from investors and maintain a stake in operations 1some corporations may own a sizable interest in their mlps they may also set up separate stock issuing companies whose role is to own units of the corporation s mlp this structure allows them to redistribute the passive income through the corporation as regular dividends an example of this structure was linn energy inc which had both an mlp line and a corporation that owned an interest in the mlp lnco investors had the option to choose for tax purposes how they would like to receive the income the company generated the firm was dissolved in 2017 after filing for bankruptcy in 2016 it was reorganized in 2018 as two new companies riviera resources and roan resources both of which exist today investors in line were given an exchange offer to convert their units into shares of the new entities 151617as many mlps operate in the resources sector their fortunes are determined by volatile energy and commodities prices as evidenced by linn energy s bankruptcy the alerian mlp index the leading gauge of energy infrastructure mlps measured an annualized five year return of 6 2 for the period ending june 30 2023 electricity prices were in a slight upward trend over most of that period however with crude oil prices rebounding approximately 74 from 2022 to 2023 the alerian mlp index surged 30 over that three year period 18192021an investor interested in buying mlps could consider investing in a portfolio of mlps that is diversified across sectors in order to reduce risk for example brookfield asset management a leading global alternative asset manager with approximately 850 billion of assets under management has mlps in the real estate infrastructure and renewable energy sectors 22 | |
what s a master limited partnership | a master limited partnership or mlp is a publicly traded limited partnership focused on the real estate or natural resources sector investors can buy units of an mlp on national exchanges mlps can offer steady income as well as a variety of tax advantages they are not without risk however due to their concentrated exposure to a single industry | |
does a master limited partnership mlp offer tax advantages | yes for limited partners they offer a pass through tax structure distributions aren t taxed when received instead they remain tax deferred until units are sold mlp units up to a certain amount can pass to heirs tax free upon the death of the unitholder also the tax reform act passed in 2017 allows investors to deduct 20 of their distribution immediately from income until the expiration of the provision in 2025 8101211 | |
what are some examples of master limited partnerships | in general master limited partnerships are companies that engage in the exploration development processing or transportation of natural resources they may also focus on real estate an mlp could own and operate oil and gas pipelines or it might focus on exploring for and producing crude oil you could also find mlps that gather and process natural gas the bottom linemaster limited partnerships mlps carry the best of both private partnerships tax benefits and publicly traded companies liquidity general partners provide all operational services and mlps are low risk long term investments | |
what is a master of business administration mba | a master of business administration mba is a graduate degree that provides theoretical and practical training for business or investment management an mba is designed to help graduates gain a better understanding of business management functions an mba degree can have a general focus or a specific focus in fields such as accounting finance marketing and international business | |
how a master of business administration mba works | an mba is a level up from an undergraduate business degree and generally places the graduate well above those with only undergraduate degrees most major universities and colleges provide mba programs which usually last two years to get into an mba program an applicant needs to take the graduate management admission test gmat and be accepted by the program based on its particular selection criteria some programs may require the gre instead or accept it as an alternative standardized test mba programs typically include core classes in accounting management finance marketing and business law management training is at the heart of any mba curriculum with a focus on leadership planning business strategy organizational behavior and the more human sides of running a large or small business increasingly mba programs include training in international business and a focus on the responsibilities and corporate accountability of businesses within their communities the mba degree is the most common route into certain fields including strategic planning and private equity other financial services fields however may no longer consider an mba an entry level degree each company will have its own requirements for different positions but mbas can certainly help distinguish candidates it is not uncommon to gain professional experience before applying to an mba program many programs require a work resum and demonstration of real world experience prior to joining the program other programs may be suitable for candidates straight out of college types of mba programsmba programs will vary between disciplines specialties and schools it is highly likely that most mba candidates will be able to find an educational solution that works with their schedule interests and time commitment restraints one of the most common type of mba program involves a two year commitment during which candidates attend school full time during the first year of the program mba candidates may learn fundamental business skills such as strategy or communication it s normal for candidates to choose more specific electives during the program s second year 1although it requires a substantial amount of time a two year program allows candidates to pursue an internship between the years the longer duration is also intended to help foster relationships between classmates and give candidates more time to absorb materials accelerated programs crunch a two year program into a single year better for candidates that don t want to spend too much time away from work this type of mba program is more intensive faster paced and often must sacrifice content quantity during a one year full time mba program candidates may still learn general business skills while selecting specialized electives however less time may be dedicated to either group due to the condensed nature of the coursework one year programs are often chosen by students trying to accelerate their current career paths as opposed to jumping to different ones 1students not looking to leave work and willing to attend school for a longer time may pursue a part time mba program this type of program often offers greater flexibility related to how many courses can be taken at once and how quickly a student must move through the program part time programs may be more favorable for candidates wanting to study at their own pace in addition part time programs may be better suited based on lifestyle demands e g a single parent may only be able to attend classes during a certain time of the day part time programs may offer the flexibility of evening or weekend classes allowing candidates to balance part time freelance or gig economy work one type of mba program that overlaps with the options above is an online mba often a two year one year or part time choice an online mba allows students to attend school remotely this type of mba program grants candidates even greater flexibility concerning when they take classes and how they attend school online programs may also have different approaches to fostering collaboration compared to in person programs some mba programs focus on global operations candidates interested in a wider focus and who want to branch out from just domestic companies or segments of a company might choose an international program an international mba can help candidates build an international network and develop opportunities around the world international mba candidates may be more diverse than traditional or domestic mbas especially if the international mba offers online classes 1 in addition international mba programs may be better suited to candidates preparing to work in a multinational corporation specialized mba programs are also available for students whose lives and careers do not permit them to attend school full time for example executive mba programs are designed for working professionals hoping to add to their credentials and qualifications these courses of study typically involve classes at night and on weekends some also may require short residencies of intensive coursework executive mba programs are typically only open to candidates who already have substantial professional experience thus they tend to focus on more advanced topics such as leadership development while mba candidates can focus on one of the core disciplines of the degree such as management or finance many mba programs allow students to concentrate in specific industries for example an mba student might specialize in sports management entrepreneurship the entertainment business or healthcare management even within a management specialty mba programs can allow for a concentration on information technology hospitality education or criminal justice some mba programs team up with various professional healthcare programs such as nursing schools to offer joint degrees mba programs have different length of study requirements for example a degree at franklin university requires 36 60 credit hours while the university of nebraska omaha program is comprised of 33 credit hours 23special considerationsthe most prestigious mba programs are nicknamed m7 mba programs they are offered by these schools acceptance by an m7 school is considered more difficult than acceptance by non m7 schools in addition tuition is substantially higher at m7 schools though financial assistance is usually available in the form of financial aid fellowships or sponsorships broadly speaking an mba gives degree holders two uses accelerated advancement in the career they are already pursuing or a strong pivot in a new direction with a newfound skillset the wharton school of the university of pennsylvania communicates the following benefits and uses of an mba to its prospective candidates over the past two decades a growing number of americans have prioritized higher education in 2021 24 1 million u s citizens age 25 and over obtained a master s degree not necessarily an mba that s more than eight million citizens since 2011 5every mba program will have different requirements more prestigious programs or schools will have more competition and these programs will often require more of candidates before accepting them into the school the following list is taken from the university of washington bothell s mba program admission requirements some programs may require submission of a gmat gre score other programs like uw bothell may waive the requirement if certain criteria are met 7as programs offer different services and benefits the cost of an mba will vary widely between program or school top tier mba programs will often be more expensive than local smaller options for the 2023 2024 academic year the first year budget for the wharton mba program was 124 476 this includes 87 370 for tuition 26 028 for room and board 6 868 for books and supplies and 4 210 for health insurance wharton offers many fellowship programs to alleviate the financial burden of the program 8other two year full time programs may have similar expenses the two year program at the university of chicago costs 161 922 in tuition alone for the class of 2025 9shorter term or online programs may be substantially cheaper for example an online mba at the eller college of management through the university of arizona has a tuition cost 56 250 as of february 2024 the program is promoted as completable in as little as 14 months 10those with an mba often have greater skills capabilities and professional competency that can lead to a more successful career though an mba involves a material expense this cost often can be recovered over time through high paying employment according to glassdoor as of october 2023 those with an mba received an average annual compensation package of over 119 000 salary historically has been skewed towards degree holders with experience individuals with one year or less of experience earned over 77 000 per year while individuals with greater than 15 years of experience earned more than 139 000 11mba holders often make substantially more than undergraduate business majors the raymond a mason school of business at william mary reports that an mba holder s salary was as much as 20 000 a year more than that of a holder of a bachelor s degree 12 | |
what does mba mean | mba stands for master of business administration an mba is a degree that provides advanced and thorough training in business principles and leadership skills mba recipients obtain this postgraduate degree to enhance their marketability as a professional | |
what is the salary of an mba | as of february 2024 an mba earns an estimated total pay of over 136 174 per year in the u s pay is widely contingent on the industry company and underlying position occupied by the degree holder for example the same salary data indicate that most total pay packages range between 102 000 to 191 000 per year 11 of course some mbas are paid amounts below this range and some can earn much more | |
what is an mba good for | an mba serves two primary purposes first business professionals who obtain an mba undergo a rigorous education that improves their skillsets second mba degree holders can be highly desired by employers the mba meaning can be an advantage during job searches and often results in higher pay | |
what are the disadvantages of an mba | obtaining an mba takes money time and effort candidates may find it demanding to compile a resum impressive enough to be accepted into their goal program mba programs may also be expensive mba candidates may have to scale back or step away from work as they pursue their degree though an mba carries substantial long term value there are several shorter term hurdles a candidate must overcome the bottom linea master of business administration degree can be a boon to individuals on business or investment management career paths the mba degree distinguishes those awarded it due to the aptitude study and training it requires the mba meaning can confer a special quality on holders of the degree that sets them apart from others | |
what is a master of public administration mpa | a master of public administration mpa is a master s degree in public affairs an mpa degree prepares recipients to serve in executive positions in municipal state and federal government and nongovernmental organizations ngos understanding the master of public administration mpa a master of public administration mpa degree is considered the public sector equivalent of a master of business administration mba degree in the private sector it is also closely related to the more theoretical masters in public policy mpp degree the mpp focuses on policy analysis and design while the mpa focuses on program implementation many graduate schools offer a combined j d law degree and mpa a few offer combined mba mpa programs the program s focus centers on principles of public administration policy development and management and implementation of policies it also prepares the candidate to deal with specific challenges faced in public administration as a professional level degree the mpa requires students first to have an undergraduate level degree from eligible universities students enrolled in an mpa program are expected to possess above average leadership skills and competence in economic and quantitative analysis among other skill requirements graduating with an mpa degree allows students to apply for work in various upper management positions in the federal government nonprofits global ngos and private companies mpa holders may find employment as public policy advocates and researchers as well course requirementsmpa students are required to have a bachelor s degree from an accredited college or university many graduate schools also require applicants to take the graduate records exam gre before applying programs are interdisciplinary and include classes in economics sociology law anthropology and political science most programs require two years for completion some executive mpa programs designed for experienced mid career professionals can be completed in one year also a limited number of programs grant a doctor of public administration d p a which is a terminal degree usually intended for research the d p a is considered on par with a ph d the pay for mpa required jobs varies for example according to glassdoor the average starting salary for someone with an mpa is between 135k and 250k of total pay as of february 2024 1 however pay per position can widely vary for example employment as a political scientist which often requires an mpa starts at an annual median salary of 128 020 according to the u s bureau of labor statistics based on 2022 median pay 2career applicationsgraduates with an mpa degree are primed for leadership roles within private public and nonprofit agencies those who earn an mpa are often well rounded in various areas including policy law business finance and management often newly minted mpa graduates start as analysts researchers grant writers and program managers but these entry level positions usually become executive positions for those with experience and an mpa there is a likelihood of being directly hired at a senior level because mpa graduates usually possess a keen knowledge of policy and public affairs plus an understanding of how policies impact business and economics there are plenty of job opportunities in the private and nonprofit sectors 3having an mpa offers opportunities to work with human rights groups schools nonprofit medical centers charitable organizations public media such as radio and broadcasting development groups and international organizations to name a few career paths advantages and disadvantages of an mpa degreegetting an mpa like any advanced degree takes time and money if you decide to get an mpa you will most likely take a variety of exciting courses unlike some master s programs you don t need any particular undergraduate degree to be accepted into an mpa program individuals with mpas may graduate with multiple job opportunities in a broad spectrum of career paths there are many advantages to getting an mpa beyond money and prestige and earning an mpa often means enrolling in a variety of interesting courses from international affairs to environmental law however these jobs may be highly competitive and public administrators may find themselves in high stress jobs with low turnover rates executive positions are often not vacated until someone retires especially if the pay and profile are high high profile positions in public administration mean working one on one with individuals and groups so these jobs may be challenging for those who prefer to work independently or without drawing attention to themselves provides entry into a variety of careers including overseashigh paying jobsstudying for an mpa often means interesting coursework you don t need a specific undergraduate degree to apply to an mpa program | |
what is mastercard | mastercard is the second largest payments network ranked behind visa in the global payments industry other major payments networks include american express and discover mastercard partners with member financial institutions all over the world to offer mastercard branded network payment cards mastercard uses its proprietary global payments network which it refers to as its core network to facilitate payment transactions which usually involve the mastercard account holder and a merchant along with their respective financial institutions payments can be made via credit debit or prepaid cards 1mastercard explainedmastercard itself is a financial services business that primarily generates revenue from gross dollar volume fees mastercard cards are issued by member banks with the mastercard logo and are characterized as open loop this means that the card can be used anywhere that the mastercard brand is accepted across the payments industry there are four major payment card processors mastercard visa american express and discover each company operates a payments network and partners with a variety of institutions for card offerings all electronic payment cards have cardholder numbers that begin with an issuer identification number iin that distinguishes the network processor for electronic payments the iin can help to identify the card brand if a logo is not visible the mastercard businessin 2020 mastercard reported 6 3 trillion worth of gross dollar volume which shows the amount of money comprehensively transacted on all of its card offerings 1 the company partners with a variety of institutions to offer several types of cards comprehensively its card offerings include credit debit and prepaid cards the majority of mastercard s business is through partnerships with financial institutions and their organizational co brand partners to offer open loop credit card options mastercard does not have a banking division as discussed in its 2020 form 10 k filing mastercard partners with member financial institutions that in turn issue mastercard branded cards to consumers students and small businesses member financial institutions often partner with organizations in co branded relationships to issue mastercard branded rewards cards to their customer bases these organizations can include airlines hotels and retailers | |
when mastercard partners with a financial institution the institution serves as the issuer that institution determines the terms and benefits that a cardholder can receive on their card a financial institution may choose to partner for the issuance of a credit card debit card or prepaid card | to attract different types of consumers financial institutions offer numerous features on mastercard branded cards some popular credit card features may include no annual fee issuer branded or custom organization branded rewards points cash back and 0 introductory rates | |
when credit debit and prepaid mastercard cards are issued through partners the financial institution is primarily responsible for all of the underwriting and issuance of the card | mastercard network processing and feescards within the mastercard network have different relationship maps depending on the type of card offered and the agreements in place regardless mastercard charges fees for usage of each mastercard typically the five entities involved in a transaction are the cardholders merchants acquiring banks issuers and mastercard as the network processor fees can vary depending on card and merchant agreements as a network processing service provider mastercard is responsible for the processing of a transaction mastercard may charge the issuer of a mastercard a switching fee at the time of a card authorization but generally most fees involved with the transaction process are known as interchange fees and are negotiated between the issuer and the acquirer to accept mastercard electronic payments a merchant must have their own acquiring bank that is capable of receiving electronic payments on the mastercard network when a cardholder uses their mastercard the funds are routed from the cardholder s mastercard issuing bank to the merchant s bank account the merchant pays the issuer a fee on each transaction known as the merchant discount for mastercard the majority of the company s revenue is generated from transaction fees charged to issuers and acquirers which pay mastercard based on gross dollar volume gdv the gdv fee is a percentage of the total gdv issuers also may be required to pay mastercard a fee based on the co branded card agreement each co branded card agreement has different terms for fees but in general the gdv fee is a basic standard mastercard may also charge the issuer a switching fee for each card authorization which can be a factor in determining the issuer s interchange fee for the merchant | |
what are matching orders | matching orders is the process by which a securities exchange pairs one or more unsolicited buy orders to one or more sell orders to make trades this can be contrasted with requests for a quote rfq in a security to proceed with a trade if one investor wants to buy a quantity of stock and another wants to sell the same quantity at the same price their orders match and a transaction is effected the work of pairing these orders is the process of order matching whereby exchanges identify buy orders or bids with corresponding sell orders or asks to execute them over the past decade this process has become almost entirely automated | |
how matching orders works | matching the orders of buyers and sellers is the primary work of specialists and market makers in the exchanges the matches happen when compatible buy orders and sell orders for the same security are submitted in close proximity in price and time generally a buy order and a sell order are compatible if the maximum price of the buy order matches or exceeds the minimum price of the sell order from there the computerized order matching systems of different exchanges use a variety of methods to prioritize orders for matching today most exchanges match orders using computer algorithms but historically brokers matched orders through face to face interactions on a trading floor in an open outcry auction quick accurate order matching is a critical component of an exchange investors particularly active investors and day traders will look for ways to minimize inefficiencies in trading from every possible source a slow order matching system may cause buyers or sellers to execute trades at less than ideal prices eating into investors profits if some order matching protocols tend to favor buyers and others favor sellers these methods become exploitable this is one of the areas where high frequency trading hft was able to improve efficiency exchanges aim to prioritize trades in a way that benefits buyers and sellers equally so as to maximize order volume the lifeblood of the exchange popular algorithms for matching ordersall major markets have transitioned to electronic matching each securities exchange uses its own specific algorithm to match orders broadly they fall under two categories first in first out fifo and pro rata under a basic fifo algorithm or price time priority algorithm the earliest active buy order at the highest price takes priority over any subsequent order at that price which in turn takes priority over any active buy order at a lower price for example if a buy order for 200 shares of stock at 90 per share precedes an order for 50 shares of the same stock at the same price the system must match the entire 200 share order to one or more sell orders before beginning to match any portion of the 50 share order under a basic pro rata algorithm the system prioritizes active orders at a particular price proportional to the relative size of each order for example if both a 200 share buy order and a 50 share buy order at the same price are active when a compatible 200 share sell order arrives the system will match 160 shares to the 200 share buy order and 40 shares to the 50 share buy order since the sell order is not large enough to fulfill both buy orders the system will partially fill both in this case the pro rata matching algorithm fills 80 percent of each order | |
what are material participation tests | material participation tests are a set of internal revenue services irs criteria that evaluate whether a taxpayer has materially participated in a trade business rental or other income producing activity a taxpayer materially participates if they pass one of the seven material participation tests however passive activity rules limit the deductibility of losses when taxpayer participation fails to meet at least one of the seven material participation tests understanding material participation testsmaterial participation in an income producing activity is generally speaking an activity that is regular continuous and substantial income producing actions in which the taxpayer materially participates are active income or loss an active loss is deductible but subject to at risk rules or other limitations imposed by the internal revenue code irc 1passive activity rules apply to participation that fails to meet one of the material participation tests a passive participation in an income producing venture is participation that is not regular continuous and substantial income producing actions in which the taxpayer passively participates are passive income and loss passive activity rules limit the deductibility of any passive loss 2material participation may or may not be worse than passive participation in any given situation it s a good idea to enlist the help of a financial advisor in making that decision types of material participation testsfor any tax year a taxpayer or their spouse qualifies as materially participating in a venture if they satisfy any one of the seven material participation tests limits to material participation testsnot all time spent in certain activities will count toward the 100 hour or 500 hour thresholds of tests one three four or seven time spent as an investor will not count unless you can show direct involvement in the day to day management of the activity work not customarily done by an owner is not counted towards material participation hours nor is time spent commuting work undertaken for the primary purpose of avoiding the disallowance of losses under the passive loss rule is not material participation and finally participation in a purely managerial activity where other managers receive no compensation cannot be counted 4real estate rental activity is generally considered passive activity even if you materially participate unless you re a qualified real estate professional 5the participation of limited partners in enterprises owned by them is passive participation unless they pass material participation tests one five or six when a taxpayer participates in two enterprises operated through the same pass through entity at least one of the seven tests for each venture must be met for them to be considered to have materially participated in both activities 6special considerations for material participation teststaxpayers with an ownership interest in a venture receive participation credit for work done for it they establish their participation by identifying the hours spent and the nature of the work done taxpayers base participation on records they maintain such as appointment books calendars narrative summaries or any other reasonable means 6 | |
how does the irs see active vs passive participation in generating income | so called material participation in an activity that generates income is identified as active if it is determined to be regular continuous and substantial this kind of participation must pass the material participation tests devised by the irs 3 passive participation that generates income is characterized as the opposite of active it s activity that is not regular continuous or substantial | |
how do you verify material participation | taxpayers need to keep records of the number of hours of material participation in an activity and be able to provide written evidence if need be tasks an investor might typically undertake like reviewing stock charts would not meet the participation burden unless that taxpayer was substantially involved in the management of a particular activity 6 | |
how does material participation impact taxes | a taxpayer who is materially participating in an activity is allowed to deduct the total amount of losses on their taxes under passive activity rules a taxpayer who is passively participating in an income generating activity is limited in the deductibility of losses 7the bottom linewhether your participation in a particular income generating activity is active or passive can affect your tax liabilities to help you determine which it is the irs has developed seven tests you can use to evaluate your participation if your activity counts as material participation you ll typically be able to deduct the total amount of losses your deductions are limited in the case of passive activity | |
what is material requirements planning mrp | material requirements planning mrp is a software based integrated inventory and supply management system designed for businesses companies use mrp to estimate quantities of raw materials maintain inventory levels and schedule production and deliveries | |
how material requirements planning mrp works | mrp helps businesses and manufacturers define what is needed how much is needed and when materials are needed and works backward from a production plan for finished goods mrp converts a plan into a list of requirements for the subassemblies parts and raw materials needed to produce a final product within the established schedule mrp helps manufacturers get a grasp of inventory requirements while balancing both supply and demand using mrp managers can determine their need for labor and supplies and improve their production efficiency by inputting data into the mrp scheme such as mrp and manufacturingmanufacturers manage the types and quantities of materials they purchase strategically and cost effectively to ensure that they can meet current and future customer demand mrp helps companies maintain appropriate levels of inventory so that manufacturers can better align their production with rising and falling demand a bill of materials bom is an extensive list of raw materials components and assemblies required to construct manufacture or repair a product or service the mrp process estimates demand and required materials after determining customer demand and utilizing the bill of materials mrp breaks down demand into specific raw materials and components allocates inventory of materials mrp allocates inventory into the exact areas as needed schedules production time and labor requirements are calculated to complete manufacturing and a timeline is created monitors the process mrp automatically alerts managers of any delays and even suggests contingency plans to meet build deadlines history of mrpmaterial requirements planning was the earliest of the integrated information technology it systems that aimed to improve productivity for businesses by using computers and software technology the first mrp systems of inventory management evolved in the 1940s and 1950s using mainframe computers to extrapolate information from a bill of materials for a specific finished product into a production and purchasing plan mrp systems expanded to include information feedback loops so that production managers could change and update the system inputs as needed the next generation of mrp manufacturing resources planning mrp ii also incorporated marketing finance accounting engineering and human resources aspects into the planning process a concept that expands on mrp is enterprise resources planning erp developed in the 1990s which uses computer technology to link various functional areas across an entire business enterprise advantages and disadvantages of mrpmaterials and components are available when neededminimized inventory levels and associated costsreduced customer lead times | |
what is a mature industry | a mature industry is one that has passed both the emerging and growth phases of industry growth companies in these industries tend to be larger older and more stable at the beginning of the industry lifecycle new products or services find use in the marketplace many businesses may spring up trying to profit from the new product demand over time failures and consolidations will distill the business to the strongest as the industry continues to grow this is the period where the surviving companies are considered to be mature eventually growth is predicted to slow as new innovative products or services replace existing industry offerings and begin a new industry lifecycle understanding a mature industrythe maturity phase of the industry lifecycle often begins with a shakeout period during which growth slows focus shifts toward expense reduction and consolidation occurs some firms achieve economies of scale hampering the sustainability of smaller competitors as maturity is achieved barriers to entry become higher and the competitive landscape becomes more clear market share cash flow and profitability become the primary goals of the remaining mature companies once growth is relatively less important price competition becomes much more relevant as product differentiation declines with consolidation examples of mature industries in the u s today include food and agriculture mining and natural resources extraction and financial services the shares of mature industries are characterized by low price to earnings p e ratios and high dividend yields earnings and sales grow slower in mature industries than during the growth and emerging industries phases a mature industry may be at its peak or just past it but not yet in the decline phase while earnings may be stable growth prospects are few and far between as the remaining companies consolidate market share and create barriers for new competitors to enter the sphere image by sabrina jiang investopedia 2020 | |
why a mature industry may see little growth | in a mature industry revenue and earnings can continue to increase however companies from such industries are not expected to grow at the same pace that may have characterized the earlier phases of development this may be due to the industry already approaching the point of market saturation in terms of reaching available customers for example the makers of breakfast cereal and related grocery products could be considered to be part of a mature industry such companies have achieved a level of market penetration that may shift marginally from time to time but they have largely reached the limits of the demographics they want to reach each company may have a footprint of customers it has connected with though there may be some gaps in coverage as a collective industry such companies have the capacity to cover the gamut of available clientele mature industries can pose a challenge for investors and the management of the companies in these sectors while there is an expectation of stability that comes with a mature industry a desire to see future earnings growth persists in order for companies in mature industries to realize growth that might appease investors significant effort must be made this can include researching and developing new products that change the paradigm of the industry it might consist of selling off parts of the business acquiring assets from smaller more innovative companies or merging with a peer company to further expand the company s customer base and market presence mature industries can be seen as having plateaued in some regards and may need to develop new innovations to remain relevant with their customers it may be inevitable for mature industries to be superseded and made obsolete by the growth of a new business sector for example film photography was once a mature and stable industry given there were few true alternatives to the medium until digital photography reached a stage of development that could consistently reproduce at a comparable cost the clarity of film photos while there are nuanced reasons why film photography remains popular with some niche users the consumer market largely shifted to using digital | |
what is maturity | maturity is the date on which the life of a transaction or financial instrument ends after which it must either be renewed or it will cease to exist the term is commonly used for deposits foreign exchange spot trades forward transactions interest rate and commodity swaps options loans and fixed income instruments such as bonds financial institutions sometimes temporarily alter maturity dates as part of a promotion to entice new investors for promotional certificates of deposits cds a bank may offer a higher rate of return for a short term cd at maturity the promotional cd will generally renew at the rate and time frame of a standard cd understanding maturitysome financial instruments such as deposits and loans require repayment of principal and interest on the maturity date others such as foreign exchange forex transactions provide for the delivery of a commodity still others such as interest rate swaps consist of a series of cash flows with the final one occurring at maturity maturity of a depositthe maturity of a deposit is the date on which the principal is returned to the investor interest is sometimes paid periodically during the lifetime of the deposit or at maturity many interbank deposits are overnight including most euro deposits and a maturity of more than 12 months is rare maturity of bondsat the maturity of a fixed income investment such as a bond the borrower is required to repay the full amount of the outstanding principal plus any applicable interest to the lender nonpayment at maturity may constitute default which would negatively affect the issuer s credit rating term to maturity refers to the amount of time during which the bond owner will receive interest payments on their investment bonds with a longer term to maturity will generally offer a higher interest rate once the bond reaches maturity the bond owner will receive the face value also referred to as par value of the bond from the issuer and interest payments will cease maturity of derivativesthe term maturity can also be used concerning derivative instruments such as options and warrants but it s important to distinguish maturity from the expiration date for an option the expiration date is the last date on which an american style option can be exercised and the only date that a european style option can be exercised 1the maturity date is the date on which the underlying transaction settles if the option is exercised the maturity or expiration date of a stock warrant is the last date that it can be exercised to purchase the underlying stock at the strike price the maturity on an interest rate swap is the settlement date of the final set of cash flows maturity of foreign exchangethe maturity date also known as the value date of a spot foreign exchange transaction is two business days with the exception of u s dollar versus canadian dollar transactions which settle on the next business day the maturity date on a foreign exchange forward or swap is the date on which the final exchange of currencies takes place it can be anything longer than the spot 2special considerationsthe maturity of an investment is a primary consideration for investors since it has to match their investment horizon an investment horizon can potentially range from as short as a few days to decades depending on how long the investor intends to hold the investment in order to achieve their objectives for example homebuyers who are saving money for the down payment on a home that they intend to purchase within a year would be ill advised to invest in a five year term deposit a better alternative in this scenario would be to consider a money market fund or a one year term deposit | |
what is a maturity date | a maturity date is the date on which the principal amount of a note draft acceptance bond or other debt instrument becomes due it also refers to the termination or due date on which an installment loan must be paid back in full as such the relationship between the debtor and creditor or the investor and debt issuer ends the maturity date can be found on the certificate of the instrument the principal investment is repaid to the investor on the maturity date and regular interest payments made to them cease on this date | |
how maturity dates work | although investing and borrowing may be different there are some commonalities between these two ventures one of these is what s called a maturity date which is the date at which the relationship between the investor and issuer and the borrower and creditor ends a maturity date defines the lifespan of a security or loan informing investors and creditors when they receive their principal back for instance the maturity date also defines the period of time in which investors receive interest payments for derivative contracts such as futures or options the term maturity date is sometimes used to refer to the contract s expiration date it is important to note that some debt instruments such as fixed income securities are often callable for callable securities including callable bonds issuers maintain the right to pay back the principal before its maturity date 1 before buying any fixed income securities investors should determine whether the bonds are callable or not with callable fixed income securities the debt issuer can elect to pay back the principal early which can prematurely halt interest payments made to investors special considerationsbonds with longer terms to maturity tend to offer higher coupon rates the annual amount of interest paid to the bondholder than similar quality bonds with shorter terms to maturity the risk of the government or a corporation defaulting on the loan increases over longer periods of time additionally the inflation rate grows higher over time these factors must be incorporated into the rates of return fixed income investors receive a bond s price grows less volatile the closer it comes to maturity types of maturity datesmaturity dates are used to classify bonds and other types of securities into one of the following three broad categories 2this classification system is used widely across the finance industry this means that the maturity dates of bonds cds and debts like loans and mortgages can all be either short term medium term or long term example of a maturity datehere s a hypothetical example to show how maturity dates work let s say an investor bought a 30 year treasury bond in 1996 with a maturity date of may 26 2016 using the consumer price index cpi as the metric the hypothetical investor experienced an increase in u s prices or rate of inflation of over 218 during the time he held the security as a bond grows closer to its maturity date its yield to maturity ytm which is the anticipated return on the bond at maturity and coupon rate begin to converge once the bond matures the investor receives the full principal balance back and the investment is considered closed | |
how do you determine a bond s maturity date | the bond documents will include a lot of information including the final maturity date typically investors can find the final maturity date in the authorization authentication and delivery section of the bond documents 4 | |
how does the maturity date affect the interest rate of a bond | bonds with longer terms tend to offer higher interest rates this higher interest rate goes hand in hand with additional risks for investors 2 | |
what happens if a company defaults on its bonds | if a company goes bankrupt and defaults on its bonds bondholders have a claim on that company s assets but the type of bond whether that s secured or unsecured will determine the priority of a bondholder s claim a company going through bankruptcy will also have other creditors ultimately claims on the company s assets will be sifted through in bankruptcy court 5the bottom linethe maturity date of a bond or other debt instrument determines when the principal investment is repaid to investors at this point interest payments made to investors stop conservative investors may appreciate the clear time table outlining when their principal will be paid back when used in the context of loans a maturity date refers to the time when the borrower must pay back a loan in full | |
what is max pain | max pain or the max pain price is the strike price with the most open options contracts i e puts and calls and it is the price at which the stock would cause financial losses for the largest number of option holders at expiration the term max pain stems from the maximum pain theory which states that most traders who buy and hold options contracts until expiration will lose money understanding max painaccording to the maximum pain theory the price of an underlying stock tends to gravitate towards its maximum pain strike price the price where the greatest number of options in dollar value will expire worthless maximum pain theory says that the option writers will hedge the contracts they have written in the case of the market maker the hedging is done to remain neutral in the stock consider the market maker s position if they must write an option contract without wanting a position in the stock as the option expiration approaches option writers will try to buy or sell shares of stock to drive the price toward a closing price that is profitable for them or at least to hedge their payouts to option holders for instance call writers will want the share price to go down while put writers would like to see share prices go up about 60 of options are traded out 30 of options expire worthless and 10 of options are exercised max pain is the point where option owners buyers feel maximum pain or will stand to lose the most money option sellers on the other hand may stand to reap the most rewards the maximum pain theory is controversial critics of the theory are divided whether the tendency for the underlying stock s price to gravitate towards the maximum pain strike price is a matter of chance or a case of market manipulation calculating the max pain pointmax pain is a simple but time consuming calculation essentially it is the sum of the outstanding put and call dollar value of each in the money strike price for each in the money strike price for both puts and calls because the max pain price can change daily if not from hour to hour using it as a trading tool is not easy however it is sometimes valuable to note when there is a large difference between the current stock price and the max pain price there could be a tendency for the stock to move closer to max pain but the effects may not be meaningful until expiration approaches 1example of max painfor example suppose options of stock abc are trading at a strike price on 48 however there is significant open interest on abc options at strike prices of 51 and 52 then the max pain price will settle at either one of these two values because they will cause the maximum number of abc s options to expire worthless correction jan 16 2022 a previous version of this article mistakenly stated that put holders want share prices to go up in fact put holders profit from lower share prices while put writers profit from higher ones | |
what is a maximum drawdown mdd | a maximum drawdown mdd is the maximum observed loss from a peak to a trough of a portfolio before a new peak is attained maximum drawdown is an indicator of downside risk over a specified time period it can be used both as a stand alone measure or as an input into other metrics such as return over maximum drawdown and the calmar ratio maximum drawdown is expressed in percentage terms the formula for maximum drawdown is m d d trough value peak value peak value begin aligned mdd frac textit trough value textit peak value textit peak value end aligned mdd peak valuetrough value peak value understanding maximum drawdownmaximum drawdown is a specific measure of drawdown that looks for the greatest movement from a high point to a low point before a new peak is achieved however it s important to note that it only measures the size of the largest loss without taking into consideration the frequency of large losses because it measures only the largest drawdown mdd does not indicate how long it took an investor to recover from the loss or if the investment even recovered at all maximum drawdown mdd is an indicator used to assess the relative riskiness of one stock screening strategy versus another as it focuses on capital preservation which is a key concern for most investors for example two screening strategies can have the same average outperformance tracking error and volatility but their maximum drawdowns compared to the benchmark can be very different a low maximum drawdown is preferred as this indicates that losses from investment were small if an investment never lost a penny the maximum drawdown would be zero the worst possible maximum drawdown would be 100 meaning the investment is completely worthless mdd should be used in the right perspective to derive the maximum benefit from it in this regard particular attention should be paid to the time period being considered for instance a hypothetical long only u s fund gamma has been in existence since 2000 and had a maximum drawdown of 30 in the period ending 2010 while this may seem like a huge loss note that the s p 500 had plunged more than 55 from its peak in october 2007 to its trough in march 2009 while other metrics would need to be considered to assess gamma fund s overall performance from the viewpoint of mdd it has outperformed its benchmark by a huge margin example of maximum drawdownconsider an example to understand the concept of maximum drawdown assume an investment portfolio has an initial value of 500 000 the portfolio increases to 750 000 over a period of time before plunging to 400 000 in a ferocious bear market it then rebounds to 600 000 before dropping again to 350 000 subsequently it more than doubles to 800 000 what is the maximum drawdown the maximum drawdown in this case is begin aligned text the maximum drawdown in this case is qquad quad frac 350 000 750 000 750 000 53 33 end aligned the maximum drawdown in this case is note the following points | |
what is maximum foreseeable loss mfl | the maximum foreseeable loss is an insurance term most frequently used in the insurance of businesses and business property mfl is a worst case situation in which the claim for damages and losses are significant the maximum foreseeable loss is a reference to the most substantial financial hit a policyholder could potentially experience when an insured property has been harmed or destroyed by an adverse event such as a fire maximum foreseeable loss assumes a malfunction and non response of the usual safeguards like sprinklers and professional firefighters that would typically limit such a loss claiming maximum foreseeable lossesa claim for a maximum foreseeable loss is extensive as it will include not just physical losses such as the property housing the business and the products supplies and equipment owned by the company but also the impact the adverse event had on the day to day running of the operations the policy acknowledges the potential loss of business called business interruption which is likely unavoidable while repairs to the property are ongoing depending on the size of the property and the extent of the business repairs could take weeks or months 1 the business interruption might be complete 100 or partial say 50 depending on whether it s possible to resume business at another physical location or in some cases digitally the maximum foreseeable loss refers to the worst case scenario that a company might potentially face should an adverse event occur mfl and other loss determinationsinsurers use a maximum foreseeable loss for underwriting policies for insurance coverage besides mfl the insurance underwriter considers probable maximum loss and usual loss expectancy for the typical business types for example the maximum foreseeable loss for the owner of a warehouse who experiences a fire hurricane or tornado is the full value of the warehouse building and all of its contents common sense suggests most owners would seek such coverage however the owner of the warehouse also typically chooses to protect the business in the event of less all encompassing damage such as water damage of products after a roof leak other thresholds which can reflect the impact of smaller yet still detrimental losses to the companyprobable and normal loss expectancythe probable maximum loss pml is a lower financial figure that assumes part of the physical structure and some of the contents of the warehouse are salvageable that s because the building s passive safeguards partially limited the damage but the most critical active one did not a smaller allowance would be the normal loss expectancy the highest claim a company can file for property damage and business interruption from an adverse event like a fire it is a best case loss scenario normal loss expectancy assumes that all protection systems worked correctly and the damage is limited to 10 of the property s insured value determining mflthe percentage of the property s total insured value at risk to be decimated by a particular type of loss varies with each policy based on factors which include building construction the combustibility of the building s contents the ease with which the contents may be damaged and existing firefighting services in the immediate area calculating different loss estimates is essential in helping insurers determine how much coverage their clients need to purchase and how much the insurers are at risk of paying out under different types of claims mfl examplelet s say a retailer had a crucial warehouse that held the majority of its offerings the retailer knows that it needs to be fully stocked ahead of a critical holiday shopping season and is depending on the contents of this warehouse to satisfy its customers and help it capitalize on consumer spending if anything happens to this warehouse it would be a huge blow to the retailer not only would the retailer have lost inventory it already paid for but they would also experience a business interruption resulting from the destruction of its inventory its inability to fulfill customer orders and its inability to take advantage of the holiday shopping period the maximum foreseeable loss in this scenario is that a fire or natural disaster destroys the warehouse ahead of a major shopping event the destruction of the warehouse would cause a massive business interruption that would substantially damage the company s results not to mention hurt its reputation with consumers in the long run as a result purchasing insurance in anticipation of the maximum foreseeable loss would be essential for the retailer | |
what is the maximum loan amount | a maximum loan amount or loan limit describes the total amount of money that an applicant is authorized to borrow maximum loan amounts are used for standard loans credit cards and line of credit accounts the maximum will depend on several factors including a borrower s creditworthiness loan length loan purpose whether the loan is backed by collateral and various criteria of the lender understanding the maximum loan amounta maximum loan amount for a borrower is based on a combination of factors and determined by a loan underwriter it is the maximum amount of money that will be provided to a borrower if the loan is approved lenders consider a borrower s debt to income ratio during the underwriting process which helps to determine how much they believe the borrower would be able to repay and therefore what the maximum loan amount should be lenders generally seek borrowers with debt to income ratios of 36 or less 1lenders must also consider their own risk parameters when determining a borrower s total principal thus maximum loan amounts can also be based on the risk diversification of a lender in addition to the applicant s debt to income ratio underwriters take into account a variety of factors including credit score and credit history in determining the maximum loan amount an applicant can borrow unsecured lendingcredit cards are an example of unsecured lending credit card issuers also use underwriting to determine how much they trust a borrower to repay the maximum loan amount or credit limit one of the primary factors they consider is credit history which includes repayment history the number of credit accounts on a report and the length of a person s credit history credit card issuers will also check the number of inquiries on a credit report and the derogatory marks which include bankruptcies collections civil judgments and tax liens they also may take into account an applicant s work history personal loans are also available unsecured banks peer to peer p p websites and other lenders use credit history debt to income ratio and other types of underwriting to set the rates at which they are willing to lend money the better your credit rating the better the rates you will be offered people with excellent credit are offered much lower rates than those with bad credit personal lines of credit loc are another form of unsecured loan which gives you access to money you can borrow when you need it and there s no interest until you borrow having better credit scores may help you qualify for a lower annual percentage rate secured lendingwith secured loans specifically mortgage loans lenders use an additional qualifying ratio called the housing expense ratio which compares the borrower s housing expenses to their pre tax income housing expenses generally include the potential mortgage principal and interest payments property taxes hazard insurance mortgage insurance and association fees lenders will typically look for a housing expense ratio no higher than 28 similar to standard loans secured lenders will also analyze a borrower s debt to income with 36 being the common threshold required they also base a maximum loan amount on customized loan to value thresholds secured lenders will often lend between 70 90 of a secured asset s collateral value mortgage loans generally follow standard underwriting procedures with these variables also a part of the decision on how much to lend to a borrower a home equity line of credit heloc is another form of secured lending as its name implies the maximum loan amount is based on the equity you have in your home if you need money it can be a better choice than a credit card because the interest rate may be lower and the amount you can borrow higher if you have trouble paying back what you borrow however you can risk losing your home government sponsored loansgovernment sponsored loans offer some exceptions to the underwriting requirements and maximum loan amounts for certain types of home loans these loans may accept borrowers with debt to income ratios of up to 50 2 in the mortgage industry the federal housing finance agency fhfa publishes the maximum amounts for loans sponsored by fannie mae 3 freddie mac also publishes loan limits annually since fannie mae and freddie mac guarantee a large percentage of mortgages originated in the united states the conforming loan limit that is loans that conform to these entities guidelines is an important number in the mortgage finance industry the maximum conforming loan limit for one unit properties in most parts of the u s the limit increased from 726 200 in 2023 4 | |
what criteria do lenders use to calculate the maximum loan amount | lenders will consider several factors including credit score debt to income ratio the purpose of the loan the type of loan and more in general the lower your debt to income ratio and the higher your credit score the higher you can expect the maximum loan amount to be | |
what do lenders use to determine who qualifies for a loan | credit score is one of the biggest factors scores of 800 or greater generally are considered excellent while 740 799 is considered very good and 670 739 qualifies as good the lower an applicant s score the more difficult it will be to get approved those with good but not excellent credit may still be approved but they are more likely to pay higher interest rates 5 | |
what is a good maximum loan to value ratio | a loan to value ratio measures how much of an asset is financed compared to the overall value of the asset for example if you take out a 400 000 mortgage to purchase a 500 000 home the loan to value ratio would be 80 what constitutes a good maximum loan to value ratio depends on the type of loan some homebuying programs allow buyers to put down as little as 3 meaning the loan to value ratio would be 97 but that can be risky for the borrower if the value of the home decreases due to market conditions or other factors the bottom line | |
what is the mcclellan oscillator | the mcclellan oscillator is a market breadth indicator that is based on the difference between the number of advancing and declining issues on a stock exchange such as the new york stock exchange nyse or nasdaq 1the indicator is used to show strong shifts in sentiment in the indexes called breadth thrusts it also helps in analyzing the strength of an index trend via divergence or confirmation the formula for the mcclellan oscillator isthere are two formulas for the mcclellan oscillator the original formula and one that adjusts for changes in the number of stocks listed on the stock exchange the adjusted formula allows for a better comparison of values over longer periods of time 2mcclellan oscillator 19 day ema of advances declines 39 day emaof advances declines 19 day ema current day advances declines 0 10 prior day ema39 day ema current day advances declines 0 05 prior day emaadj mcclellan oscillator 19 day ema of ana 39 day ema of ana adj net advances ana advances declinesadvances declines19 day ema current day ana prior day ema 0 10 prior day ema39 day ema current day ana prior day ema 0 05 prior day ema begin aligned text mcclellan oscillator text 19 day ema of advances text declines text 39 day ema text of advances text declines text 19 day ema text current day advances text declines 0 10 text prior day ema text 39 day ema text current day advances text declines 0 05 text prior day ema text adj mcclellan oscillator text 19 day ema of ana text 39 day ema of ana text adj net advances ana frac text advances text declines text advances text declines text 19 day ema text current day ana text prior day ema 0 10 text prior day ema text 39 day ema text current day ana text prior day ema 0 05 text prior day ema end aligned mcclellan oscillator 19 day ema 39 day ema adj mcclellan oscillator adj net advances ana 19 day ema 39 day ema 19 day ema of advances declines 39 day emaof advances declines current day advances declines 0 10 prior day ema current day advances declines 0 05 prior day ema 19 day ema of ana 39 day ema of ana advances declinesadvances declines current day ana prior day ema 0 10 prior day ema current day ana prior day ema 0 05 prior day ema | |
what does the mcclellan oscillator tell you | the mcclellan oscillator is an indicator based on market breadth which technical analysts can use in conjunction with other technical tools to determine the overall state of the stock market and assess the strength of its current trend 1since the indicator is based on all the stocks in an exchange it is compared to the price movements of indexes that reflect that exchange or compared to major indexes such as the s p 500 positive and negative values indicate whether more stocks on average are advancing or declining the indicator is positive when the 19 day ema is above the 39 day ema and negative when the 19 day ema is below the 39 day ema 3a positive and rising indicator suggests that stocks on the exchange are being accumulated a negative and falling indicator signals that stocks are being sold typically such action confirms the current trend in the index crossovers from positive to negative or vice versa may signal the trend has changed in the index or exchange being tracked when the indicator makes a large move typically of 100 points or more from negative to positive territory that is called a breadth thrust it means a large number of stocks moved up after a bearish move since the stock market tends to rise over time this a positive signal and may indicate that a bottom in the index is in and prices are heading higher overall 3 | |
when index prices and the indicator are moving in different directions then the current index trend may lack strength bullish divergence occurs when the oscillator is rising while the index is falling this indicates the index could head higher soon since more stocks are starting to advance | bearish divergence is when the index is rising and the indicator is falling this means fewer stocks are keeping the advance going and prices may start to head lower 3the difference between the mcclellan oscillator and mcclellan summation index the mcclellan oscillator was developed by sherman and marian mcclellan who also developed the mcclellan summation index 4 the mcclellan summation index adds the current day s mcclellan oscillator to the previous day s mcclellan summation index in other words the summation index is a cumulative measure whereas the oscillator is not while the oscillator may be more useful for analyzing shorter term trends the summation index is more applicable to broader and longer term price trends 3limitations of using the mcclellan oscillatorthe indicator tends to produce lots of signals breadth thrusts divergence and crossovers all occur with some frequency but not all these signals will result in the price index moving in the expected direction the indicator is prone to producing false signals and therefore should be used in conjunction with price action analysis and other technical indicators 2the indicator can also be quite choppy moving between positive and negative territory rapidly such action indicates a choppy market but this isn t evident until the indicator has made this whipsaw move a few times study how the indicator acts over extended periods of time and in different market conditions before relying on the indicator for trading purposes | |
what is mcf | mcf is an abbreviation derived from the roman numeral m for one thousand put together with cubic feet cf to measure a quantity of natural gas for example a natural gas well that produces 400 mcf of gas per day operates with a daily production rate of 400 000 cubic feet in terms of energy output one thousand cubic feet mcf of gas is equal to approximately 1 000 000 btu british thermal units one btu is the amount of heat required to raise the temperature of one pound of water by one degree fahrenheit at sea level which is roughly equivalent to a kitchen match many people mistakenly think that m represents the english word for million but that is not the case one million cubic feet of gas is instead denoted as mmcf in which the two ms mean one thousand thousand or 1 000 000 with each m representing three zeros 1understanding mcfmcf is the conventional way to measure natural gas in the united states which uses the imperial measuring system in europe where the metric system is used the abbreviation most commonly used is thousand of cubic meters or mcm oil and gas financial analysts need to be especially careful when analyzing companies quarterly results to avoid mixing up various units for example it is quite easy to overlook the fact that u s companies will report natural gas measurements in mcf while european companies often report them in mcm this makes quite a difference because 1 mcm 35 3 mcf to help analysts deal with these reporting differences some companies provide analysts with an approximate conversion factor guide in these guides there are typically six specific conversion factors for natural gas cubic meters cubic feet tons of oil equivalent tons of liquefied natural gas btu and barrels of oil equivalent special considerations most of the major international oil and gas companies provide standardized reports to help analysts and investors accurately assess these figures this is partly a regulatory requirement with the u s securities and exchange commission sec stipulating that foreign companies with stock listed on u s exchanges file standardized reports on an annual basis called a 20 f 2 this is equivalent to the 10 k filing for u s companies and provides investors with oil and gas production and reserve statistics published with imperial measurements to allow like for like comparison investors in the emerging markets of russia africa or latin america often receive reports with data represented in the metric system which is a global measurement system analysts of these companies will need to use conversion tables to accurately quantify and compare them to more sophisticated international operators | |
what is the mckinsey 7s model | the mckinsey 7s model is a framework for organizational effectiveness that postulates that there are seven internal factors of an organization that need to be aligned and reinforced in order for it to be successful understanding mckinsey 7s modelthe 7s model specifies seven factors that are classified as hard and soft elements hard elements are easily identified and influenced by management while soft elements are fuzzier more intangible and influenced by corporate culture the hard elements are as follows the soft elements are as follows the framework is used as a strategic planning tool by organizations to show how seemingly disparate aspects of a company are in fact interrelated and reliant upon one another to achieve overall success 1consultants thomas peters and robert waterman jr authors of the management bestseller in search of excellence conceived of the mckinsey 7s model at consulting firm mckinsey co in the late 1970s 2a closer look at the 7 s sthe mckinsey 7 s model is applicable in a wide variety of situations where it s useful to understand how the various parts of an organization work together it can be used as a tool to make decisions on future corporate strategy the framework can also be used to examine the likely effects of future changes in the organization or to align departments and processes during a merger or acquisition elements of the mckinsey model 7s can also be used with individual teams or projects frequently asked questions | |
what is mckinsey | mckinsey co is a global consulting and accounting firm founded by university of chicago management professor james o mckinsey in 1926 the firm specializes in management consulting for a wide range of corporations governments and other organizations | |
what are the 7s factors | the seven factors are strategy structure systems shared values skills style and staff | |
why follow the 7s model | these 7 factors are used by management to identify where a company excels and where it needs more work in terms of creating an optimal and efficient workforce it is also used to evaluate performance following a merger or other restructuring to identify areas that need improvement | |
what is mean reversion | the concept of mean reversion is widely used in various financial time series data including price earnings and book value when an asset s current market price is less than its average past price it s considered attractive for purchase conversely if the current price is above the average it s expected to fall traders and investors use mean reversion for timing of their respective trading and investment strategies understanding mean reversionmean reversion is a financial theory that suggests asset prices will eventually return to their long term mean or average this concept is grounded in the belief that asset prices and historical returns will gravitate toward a long term average over time the greater the deviation from this mean the higher the probability that the asset s price will move closer to it in the future 1this theory has led to many investing strategies that involve the purchase or sale of stocks or other securities whose recent performances have differed greatly from their historical averages however a change in returns also could be a sign that a company no longer has the same prospects it once did in which case it is less likely that mean reversion would occur percentage returns and prices aren t the only measures considered in mean reverting interest rates or even the price to earnings p e ratio of a company can be subject to this phenomenon investors employ mean reversion strategies to capitalize on asset prices that have deviated significantly from their historical mean the underlying assumption is that prices eventually will revert to their long term average investors typically use mean reversion in the following ways some considerations involved in mean reversion involve time horizon and market conditions the effectiveness of a mean reversion strategy can vary based on the time horizon short term traders may use intraday data while long term investors may use yearly data another consideration is that mean reversion is more effective in range bound markets and less so in trending markets 2calculating mean reversioncalculating mean reversion involves a series of statistical and quantitative steps to measure how far an asset s price has deviated from its historical mean first historical price data is gathered for the respective asset the time frame can vary based on the investor or trader s time horizon then the average price is computed over the selected time frame m e a n s u m o f p r i c e s o f p r i c e s n u m b e r o f o b s e r v a t i o n s mean sum of prices of prices number of observations mean sumofpricesofprices numberofobservationsfrom there the deviation is calculated for each price point d e v i a t i o n p r i c e m e a n deviation price mean deviation price meannext the standard deviation of the price series is computed to understand the volatility s t a n d a r d d e v i a t i o n s q u a r e r o o t s u m o f s q u a r e d d e v i a t i o n s n u m b e r o f o b s e r v a t i o n s 1 standard deviation square root sum of squared deviations number of observations 1 standarddeviation squareroot sumofsquareddeviations numberofobservations 1 with these figures a z score is determined the z score measures how many standard deviations an element is from the mean z s c o r e d e v i a t i o n s t a n d a r d d e v i a t i o n z score deviation standard deviation z score deviation standarddeviationa z score above a certain threshold commonly 1 5 or 2 may indicate the asset is overvalued and below a certain threshold commonly 1 5 or 2 may indicate the asset is undervalued 3mean reversion and technical analysismean reversion is a prominent concept in technical analysis serving as the underlying principle for various indicators and trading strategies it helps traders identify overbought or oversold conditions thereby providing potential entry and exit points some technical indicator tools where the concept of mean reversion is involved day trading involves buying and selling financial instruments within the same trading day often holding positions for just a few minutes or hours mean reversion plays a critical role in day trading strategies as it helps traders capitalize on short term price fluctuations some key strategies include intraday moving averages day traders often use short term moving averages to identify the intraday mean price when the asset s price deviates significantly a reversion is expected 4also day traders use rsi and stochastic oscillators for identifying overbought or oversold conditions on an intraday basis signals from these technical analysis tools often prompt day traders to enter or exit positions additionally with bollinger bands day traders look for squeezes where the bands tighten indicating low volatility and the potential for a significant price move the reversion is expected to the mean or middle band 567indeed some day traders use algorithmic strategies to execute high frequency trades based on mean reversion algorithms 8swing trading is a style of trading in which positions are held for several days to weeks aiming to profit from short to medium term prices mean reversion is a key concept in swing trading helping traders identify potential reversals in price trends | |
when it comes to moving averages swing traders often use longer term moving averages than day traders do to identify the mean price over a specific period | a crossover or crossunder of the price and the moving average followed by a significant deviation from the price and the moving average can signal a potential reversal 9also tools like the rsi and the macd are used to identify overbought or oversold conditions signaling a possible mean reversion 10 moreover fibonacci retracements are used to identify potential levels where the price may revert to the mean the most common retracement levels are 38 2 50 and 61 8 11finally swing traders also can use candlestick patterns like the doji hammer bullish engulfing and bearish engulfing patterns to identify potential reversals including mean reversion opportunities 12as it pertains to forex trading mean reversion strategies aim to capitalize on currency pairs reverting to their historical mean or average price mean reversion can be particularly useful for identifying short term opportunities using technical analysis indicators forex traders often use moving averages to identify the mean exchange rate over a specific period when a currency pair deviates significantly from this average a reversion is often expected indicators like the rsi and stochastic oscillator are commonly used to identify overbought or oversold conditions in currency pairs signaling potential mean reversion another tool forex traders and investors use is pivot points these are used to identify potential support and resistance levels where the price may revert to the mean they are calculated based on the high low and closing prices of the previous trading session finally another tool that is used is currency correlations some traders and investors use mean reversion in the context of currency correlations when two historically correlated currency pairs diverge traders may go long on the underperforming pair and short the outperforming one 13image by julie bang investopedia 2023a hypothetical example of mean reversionconsider a mean reversion situation involving the stock of company xyz over the past 200 days the stock of company xyz has had an average closing price of 50 due to a positive earnings report the stock price jumps to 70 the standard deviation of the stock s price over the past 200 days is 5 the z score will then be calculated where 70 50 5 4 a z score of 4 indicates that the stock is significantly overvalued compared with its historical mean this could be a signal to short the stock as it is expected to revert to its mean over the next few weeks the initial excitement fades and the stock price gradually fall back to around 52 closer to its historical mean benefits and limitations of mean reversionmean reversion offers a structured and versatile approach to trading but comes with its own set of challenges including sensitivity to market conditions and higher transaction costs therefore it is crucial for traders and investors to be aware of these factors and use robust risk management techniques mean reversion offers several benefits these include the theory of mean reversion is focused on the reversion of only relatively extreme changes as normal growth or other fluctuations are an expected part of the paradigm any approach comes with challenges and limitations some limitations of mean reversion include | |
what is a mean reversion strategy | a mean reversion strategy is a trading approach that capitalizes on the tendency of financial assets to revert to their historical mean or average price over time the strategy aims to identify assets that are significantly overvalued or undervalued and take positions based on the expectation that they will revert to their mean | |
what is the best time frame for mean reversion | time frames for mean reversion are dependent on the trader or investor s objectives risk tolerance and the asset being traded |
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