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What is Marginal Value?

Posted on January 16, 2017 by Daniel DollingerMay 2, 2017

Introduction

Marginal value is marginal benefit minus marginal cost. It is simply how much benefit you get per each additional unit of measure (marginal benefit) minus how much it costs you per each additional unit of measure (marginal cost).

Example

Let’s say that you’re the owner of a company that produces widgets. Each widget is sold for 10 dollars (marginal benefit) and it costs you 5 dollars to make (marginal cost). Marginal value is thus 5 dollars per unit.

Application

Marginal cost and marginal benefit tells us the value of performing a particular action at any given moment of time. It allows us to predict behavior.

Example of Application: How Many Hours Do People Work?

When people work, they evaluate two things. They consider the marginal benefit of their time and the marginal cost of their time. As long as the amount of benefit they get from an additional work of work (money, job satisfaction, etc.) is higher than the opportunity cost of working that hour (they could be spending time with family, they could be sleeping, etc.), they will continue to work. Money is of decreasing marginal benefit as each additional dollar is less valuable from a purchasing power perspective and from the perspective of the necessity of purchase. It is from a worker’s personal perceptions of the marginal benefits and marginal costs that we get how long a worker will work.

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.

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How to Calculate Future Value and Present Value of an Appreciating Asset

Posted on January 9, 2017 by Daniel DollingerMay 2, 2017

Introduction

In an earlier post, I defined what future value and what present value is. In this post, I’m going to go through some of the mathematics of how you can calculate those values.

How to Calculate Future Value

The future value of an appreciating asset is the current value multiplied by (1+the annual growth rate)^{number of years}. For example, let’s say we have an asset that is currently worth one hundred dollars. The growth rate is 5% per year. In one year, the future value would be 100 * (1+.05) or 105 dollars. To calculate the value in 2 years you would multiply that 105 by another (1+.05) to get 110.25 dollars. Thus future value is always the current value multiplied by (1+growth rate per year)^{number of years}. So in 100 years the value of the asset would be 100 * 1.05¹⁰⁰ or 13,150.13 dollars.

How to Calculate Present Value

To calculate present value, you simply run the future value equation in reverse. We know future value is always the current value multiplied by (1+growth rate per year)^{number of years}. If we know the future value, the annual growth rate, and the number of years, we can algebraically solve the equation to find out the current value. For example: let’s say an asset is worth 500 dollars in 30 years. The asset appreciates at 10 percent per year. To find the current value you would plug those numbers into the above equation. 500 = Current Value * 1.1³⁰. Current value is thus 28.65 dollars. The equation (rearranged) is current value = future value / ((1+annual growth rate)^{number of years}).

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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Investment Newsletter for the end of December, 2016

Posted on January 3, 2017 by Daniel DollingerMay 2, 2017

Introduction

Everyone’s’ portfolio gains were extraordinarily fat this month and quarter. For the quarter, the Dow was up 7.94%. Small cap was up even more at 8.43%. With only a few exceptions, every one of you has a blend of fixed and equity. The fixed is to reduce risk. On a risk adjusted basis, your portfolios beat all stock indexes. For the two clients who are 100% in equities, your profits even make me feel green with jealousy.

The Danger of Greed

Please be warned about letting emotions take over your decisions. Greed is just as destructive to your portfolio as fear. It seems that everyone is making money right now. As a result, I have had several clients that want to increase their risk. “Let’s be more aggressive.” I have held them off. Eventually, there will be a correction. Maybe small, maybe big.

Remember the Fundamental Rules

The crowd is made up of idiots.
The crowd is usually late to the party.
The crowd listens to the talking heads on TV.
When the crowd rushes in, it’s greed.

The Length of the Real Estate Bubble

Obviously, I do not know how long this bubble will last. It could be a few months or a few years. But I do know, that people think it is easy to make money. It means they do not have a plan or they are not sticking to it. These are the people who lose money on the downturns and then cash out at the bottom out of fear.

Wall Street Journal Article

The Wall Street Journal just ran an article that some professional real estate investors are starting to leave the market. The reason: all the house flippers have arrived. All sorts of non-real estate people have arrived and are speculating on real estate. The professionals also think the crowd is made up of idiots. At least the professionals in the article are counting on it. Again, no one know when the downturn will happen.

Discipline

Discipline to a plan is the way the game is played. It certainly not very fun but it works. On the “Portfolio Comparative Performance Review” look at the far-right column labeled 4 YRS TOTAL (if you have been with me that long). Look at your time weighted return. That would be your average return per year over the last four years. Depending on how much risk you accepted, the return per year is anywhere from 3% to over 7%. That profit is higher than the stock market indexes. It is the result of sticking to the plan during greed and fear cycles. I have one client up over 9% per year. Over four years, he is up a total of 37%. Over the last four years, there were both downturns and upturns.

Tax Season

On a different note, tax season has begun. I actually had a tax return arrive yesterday (the morning of the 1^st) for preparation. I will always be available to you for financial or tax questions no matter how busy I am. Call me at work on week days. I work at home on the weekends. My number at work is 503-363-1550. Home is 503-570-8727. Cell is 503-780-9975.

Thank-you for your business and in many cases your friendship.

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

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. Please contact me if you want me to write about a particular topic. If you would like to submit a post to my blog, please contact me.

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Questions for the comments

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How to Make Money with Stocks

Posted on December 19, 2016 by Daniel DollingerMay 2, 2017

Introduction

There are 2 main ways (on the investor end) that people make money with stocks and I decided to list them out for you below. Those ways are via appreciation/depreciation or by dividends.

Appreciation/Depreciation

Whether it’s directly or indirectly (though options, mutual funds, etc.) this is the money you make when the price of the stock goes up or down. If you buy a stock at 2 dollars and sell it when it goes up to 3 dollars, then you made a dollar. If you sell short a stock when it’s 3 dollars and then buy it when it goes to 2 dollars, you made a dollar.

Advantage of Appreciation/Depreciation

The potential gain from this is very large. In the past, there have been stocks that have appreciated many-fold. If you had bought Microsoft when it had its first IPO, you would have had a lot of appreciation on that asset. You would have had a great return.

Disadvantages of Appreciation/Depreciation

The first disadvantage is that the potential movement of the asset value is very large, and that movement might move in the wrong direction. You could lose all your money.

The second disadvantage is that it is entirely speculative. No one can say with any degree of certainty how a stock is going to perform in the future. It is a guess, which can be and often is wrong.

Dividends

As a partial owner of a stock, you might receive dividends. Dividends are the payments made to you from the company that the stock is connected to. It is part of the profits that you are entitled to by being an owner. The company can choose either to pay you a dividend or reinvest the money back into the company.

Advantages of Dividends

Companies are very hesitant to lower their dividend as it is interpreted as a sign of weakness. So if they can afford to, they will keep paying their dividend. If the stock has a regular dividend, it does signify the company has some degree of financial stability and strength.

If the stock’s dividend is regular enough it can be valued the same way as a bond. Taking the present value of the cash flow is possible with a dividend stock but very difficult with a speculative stock. Also, just like a bond, a stable dividend stock can be considered a fixed income source.

Disadvantages of Dividends

The potential gains are severely limited in comparison to speculative stocks. The returns from a dividend are often small so it is not the path to quick wealth.

There are no requirements that companies have to pay a dividend. If the company starts to financially struggle, the company can cut the dividend.

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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What is Present Value/Future Value and the Real Value of Money?

Posted on December 12, 2016 by Daniel DollingerMay 2, 2017

What is Present Value/Future Value?

With any asset, it will get more or less valuable over time (due to appreciation/depreciation and/or cash flow). Present Value is the value of that asset today. If you put 1000 dollars into an investment account, the present value of that account will be 1000 dollars. Future value is the value of that asset after a given time period has passed. If that investment account has an annualized rate of return of 5%, and you want to know what the value would be in 10 years. The value in 10 years is future value. In this case that 1000-dollar present value would have a 1628.89-dollar 10-year future value.

What is the Real Value of money?

Money has no value in of itself. It is only valuable for what it can buy. If you have one dollar in your pocket and a candy bar costs one dollar than your real value of your money is one candy bar. If the cost of the candy bar decreases to 50 cents, your money’s real value is now 2 candy bars. Even though the nominal value of your cash didn’t increase, the purchasing power (real value) did. Real value is often used in connection with inflation. As inflation occurs, the real value of a dollar decreases. It can buy less stuff.

Relevance of Present Value/Future Value and Real Value

These concepts are used when calculating the investment returns on an asset over time and when comparing multiple assets with each other.

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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What is Price and what are Price Controls?

Posted on December 5, 2016 by Daniel DollingerMay 2, 2017

What is Price?

Price is how much it costs to purchase a good/service.

Importance of Price

Holding supply equal, price is a measurement of demand. The higher the demand, the higher the price is bid up. When the price increases, fewer people want to buy it. The only people willing to buy it at the elevated price are the people who want it the most. I.E. The person willing to pay 100 dollars for a pen wants it more than the person who is only willing to pay 50 cents for that same pen. Therefore, the price system will always direct goods/services towards the person who wants it the most. This is assuming that the potential purchasers’ income levels are not the limiting factor in purchasing decisions.

In the other direction, the lower the demand, the lower the price of the good/service. When the price decreases, more people want to buy it. I.E. If a watch is marked 25% off, more people will buy it because of the good deal. The price system therefore causes more people to have the product. In both directions, the effect of price is to cause supply to equal demand.

What are Price Controls?

Price controls are restrictions on the free movement of price. They can take the form of price floors or price ceilings.

What is a Price Floor?

A price floor is a minimum price that is allowed to be charged for a product. For example: the minimum wage is an example of a price floor.

Effect of a Price Floor

The effect of a price floor is to cause excess supply. By preventing price from falling past a certain number, supply will be held over demand. In the case of a minimum price for the cost of labor, fewer people will purchase labor.

What is a Price Ceiling?

A price floor is a maximum price that is allowed to be charged for a product. For example: President Nixon imposed a price ceiling on the cost of gasoline.

Effects of a Price Ceiling

The effect of a price ceiling is to cause excess demand. Another way of saying that is that it will cause supply shortages. By preventing price from rising past a certain number, demand will be held over supply. More people will want it than is available to provide. The price ceiling means that people can’t complete for the scarce good by bidding up the price. Thus the only way to compete is by spending time. As a result of President Nixon’s price ceiling on gasoline, there were massive lines at the gasoline pumps that lasted many hours. Many people who wanted gasoline couldn’t get it.

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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What is Skepticism?

Posted on November 28, 2016 by Daniel DollingerMay 2, 2017

What is Skepticism?

Skepticism is when someone doesn’t take an assertion at face value. Adherents demand a higher standard of proof. They don’t deny facts but demand evidence before they accept something as a fact.

What is the Application of Skepticism?

Every day on the news you hear claims in regards to the stock market. A particular bank had a bad quarter, so people think a recession is imminent. The weather was bad so the stock market is going to go down. The hiring of a new CEO will cause the company to go bankrupt. Don’t take these statements at face value. Before you freak out, remember these statements are opinions. They might be informed opinions but they’re opinions regardless. As many people have learned during their life, opinions can be wrong. You should take these statements with a grain of salt.

What is the Value of Skepticism to You?

The point I’m trying to make is to not panic. The movements of the stock market are very complicated and the effects of any particular action can usually not be accurately determined. Instead of listening to any of talking heads on TV, stick to your financial plan. Apply your skepticism to every prediction, and realize the prediction is probably wrong. Even if they’re right and the market drops, it will eventually recover. The effect of any event will be diversified out by history. Things will be ok.

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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Free Trade vs. Protectionism

Posted on November 21, 2016 by Daniel DollingerMay 2, 2017

Overview

Free trade and protectionism are 2 approaches that a country can take in regards to trade. It details the ability for people to buy products and services from other countries and/or sell products and services to other countries. It has effects on both international trade and on domestic issues.

What is Free Trade?

Free Trade means there are no restrictions on the buying and selling of goods from/to people from other countries. That applies to all goods such as outsourcing, pharmaceuticals, etc.

What are the Effects of Free Trade?

Free Trade increases competition among the suppliers of goods. That has the following effects:

Goods are cheaper
Wages are lower
Goods are better quality
There is a wider variety of goods on the market

What is Protectionism?

Protectionism means there are restrictions on the buying and selling of goods from/to people from other countries. Examples of protectionist policies are tariffs, quotas, etc.

What are the Effects of Protectionism?

Goods are more expensive
Wages are higher
Goods are poorer quality
There is less variety of goods on the market

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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A Message, Means of Production and Debt Strategies

Posted on November 14, 2016 by Daniel DollingerMay 2, 2017

My Message to You

I write these posts to help everyone and I care deeply about advancing financial education so people can make more informed choices. So I ask everyone to send me any questions they have. I want the things I write about to be relevant to their lives. Please tell me what’s important to you.

What are Means of Production?

In the creation of goods/services there are 2 factors. The first factor is labor (the workers) and the second factor are Means of Production (the tools that the workers use to create the good/service). Means of Production refer to all non-labor inputs into the creation of the end product. It could be land, a factory, a forest, a screwdriver, etc.

How to Get Out of Debt?

This is a complicated question, but I’ll give you some quick tips.

List out your debts and rank them based on their interest rate. It is almost always a good idea to pay off your highest interest debt first. Remember there is no practical difference between earning a 5% investment return and avoiding a 5% interest payment. Avoiding the interest, however, is guaranteed so it is far less risky.

List out all the things that flow into your bank account (income) and list out all things that flow out of your bank account (expenses). Do your best to figure out how to maximize the former and minimize the latter. For now, cut out any unnecessary expenses such as luxuries (restaurant meals, clothing accessories, etc.). Once you are more financially stable you can reintroduce them.

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

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Investment Newsletter for the end of October, 2016

Posted on November 7, 2016 by Daniel DollingerMay 2, 2017

The Dow was down this month by 166 points in total. Lots of back and forth excitement. Lots of the “world is ending” election news. In the end, the market was essentially breakeven. And the TV pundits are still exaggerating or making up reasons for ratings.

Today’s topic is real estate, not a stock market topic at all. It is, however, an investment topic. After all, your net worth includes all your assets; your stocks, mutual funds, bonds, the gold you have hidden in the safe in your closet (everybody knows about it), and real estate. The point of portfolio management is to manage your total net worth.

Each type of asset has an up and down curve. The different curves will differ from each other. But everything goes up and down. Right now, the stock market is going sidewise. The real estate market is going up insanely. Or are the buyers insane – interesting question? The house across the street from me sold in 3 hours. I am sure there were multiple offers. The real estate curve will not always go up. There are down turns also. The buyers are getting sucked up by the emotion and are becoming desperate. I.E. It’s a bubble.

I have had clients pull money because everyone they know was making money on real estate. That would be running with the herd or more exactly behind the herd. It is not very smart. I am the guy facing the stampeding very thirsty buffalo herd with the only water just behind me. That makes me very smart.

I personally do not want to buy anything, stock or real estate, when the buyers are desperate. I want the sellers to be desperate. I want to buy cheap. Four years ago, I bought a townhouse in a short sale. It was a week short of foreclosure. It is now worth almost double what I paid. The good people who were forced to sell it bought it at the top of the prior bubble. During the last crash, real estate agents were driving trucks and working as clerks to survive. That is the right time to buy. And, it happens on a regular cycle and it will happen again.

I have made the point many times that the more up and down pistons there are in a portfolio, the lower the overall risk will be. Therefore, I can achieve higher overall return for the same amount of risk. The reason is because the curves are going up and down at different times. Real estate is excellent at diversifying stock market risk and vice versa. I believe rental properties have a legitimate place in a portfolio. That does not mean that I should buy stupid.

Personally, I am accumulating my cash (properly invested of course) waiting for the next desperation stage of the cycle. I have no problem waiting three or four more years.

I know many of you will disagree but I do not consider your home to be a pure investment. It is at best a hybrid of investment and personal consumption. Your intention is to live in it not to resell it at a profit. You can and will do many things to your home to increase its magnificence, its joy to you. They will not increase the sales value. Your new kitchen cabinets, deck, vacuum system will not increase the house sales price as much as they cost. You did these things for you. An investment property has a different attitude. You do what you have to but usually not more. Profit is the agenda.

Thanks for your attention.

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

E-Book Download

Questions for the comments

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

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