The Rear View Mirror and the Tree: An Accounting Story

 

 

Winding Road

Authors’ note:

Explaining accounting and finance can be pretty dull. That’s a problem, if you need to learn accounting or finance.

On a plane from St. Louis to Seattle, I decided to try and fix the problem. What if I could wrap some accounting concepts inside of a quirky (funny?) short story? My goal here is to present some information, and then add another step in the story. So, when you get to the end, you’ve been reminded of an accounting concept- but you’ve received the information in a light-hearted way.

Anyway, that’s the goal here. Enjoy!

Well, it seemed strange.

Greg and his dog Collete eyed the tree between the street and the sidewalk. The bark on one side of the tree seemed to be sheared off, and there was broken glass and plastic around the tree. How in the world…..then his cell phone rang.

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What The Rio Olympics Teaches Us About Personal Finance

Wall Street Two Signs

My favorite Rio Olympics-related headline so far:

Olympic kayaker possibly capsized by couch in Rio de Janeiro

Priceless.

Now, the story isn’t confirmed, but it illustrates all of the controversy related to Brazil’s preparation for the Olympic Games. This situation is a great analogy for personal finance, because it helps us think about the answer to this question:

Are you being realistic about how much your investing, and the growth rate of your portfolio?

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What a 4 Year Old Teaches Us About Earnings Per Share

Cash Register Close UP

So, I overheard a Dad say something interesting to his 4-year old son (at least he looked to be about 4). His son asked him a question and he said: “I just answered that question, so I’m not going to answer it again”.

That approach would have saved me a lot of time when my kids were small…..

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But it brings up an important point for investors, because you’re bombarded with data and it’s hard to know what questions to ask. When it comes to stock performance, one critically important measure of performance is earnings per share (EPS), and EPS has more than one definition. Make sure you’re clear about which EPS number you’re told- the numbers are very different.

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What A Telsa Car Crash Teaches Us About Investor Disclosure

Classic Cars

So, how much information do you need to make an informed decision?

Unfortunately, Tesla’s Motors problems with autopilot cars provide a great discussion about required disclosure to investors. This CNBC video with a former SEC Chairmen discusses whether or not Telsa had a duty to disclose a car accident that occurred with an autopilot vehicle sooner to investors. Could the lack of timely disclosure impact an investor’s decision about Telsa as an investment?

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Warning to Investors: Contribution Margin Is Not Company Profit

Calculator and Money Image

So, we’re in a crazy political period, and it’s hard to know just what is true in a political ad and what isn’t true. In the investment business, however, we have extensive rules on disclosure to investors, and those rules are in place to provide all stakeholders- including investors- enough to information to make informed investment decisions.

I was pretty blown away by a recent article about startup firms touting the fact that they generated a positive contribution margin– and inferring that contribution margin equals profit.

It doesn’t- and it’s critically important that investors understand the difference.

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3 Little Known Factors That Can Affect Your Portfolio: Quandl’s Guide

 

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So, I saw something the other day that I’ve never seen before.

I was coming out of a grocery store that was up a hill from a major street, and a truck was approaching the intersection. The truck was hauling a bulldozer on a flatbed trailer and, as the truck approached the intersection, it starting honking- a lot like an emergency vehicle moving through an intersection.

It was obvious that the driver had been thought the intersection before, because as drivers head up the hill toward the light, it’s difficult for crossing traffic to see who is coming through the intersection.

Using wisdom to get better results.

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4 Customer Service Must-Haves For Investors

Wall Street Two Signs

So, we’ve all been in these places…

It’s the quirky restaurant that every city seems to have, and the service isn’t very good- but all the diners think it’s part of the charm. They’re willing to put up with it, so they can feel like they’re “in on the joke”. They’re typically a tourist destination, and visitors hear about the poor service before they step foot in the door.

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Poor service is OK for a quirky restaurant- but it’s a critical problem when it comes to investing. I spend a lot of time on my blog talking about what investors need to do to create a plan and meet their goals, but this post is about what you need- what you MUST have- from your money managers (financial advisors, mutual funds, retirement plan administrators).

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5 Reasons Why You Should Care About A Bond Credit Downgrade

Chicago River

Is it really necessary to have a TV at a gas pump?

I’m seeing these more often, and I think that I’m against the concept. Like many Americans, I like to stare off into space while I’m pumping gas- a bit of a mental break. Well, at least gas prices are at historic lows, which is good for consumers- but bad for ExxonMobil. In fact, Standard and Poor’s recently downgraded ExxonMobil’s credit rating from AAA (their highest rating) to AA+, based partly on low oil prices. A bond downgrade can have a huge impact on the value of your bonds, so it’s important to understand these key facts:

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3 Reasons Why Goldman Sachs Wants To Pay You More Interest

Calculator and Money Image

I saw a brand new Mercedes truck that has been customized into an ice cream truck. A real ice cream truck- driving down my street playing music to attract people.

What’s the breakeven on the cost of a Mercedes ice cream truck? Seems that you’d have to sell a ton of ice cream…

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Like the new and (really) different ice cream truck, businesses shift their focus to find new customers. As an example, Goldman Sachs is aggressively going after plain old vanilla (another ice cream reference) customer deposits by paying high rates on checking and savings accounts.

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What A Cold Shower Teaches Us About Financial Planning

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There’s no hot water…..

So, I’m in a shower at the gym and the hot water goes out. The shower is getting colder by the second. Do I switch showers, or just grit my teeth and finish where I am? Tough call (I stayed in the same shower).

This same scenario and be applied to your financial planning- and how that planning can change dramatically over your lifetime. It was struck by this quote from Next Avenue:

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