Commodity paper is the contract for a loan which is secured by collateral in the form of a commodity held in a warehouse or in transit. This is basically a form of warehouse financing, where the inventory in storage is verified and the changing level of inventory insures a larger or smaller line of credit from the lender. In this arrangement, however, there is one agreed-upon loan and collateral amount. Continue reading...
The commodity market is an international network of exchanges which trade commodity spot contracts, futures contracts, and derivatives. The largest commodities exchange in the world is the CME Group in Chicago. Futures are a large part of commodities trading, and the commodities futures market includes currency futures and swaps, index futures and single-stock futures, and other derivatives based on futures contracts. Continue reading...
The code for most cryptocurrencies is open-source, and the community operates by consensus, so sometimes newly modified code is released that is adopted by some, creating what’s called a fork. A Bitcoin Fork is when the blockchain, made up of interconnected computers holding a distributed and permanent record of all bitcoin transactions up to that point, is offered a modified currency protocol that is adopted by some of the Bitcoin community, which creates a “fork” in the previously longitudinal history of the ledger (i.e. “a fork in the road”), where one ledger continues to grow based on the changed protocol, and one ledger continues to grow with the old protocol still intact. Continue reading...
Asset Turnover is a metric that investors and companies can use to determine how efficiently a business uses its assets to create revenue. Asset Turnover is a ratio of the value of a company’s sales or revenues relative to the value of its assets. It can be calculated simply by dividing sales or revenue by total assets. The higher an asset turnover ratio for a company, the better that company is performing - since it implies that the company is generating a high level of sales and revenue per unit of assets. Continue reading...
Any item of economic value that a person or entity owns, benefits from, or has use of in generating income. Assets can generally be converted to cash, but economic circumstances often determine whether the asset can be sold at fair value. Some common examples of assets are cash, stocks, paid-for real estate, inventory, office equipment, jewelry, artwork, or other property of value that can be counted towards a person’s estate or a corporation’s balance sheet. Continue reading...
Asset allocation is theoretically the best way to control the return you experience, through diversification and rebalancing. Asset allocation theories provide you with mechanisms to diversify your money among various asset classes, such as stocks, bonds, real estate, commodities, precious metals, etc. The benefit of asset allocation is twofold: first, nobody knows which asset class will perform better at any given time, and second, various asset classes are not entirely correlated or have a negative correlation, which provides a hedge. If one asset class appreciates significantly, the other might not, but, if the allocation is done correctly, this may be exactly what the investor was looking for. Continue reading...
An asset mix is the blend of major asset classes in a portfolio, which should be constructed based on the risk tolerance, time horizon, and goals of the investor. A common example of an asset mix is the 70/30 stock-bond mix, where 70% of the assets are invested in stocks and 30% in bonds. “Mix” is one way of describing the asset allocation of a portfolio, but it also describes the practice of diversifying among asset classes. The core asset classes that most people consider are stocks, bonds, cash equivalents, real estate, and commodities. Continue reading...
Current Assets are items on a balance sheet that are either cash or are going to be cash in the near future. The current assets section of a balance sheet is an indication of cash flows and liquidity. The assets are usually listed in order of liquidity, or the amount of time that it will take for them to become cash. This section includes cash, accounts receivable, prepaid expenses, inventory, supplies, and temporary investments. (The order given here is not necessarily the order of liquidity found on a balance sheet.) Continue reading...
Tangible assets are the property of a company that are tangible and can be quickly liquidated. This includes current-period accounts receivable and money in checking, savings, and money-market accounts. Buildings, land, equipment and inventory are all tangible assets as well. Tangible assets are an important part of a company’s book value. For most valuations, intangible assets such as patents, other intellectual property, and goodwill are not included. Continue reading...
Return on Assets, or ROA, is an efficiency ratio which quantifies how much profit a company can generate with the assets it has. Return on Assets is a ratio of the net income of a company divided by the amount of assets it has on the books. It can also be synonymous with Return on Investment (ROI), at least at a corporate level. Theoretically this gives analysts an idea of how much profit a company could generate by buying more equipment or other assets, or how efficiently they use the assets in which they have invested. Comparing companies in a specific industry to their peers with ratios such as this one can be illuminating. Continue reading...
A non-current asset is an asset on the balance sheet that is not expected to convert into unrestricted cash within a year’s time. Non-current assets may include such things as intellectual property and production/operations equipment - meaning they likely do not have a need to convert to cash. From a balance sheet standpoint, non-current assets are capitalized rather than expensed - meaning the company can allocate the asset’s cost of the asset over the number of years for which the asset will be used, instead of allocating it all in the year it was purchased. Continue reading...
Net Tangible Assets represent a company’s total amount of physical assets less its intangible assets, like intellectual property and equipment, and also less the fair market value of its liabilities. Tangible assets can include things such as cash, inventory, and accounts receivable, versus liabilities like accounts payable, long-term debt and loans. This measurement of a company's tangible assets is important because it allows a firm's management team to analyze its asset position without including obsolete or difficult to value intangible assets. A company's return on assets (ROA) can be more accurate when net tangible assets are used in the calculation. Continue reading...
Return on Net Assets is a calculation used to determine how well a company performs, relative to its resources. Return on Net Assets gives investors an idea of how well a company uses its resources to generate profits. Net assets includes not only fixed, tangible assets, but also the net working capital of a business. Working capital is defined as Current Assets minus the Current Liabilities of the business. The net profits for a period are divided by the net assets to arrive at the Return on Net Assets. Continue reading...
Successful asset allocation will cater to the risk tolerance and goals of a client based on past performances while seeking gains in an uncertain future; this calls for a mixture of art and science. We believe that successful asset allocation is based on rigorous statistics, but as with any other statistics, it’s 20/20 retrospective vision. Proper diversification can help to make the future performance slightly more predictable, but as market conditions unfold, the appropriate rebalancing or reallocation may not always be obvious, especially to a computer. Continue reading...
Arriving at the appropriate asset allocation is not very easy to do by guesswork, so we’re here to help. There is no such thing as a mix of assets that is right for everyone. It depends on your age, employment situation, the size of your investment portfolio, your objectives, time horizon, risk tolerance, income requirement from your investment portfolio, tax bracket, and many other factors. Programs and algorithms can help you significantly when you plug some of these variables in, but it is still wise to apply some scrutiny and a human touch. Continue reading...
At the highest level, Asset Allocation refers to an investor’s decision of what percentage to allocate to stocks, versus bonds, versus cash (and cash equivalents), versus any other asset class (commodities, alternatives, real estate, etc…). It is believed that the asset allocation decision is responsible for the majority of an investor’s returns. In other words, there is a direct correlation between an investor’s long-term return and how long - and to what percent - they owned stocks over their lifetime. Continue reading...
Commodities are more volatile than most assets. The supply-demand dynamics of commodities are continuously changing, and sometimes very rapidly. Different commodities will have different levels of volatility, of course. Some commodities are extremely volatile. For example, natural gas has had a volatility of almost 45% in some periods, and gold has experienced movements of 20-30% per year lately. Crude oil prices fell some 50% in 2015, as a global supply glut was met with weakening demand, particularly from China. Gold is actually on the less-volatile side of the spectrum for commodities. Silver, Nickel, and crude oil tend to be on the upper end of the spectrum along with exotic metals such as platinum and palladium. Continue reading...
Asset-backed securities are bonds or notes that come in several forms, but they typically use the cash flows from debt repayment as the asset that backs them. The assets that back the bonds called asset-backed securities (ABS) can be basically anything with a fairly predictable cash flow, but debt repayment cash flows tend to be used the most. These include credit card debt, home equity loans, auto loans, student loans, and so forth. Continue reading...
An Asset-Backed Security, or ABS, are bonds or notes backed by financial assets. It is an example of “securitization.” The assets within the ABS generally tend to consist of different kinds of debt receivables, such as credit cards, auto loans, home equity loans, and so forth. Banks build portfolios of receivables in making loans and issuing credit, and then in many cases package these loans together and sell them to investors (known as “securitization”). Continue reading...
The single best control mechanism over the performance of your investments is the maintenance of an asset allocation strategy. When testing various methods of predicting and controlling returns in a portfolio, researchers found that having and maintaining an asset allocation strategy was the method that reaped the most predictable returns – with 80-90% accuracy. Asset allocation is the distribution of various asset classes and investments into a portfolio mix in a deliberate way to gain specific amounts of exposure to each investment. It is a practice used to diversify and manage risk. Asset Allocation is a dynamic process; it’s not something you do once and forget about. Continue reading...