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What is a Bottleneck?

Posted on April 19, 2017 by Daniel DollingerMay 2, 2017

What is a Bottleneck?

In a business system or operations chain, things can only go as fast as the slowest piece. A bottleneck in a system is a part that is slowing down everything else. If the bottleneck is strengthened than the entire system gets faster, even if less resources are allocated to the other parts in order for the bottleneck to be strengthened.

Example of a Bottleneck

Let’s say two people are working to make and sell widgets. Person 1 makes them and person 2 brings them to the store to sell them. If person 1 can only make 1 widget a year and person 2 is capable of selling a widget in 5 minutes, only 1 widget will be sold for widgets cannot be sold faster than they’re made. Person 1 is the bottleneck. If person 2 helped person 1 make widgets, then even if person 2 has less time to sell things, more widgets would ultimately be created and sold.

Fee Structure

Rate	Assets Under Management
1.44%	Below $125,000
1.00%	Between $125,000 and $750,000
.85%	Between $750,000 and $1,250,000
.80%	Between $1,250,000 and $1,750,000
.75%	Between $1,750,000 and $2,500,000
.70%	Between $2,500,000 and $3,250,000
.65%	Between $3,250,000 and $4,250,000
.60%	Above $4,250,000

A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.

As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

E-Book Download

Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

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What is a Barrier to Entry?

Posted on April 12, 2017 by Daniel DollingerMay 2, 2017

Definition

A barrier to entry as the name indicates is whatever factors that are in place that prevent some companies from entering an industry. The most common barrier to entry is cost. As mentioned in an earlier post, a company will continue to do business only as long as marginal cost exceeds marginal benefit. It is possible for an entry cost to be so high that no business occurs at all. The barrier will keep out some companies and let others though. Competition is thus lowered. Therefore, assuming all else is held equal, price goes up and quality goes down.

Example

To make a widget, it requires raw materials. It takes 50 dollars of raw materials to make one widget. That 50 dollars is a potential barrier to entry. Let’s say there’s two people. Person A has only 1 dollar in their bank account, and person B has 60 dollars in their bank account. That 50 dollar materials fee (in order to buy the materials needed for the first widget) will keep person A out of the widget making business but person B will be able to enter the business.

Fee Structure

Rate	Assets Under Management
1.44%	Below $125,000
1.00%	Between $125,000 and $750,000
.85%	Between $750,000 and $1,250,000
.80%	Between $1,250,000 and $1,750,000
.75%	Between $1,750,000 and $2,500,000
.70%	Between $2,500,000 and $3,250,000
.65%	Between $3,250,000 and $4,250,000
.60%	Above $4,250,000

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Questions for the comments

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Investment Newsletter for the end of March, 2017

Posted on April 4, 2017 by Daniel DollingerMay 2, 2017

The market was slightly down this month and somewhat up for the quarter. Nothing exciting either way.

My wife suggested that I discuss social security. I then realized that I have ignored this topic in my newsletters. I answer a lot of questions in this area, however.

Common Questions:

“Should I increase my profit/wages? I am five years from retirement.” The point of the question is the wrong belief that your social security benefits will be based on your final five years of employment. In reality, social security benefits are based on the average of your highest 35 working years.

“I want my wife to collect social security. Should I put her on payroll?” Or a variation of the same question. “My spouse stayed home and his/her account is very small. What do we do to increase it?” When a couple retires, each spouse collects the higher of their own account or 50% of the spouses account. Let’s look at the classic family. Ward Cleaver worked and June Cleaver stayed home and took care of Beaver and Wally. On retirement, they will collect as a couple 150% of Ward’s benefit. June’s account is tossed. Her small wages do not matter. Furthermore, when Ward dies first (men often do), June will collect Ward’s 100% as a survivor. If June dies first, Ward keeps his own account. In no part of this example, does June’s account matter. It is only important if her account is greater than 50% of his.

“When should I start collecting?” Based on your birth year, you are assigned a full retirement age. Mine happens to be 66 years and 10 months (1959). For each year, you start earlier your benefits are about 8% reduced (for life) and for each year after that point, it is about 8% increased (for life). The exact formula is complicated. You can start as early as 62 or as late as 70. If my particular full retirement benefit is $2,000 per month, my age 62 benefit would be about $1,400 and my age 70 benefit would be about $2,700. So when should I start? I am healthy. I have never had had a major health problem. My mother is 93 and going strong. My father died at 81. Obviously, an accident or a disease whose name we must not speak could hit me early. But statistically, I am good until at least 90. I will not touch my social security until the last minute before I am 70. I have other clients who have asked me the same question. On inquiry, I found out they already had a heart attack, the evil disease, etc. They should take their social security as early as they can. Over a huge population, it comes out about the same. Less benefits for more years or more benefits for less years. Your situation, however, is unique. One additional wrinkle, if you are still working there is a fairly low wage limitation if you are collecting social security before full retirement age. It is about $1,000 per month (more in the year you turn 66). Excess wages will cause you to forfeit part or all of social security. Since I do not plan on retiring and I make more than that, it is another reason for me to wait until after full retirement age.

More next time.

Dan

Fee Structure

Rate	Assets Under Management
1.44%	Below $125,000
1.00%	Between $125,000 and $750,000
.85%	Between $750,000 and $1,250,000
.80%	Between $1,250,000 and $1,750,000
.75%	Between $1,750,000 and $2,500,000
.70%	Between $2,500,000 and $3,250,000
.65%	Between $3,250,000 and $4,250,000
.60%	Above $4,250,000

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Questions for the comments

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Does Competition Lower Consumer Costs?

Posted on March 27, 2017 by Daniel DollingerMay 2, 2017

Statement: Increased competition brings down consumer costs

The statement is not necessarily true. What is true is that competition between suppliers will always apply downward pressure on consumer cost. In complete isolation, the statement is completely correct. However, in real life things are never in isolation. There are also upward pressures on consumer cost that need to be taken into account.

More generally, you would use the elasticity of demand for the particular good you’re examining to find how much that increased competition between suppliers reduces the consumer cost. You compare that number with the increases in consumer cost caused as a side effect by whatever increased the competition. Find the difference between the values to get the net change. Whether or not increased competition brings down net costs is extremely dependent on the exact circumstances.

Fee Structure

Rate	Assets Under Management
1.44%	Below $125,000
1.00%	Between $125,000 and $750,000
.85%	Between $750,000 and $1,250,000
.80%	Between $1,250,000 and $1,750,000
.75%	Between $1,750,000 and $2,500,000
.70%	Between $2,500,000 and $3,250,000
.65%	Between $3,250,000 and $4,250,000
.60%	Above $4,250,000

E-Book Download

Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

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Positives and Negatives of a $15.00 Minimum Wage

Posted on March 20, 2017 by Daniel DollingerMay 2, 2017

Introduction

Economically, a minimum wage is simply a price floor. The minimum wage employees are the suppliers of labor (they are selling their time) and the companies are the demanders of labor (they are buying that time). So we can draw a supply curve and a demand curve, and make some predictions.

Negatives:

1. Increase in unemployment

According to the Law of Demand, the more expensive a good is, the less it is purchased. That law applies the same to labor as it does to anything else. The reason is two-fold. 1. Some companies don’t have the profit margin to support the higher labor costs. 2. Many companies have a labor budget. Mathematically, if each labor unit costs more, than the company can purchase fewer of them. Some research has shown that smaller increases in the minimum wage don’t have adverse effects on employment (likely due to the particular elasticities of the curves of the labor market), but more than doubling the minimum wage to $15.00 I imagine would be classified as a large increase.

2. Increase in the prices of goods

The reason is two-fold. 1. An increase in production costs due to the higher labor costs would cause lower margin companies to be forced out of the market. They can’t simply raise their prices because their higher margin competitors aren’t raising their prices and thus competition would destroy them anyway. A company is not going to choose to stay in business if they can’t earn what they believe to be an acceptable amount of profit. A reduction in supply drives the price up. 2. Companies simply can’t afford to produce as much, as more of their money is wrapped up in labor. There will thereby be more demand than can be supplied, and prices will rise to make quantity demanded and quantity supplied equal.

3. Less economic activity from the owner

Every owner in addition to selling something is also someone who buys things. If they have less money than they can’t buy as many goods, which means they don’t stimulate the economy as much as they did before and aggregate demand is reduced.

Positives:

1. Greater quality of life for the people who are still employed

The minimum wage is higher so people with those jobs have more money to spend. There is more economic activity. They buy goods, which stimulates the economy by increasing aggregate demand.

2. An increase in the skill of hired minimum wage employees

An increase in minimum wage would increase the number of labor suppliers entering the market. The number of positions would be the same as before so there would be more competition for each position. As the applicants can’t compete on the basis of price (due to the price floor), they have to compete on the basis of skill. Competition raises the skill of the hired minimum wage employees.

3. The higher wage means minimum wage employees will work longer hours and thus be more productive

People will work as long as their marginal benefit exceeds their marginal cost. Marginal cost grows over time as people have to give things up in order to continue working. Things they give up are time with their family, sleep, etc. If we increase the marginal benefit by increasing the wage, the point when marginal benefit equals marginal cost thus occurs at a later time.

Fee Structure

Rate	Assets Under Management
1.44%	Below $125,000
1.00%	Between $125,000 and $750,000
.85%	Between $750,000 and $1,250,000
.80%	Between $1,250,000 and $1,750,000
.75%	Between $1,750,000 and $2,500,000
.70%	Between $2,500,000 and $3,250,000
.65%	Between $3,250,000 and $4,250,000
.60%	Above $4,250,000

E-Book Download

Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

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Remember to File Your Taxes

Posted on March 13, 2017 by Daniel DollingerMay 2, 2017

I would just like to remind everyone to immediately bring in their tax documents (w2s, interest income, etc.) to their CPA or accountant so they can get their tax return filed. If you fail to file a tax return, you will face severe financial penalties.

This is the busiest time of their year for CPAs and they have many returns to file. Your return may have to be put on extension if you wait any longer. Being put on extension is just more work and hassle for everyone so I would recommend you avoid that if possible.

If you have any questions about what forms to bring in, please contact whoever prepares your taxes. They are happy to talk to you.

Fee Structure

Rate	Assets Under Management
1.44%	Below $125,000
1.00%	Between $125,000 and $750,000
.85%	Between $750,000 and $1,250,000
.80%	Between $1,250,000 and $1,750,000
.75%	Between $1,750,000 and $2,500,000
.70%	Between $2,500,000 and $3,250,000
.65%	Between $3,250,000 and $4,250,000
.60%	Above $4,250,000

If you’re interested at all in finance, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

E-Book Download

Learn About My Business

What is Economics?

Posted on March 6, 2017 by Daniel DollingerMay 2, 2017

In Short

Economics is the study of how people make decisions when in a state of scarcity. It is people choosing one option for another and the allocation of scarce resources.

What is Scarcity?

In life, people cannot get everything they want. No matter how rich you are, you can’t have everything you want; you have to make a choice. One thing that is scarce for everyone is time. Everyone has a limited amount of it. At any given moment, you can only do one thing at a time. For example: You can choose to sleep in an hour or you can choose to not. You can’t do both. Another example: If both item A and item B cost 1 dollar to buy, and you have 1 dollar in your pocket, you can only buy one of the items. Making those types of choices are the core of economics.

The Importance of Studying Economics

The reason people study economics is that people can use it to predict how people are going to respond to any given event. It isn’t always right. People often act irrationally. However, we can use economics make a prediction about what is most likely going to happen in a given situation. Economics is heavily used in a wide variety of fields such as finance, politics, monetary policy, international development, business, etc. The reason I’ve defined so many economic concept with this blog is because I believe that economics is a valuable thing for everyone to know. It is the study of human actions and I believe it can be a valuable tool for everyone, in order for them to understand the world.

Fee Structure

Rate	Assets Under Management
1.44%	Below $125,000
1.00%	Between $125,000 and $750,000
.85%	Between $750,000 and $1,250,000
.80%	Between $1,250,000 and $1,750,000
.75%	Between $1,750,000 and $2,500,000
.70%	Between $2,500,000 and $3,250,000
.65%	Between $3,250,000 and $4,250,000
.60%	Above $4,250,000

E-Book Download

Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

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What is the Forced Rider Problem?

Posted on February 28, 2017 by Daniel DollingerMay 2, 2017

What is the Forced Rider Problem?

A forced rider is when someone is forced to pay for a good/service that they do not benefit from. The forced rider problem is that the good/service is thus overprovided. Assuming that other people don’t simultaneously free ride, the good/service provider will have too much money. That is a problem for if one good/service provider has too much money then mathematically other good/service providers must have too little money. Those other good/service provider thus has a smaller ability to provide their good/service.

Example

A city government passes a law stating that all inhabitants must pay hundred dollars in additional tax to subsidize a store that sells widgets. Everyone has to pay the tax, the people who care about widgets (they get a benefit) and the people who don’t care about widgets (they don’t get a benefit). The latter are forced riders. The store will thus be over funded based upon the amount of value they provide. That means other stores are underfunded. If the money goes to the widget store, that means the money didn’t go to the electronics store, or the bookstore, etc. With that one hundred dollars, a forced rider could bought something that they wanted more and thus valued more. That city tax lowered the value provided to its citizens. The widget store has more money so they can buy inventory that people don’t want to buy. The book store doesn’t have enough money to buy the books people do want to buy. In the aggregate, people are worse off.

Fee Structure

Rate	Assets Under Management
1.44%	Below $125,000
1.00%	Between $125,000 and $750,000
.85%	Between $750,000 and $1,250,000
.80%	Between $1,250,000 and $1,750,000
.75%	Between $1,750,000 and $2,500,000
.70%	Between $2,500,000 and $3,250,000
.65%	Between $3,250,000 and $4,250,000
.60%	Above $4,250,000

E-Book Download

Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

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What is the Free Rider Problem?

Posted on February 20, 2017 by Daniel DollingerMay 2, 2017

What is the Free Rider Problem?

A free rider is when someone enjoys the benefit of a good/service that they didn’t pay for. The free rider problem is that the good/service is thus underprovided. For if there is no penalty to free riding, people will free ride for it maximizes their personal value function (benefit-cost). If their cost becomes zero, their value is higher. The more people mooch off the system, the less people that are actually paying for it. The good seller/service provider thereby has less money and thus has a smaller ability to provide their good/service.

Example

A company provides private security services. Within a neighborhood, 11 out of the 12 houses hire that company to protect their homes. A gunman shows up at that 12^th house and starts shooting at them, the gunman poses a threat to the 11 houses that did pay so the gunman is apprehended and sent to jail. The 12th house enjoyed the benefit without paying. The 11th house therefore decided to not pay and mooch off the system. There will be protected regardless if they pay or not. The company thereby has less money and thus less ability to do their job.

Fee Structure

Rate	Assets Under Management
1.44%	Below $125,000
1.00%	Between $125,000 and $750,000
.85%	Between $750,000 and $1,250,000
.80%	Between $1,250,000 and $1,750,000
.75%	Between $1,750,000 and $2,500,000
.70%	Between $2,500,000 and $3,250,000
.65%	Between $3,250,000 and $4,250,000
.60%	Above $4,250,000

E-Book Download

Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

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What is Moral Hazard?

Posted on February 13, 2017 by Daniel DollingerMay 2, 2017

Definition

Moral hazard is when the risk/cost of an action is borne by someone other than the person doing the action. If a person receives all the benefit and none of the cost, they will engage in excessive risky behavior because they are not punished for failure.

General Example

Let’s say there are two people (person A and person B). Person A commits crimes but every time they commit a crime, person B is punished for it. Person A will thus commit more crimes because they are not being punished for their actions. Moral hazard has occurred. Whatever marginal benefit person A gets for committing the crime (money, objects, etc.) will for a longer period of time be larger than the marginal cost for part of the cost is borne by person B. In a previous post, I talked about how people will engage in a behavior as long as it benefits them more than it costs them. If the costs of an actions are reduced, then all else equal the action will occur more often.

Financial Example

Let’s consider a banker who has to decide whether or not to loan somebody money. The person has been deemed to have a high risk of default. As a result, the bank is leaning towards not giving the person the loan. The government comes along and guarantees the loan. As the chance of a government default is miniscule to none, the banker provides the loan. If the original borrower defaults, the government pays and the bank is still made better off for this experience. If that borrower pays their loan, then the bank is also made better off for this experience. There is upside but no downside. The bank will thus take larger risks because that risk is borne by the government. Moral hazard has occurred again.

Fee Structure

Rate	Assets Under Management
1.44%	Below $125,000
1.00%	Between $125,000 and $750,000
.85%	Between $750,000 and $1,250,000
.80%	Between $1,250,000 and $1,750,000
.75%	Between $1,750,000 and $2,500,000
.70%	Between $2,500,000 and $3,250,000
.65%	Between $3,250,000 and $4,250,000
.60%	Above $4,250,000

E-Book Download

Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

Learn About My Business