Personal Finance

What is ‘Personal Finance’

Personal finance is everything to do with managing your money and saving and investing. It covers budgeting, banking, insurance, mortgages, investments, retirement planning, tax planning and estate planning. It often refers to the entire industry that provides financial services to individuals and households, and advises them about financial and investment opportunities.

BREAKING DOWN ‘Personal Finance’

Personal finance is about meeting personal financial goals, whether it’s meeting short-term financial needs, planning for retirement or saving for your child’s college education. It all depends on your income, expenses, living requirements and individual goals and desires – and coming up with a plan to fulfill those needs within your financial constraints. But to make the most of your income and savings it’s important to become financially literate, so you can distinguish between good and bad advice and make savvy decisions.

Personal Finance Planning Tips

The sooner you start financial planning the better, but it’s never too late to create financial goals to give yourself and your family financial security and freedom. Here are the best practices and tips for personal finance:

1. Devise a Budget

A budget is essential to living within your means and saving enough to meet your long-term goals. The 50/30/20 budgeting method offers a great framework. It breaks down like this:

  • 50% of your take-home pay or net income (after taxes, that is) goes toward living essentials, such as rent, utilities, groceries and transport
  • 30% is allocated to lifestyle expenses, such as dining out and shopping for clothes, etc.
  • 20% goes towards the future: paying down debt and saving both for retirement and for emergencies

It’s never been easier to manage money, thanks to a growing number of personal budgeting apps for smartphones that put day-to-day finances in the palm of your hand. Level Money automatically updates spendable cash as you make purchases each day, providing you with a simple, real-time financial snapshot. Meanwhile, Mint streamlines cash flow, budgets, credit cards, bills and investment tracking – all from one place. It automatically updates and 
categorizes your financial data as info comes in, so you always know where your money is at. The app will even dish out custom tips and advice.

2. Create an Emergency Fund

It’s important to “pay yourself first” to ensure money is set aside for unexpected expenses such as medical bills, rent if you get laid off, etc.

Between three to six months’ worth of living expenses is the ideal safety net. Financial experts generally recommend putting away 20% of each paycheck every month (which of course, you’ve already budgeted for!). Once you’ve filled up your “rainy day” fund (for emergencies or sudden unemployment), don’t stop. Continue funneling the monthly 20% towards other financial goals such as a retirement fund.

3. Limit Debt

This sounds simple enough – to avoid debt getting out of hand, don’t spend more than you earn. Of course, most people do have to borrow from time to time – and sometimes going into debt can be advantageous, if it leads to accumulating an asset. Taking out a mortgage to buy a house is one good example. But leasing can sometimes be more economical than buying outright, whether you’re renting a property, leasing a car or even getting a subscription to computer software.

4. Use Credit Cards Wisely

Credit cards can be major debt traps. But it’s unrealistic not to own any in the contemporary world, and they have uses other than as a tool to buy things. Not only are they crucial to establishing your credit rating, but they’re also a great way to track spending – a big budgeting aid.

Credit just needs to be managed correctly, which means the balance should ideally be paid off every month, or at least be kept at a credit utilization rate minimum (that is, keep your account balances below 30% of your total available credit). Given the extraordinary rewards incentives on offer these days (such as cash back), it makes sense to charge as many purchases as possible. Still, avoid maxing out credit cards at all costs, and always pay bills on time. One of the fastest ways to ruin your credit score is to constantly pay bills late – or even worse, miss payments. (See the Fifth Commandment.)

Using a debit card is another way to ensure you will not be paying for accumulated small purchases over an extended period – with interest.

5. Monitor Your Credit Score

Credit cards are the main vehicle through which your credit score is built and maintained, so watching credit spending goes hand in hand with monitoring your credit score. If you ever want to obtain a lease, mortgage or any other type of financing, you’ll need a solid credit history behind you. Factors that determine your score include how long you’ve had credit, your payment history and your credit-to-debt ratio.

Credit scores are calculated between 300 and 850. Here’s one rough way to look at it:

  • 720 = good credit
  • 650 = average credit
  • 600 or less = poor

To pay bills, set up direct debiting where possible (so you never miss a payment) and subscribe to reporting agencies that provide regular credit score updates. By monitoring your report, you will be able to detect and address mistakes or fraudulent activity. Federal law allows you to obtain free credit reports from the three major credit bureaus: Equifax, Experian and TransUnion. Reports can be obtained directly from each agency, or you can sign up at AnnualCreditReport, a site sponsored by the Big Three; you can also get a free credit score from sites such as Credit Karma, Credit Sesame or Wallet Hub. Some credit card providers, such as Capital One, will provide customers with complimentary, regular credit score updates too.

6. Consider Your Family

To protect the assets in your estate and ensure that your wishes are followed when you die, be sure you make a will or trust. You also need to look into insurance: not just on your major possessions (auto, homeowners), but on your life. And be sure to periodically review your policy, to make sure it meets your family’s needs through life’s major milestones.

Other critical documents include a living will and healthcare power of attorney. While not all these documents directly affect you, all of them can save your next-of-kin considerable time and expense when you fall ill or become otherwise incapacitated.

And while they’re young, take the time to teach your children about the value of money and how to save, invest and spend wisely.

7. Pay Off Student Loans

There are myriad loan-repayment plans and payment reduction strategies available to graduates. If you’re stuck with a high interest rate, paying off the principal faster can make sense. On the other hand, minimizing repayments (to interest only, for instance), can free up other income to invest elsewhere. Some federal and private loans are even eligible for a rate reduction if the borrower enrolls in auto pay. Flexible federal repayment programs worth checking out include:

  • Graduated repayment – progressively increases the monthly payment over 10 years
  • Extended repayment – stretches the loan out over a 25-year period

8. Plan (and Save) For Retirement

Retirement may seem like a lifetime away, but it arrives much sooner than you’d expect. Experts suggest that most people will need about 80% of their current salary in retirement. The younger you start, the more you benefit from what advisors like to call the magic of compounding interest – how small amounts grow over time. Setting aside money now for your retirement not only allows it to grow over the long term, but it can also reduce your current income taxes, if funds are placed in a tax-advantaged plan fund like an Individual Retirement Account (IRA), a 401(k) or a 403(b). If your employer offers a 401(k) or 403(b) plan, start paying into it right away especially if they match your contribution. By not doing so, you’re giving up free money! Take time to learn the difference between a Roth IRA and a traditional 401(k), if your company offers both.

Investing is only one part of planning for retirement. Other strategies include waiting as long as possible before opting to receive Social Security benefits (which is smart for most people), and converting a term life insurance policy to a permanent life one.

9. Maximize Tax Breaks

Due to an overly complex tax code, many individuals leave hundreds or even thousands of dollars sitting on the table every year. By maximizing your tax savings, you’ll free up money that can be invested in the reduction of past debts, your enjoyment of the present and your plans for the future.

You need to start each year saving receipts and tracking expenditures for all possible tax deductions and tax credits. Many business supply stores sell helpful “tax organizers” that have the main categories already pre-labeled. After you’re organized, you’ll then want to focus on taking advantage of every tax deduction and credit available, as well as deciding between the two when necessary. In short, a tax deduction reduces the amount of income you are taxed on, whereas a tax credit actually reduces the amount of tax you owe. This means that a $1,000 tax credit will save you much more than a $1,000 deduction.

10. Give Yourself A Break

Budgeting and planning can seem full of deprivations. Make sure you reward yourself now and then. Whether it’s a vacation, purchase, or an occasional night on the town, you need to enjoy the fruits of your labor. Doing so gives you a taste of the financial independence you’re working so hard for.

Last but not least, don’t forget to delegate when needed. Even though you might be competent enough to do your own taxes or manage a portfolio of individual stocks, it doesn’t mean you should. Setting up an account at a brokerage, spending a few hundred dollars on a certified public accountant (CPA) or a financial planner – at least once – might be a good way to jump-start your planning.

Personal Finance Strategies

Once you’ve established some fundamental procedures, you can start thinking about philosophy. The key to getting your finances on the right track isn’t about learning a new set of skills. Rather, it’s about learning that the principles that contribute to success in business and your career work just as well in personal money management. The three key principles are prioritization, assessment and restraint.

Prioritizing means that you’re able to look at your finances, discern what keeps the money flowing in, and make sure you stay focused on those efforts.

Assessment is the key skill that keeps professionals from spreading themselves too thin. Ambitious individuals who always have a list of ideas about other ways they can hit it big, whether it is a side business or an investment idea. While there is absolutely a place and time for taking a flyer, running your finances like a business means stepping back and truly assessing the potential costs and benefits of any new venture.

Restraint is that final big-picture skill of successful business management that must be applied to personal finances. Time and time again, financial planners sit down with successful people who somehow still manage to spend more than they make. Earning $250,000 per year won’t do you much good if you spend $275,000 per year. Learning to restrain spending on non-wealth-building assets until after you’ve met your monthly savings or debt-reduction goals is crucial in building net worth.

Learning About Personal Finance

Few schools offer courses in managing your money, which means most of us have to get our personal finance education from our parents (if we’re lucky) or pick it up ourselves. Fortunately, you don’t have to spend much money to find out how to better manage it. You can learn everything you need to know for free online and in library books. Almost all media publications regularly dole out personal finance advice, too.

Personal Finance Education Online

A great way to start learning about personal finance is to read personal finance blogs. Instead of the general advice you’ll get in personal finance articles, you’ll learn exactly what challenges real people are facing and how they are addressing those challenges.

Mr. Money Mustache” offers hundreds of posts full of irreverent insights on how to escape the rat race and retire extremely early by making unconventional lifestyle choices. “Making Sense of Cents” by Michelle Schroeder-Gardner offers advice and personal stories about paying off $38,000 of student loan debt in seven months, how to save 50% or more of your income and how she makes tens of thousands of dollars a month by blogging. “CentSai” helps you navigate the myriad of financial decisions via first person accounts. And “The Points Guy” and “Million Mile Secrets” teach you how to travel for a fraction of the retail price by using credit card rewards. These sites often link to other blogs, so you’ll discover more sites as you read.

Of course, we can’t help tooting our own horn in this category. Investopedia offers a wealth of free personal finance education. You might start with our tutorials on Budgeting Basics, How to Buy Your First Home and Planning for Retirement – or the thousands of articles in our personal finance section.

Personal Finance Education Through the Library

You may need to visit your library in person to get a library card, but after that, you can check out personal finance audiobooks and eBooks online without leaving home. Some of these bestsellers may be available from your local library: “I Will Teach You to Be Rich,” “The Millionaire Next Door,” “Your Money or Your Life” and “Rich Dad Poor Dad.” Personal finance classics like “Personal Finance for Dummies,” “Dave Ramsey’s Total Money Makeover,” “The Little Book of Common Sense Investing” and “Think and Grow Rich” are also available in audio book form.

Free Online Personal Finance Classes

If you enjoy the structure of lessons and quizzes, try one of these free digital personal finance courses:

Open2Study from Open Universities Australia offers a financial literacy course that will teach you how to set and achieve savings goals and how to manage your money (subjects that aren’t Australia-specific). Topics include how compound interest works and the basic steps to starting to invest. There are four modules, each with about 10 video lessons, nine quizzes and one assessment. The complete course takes about 8 to 16 hours to complete.

Morningstar’s Investing Classroom offers a place for beginning and experienced investors alike to learn about stocks, funds, bonds and portfolios. Some of the courses you’ll find there include “Stocks versus Other Investments,” “Methods for Investing in Mutual Funds,” “Determining Your Asset Mix” and “Introduction to Government Bonds.” Each course takes about 10 minutes and is followed by a quiz to help you make sure you understood the lesson.

EdX, an online learning platform created by Harvard University and MIT, offers at least three courses that cover personal finance: How to Save Money: Making Smart Financial Decisions from the University of California at Berkeley; Finance for Everyone from the University of Michigan; and Personal Finance from Purdue University. These courses will teach you things like how credit works, which types of insurance you might want to carry, how to maximize your retirement savings, how to read your credit report and the time value of money.

Purdue also has an online course on Planning for a Secure Retirement. It’s broken up into 10 main modules, and each has four to six sub-modules on topics such as Social Security, 401(k) and 403(b) plans and IRAs. You’ll learn about your risk tolerance, think about what kind of retirement lifestyle you want and estimate your retirement expenses.

Missouri State University presents a free online video course on personal finance through iTunes. This basic course is good for beginners who want to learn about personal financial statements and budgets, how to use consumer credit wisely, and how to make decisions about cars and housing.

Personal Finance Podcasts

Personal finance podcasts are a great way to learn how to manage your money if you’re short on free time. While you’re getting ready in the morning, exercising, driving to work, running errands or getting ready for bed, you can hear what the experts have to say about becoming more financially secure.

The Dave Ramsey Show is a call-in program that you can listen to anytime through your favorite podcast app. You’ll learn about the financial problems real people are facing and how a multimillionaire who was once broke himself recommends solving them. NPR’s Planet Money and Freakonomics Radio make economics interesting by using it to explain real-world phenomena such as “how we got from mealy, nasty apples to apples that actually taste delicious,” the recent Wells Fargo faux-accounts scandal and whether we should still be using cash. American Public Media’s Marketplace helps make sense of what’s going on in the business world and the economy. And So Money with Farnoosh Torabi consists of a combination of interviews with successful business people, expert advice and listeners’ personal finance questions.

The most important thing is to find resources that work for your learning style and that you find interesting and engaging. If one blog, book, course or podcast is dull or difficult to understand, keep trying until you find something that clicks.

Things a Personal Finance Class Can’t Teach You

Personal finance education is a great idea for consumers, especially youthful ones, who need to understand investing basics or credit management. However, the grasp of basic concepts that revolve around dollars and cents is not necessarily a guaranteed path to fiscal sense. Human nature can often derail the best of intentions aimed at achieving a perfect credit score or building a substantial retirement nest egg. Three key character traits include:


One of the most important tenets of personal finance is systematic saving. Say your net earnings are $60,000 per year and your monthly living expenses, such as housing, food and transportation, amount to $3,200 per month. There are choices to make surrounding the remaining $1,800 in monthly salary. Ideally, the first step is to establish an emergency fund, or perhaps a high-deductible health plan (HDHP) to meet out-of-pocket medical expenses. However, you’ve developed a penchant for designer clothes, and weekends at the beach beckon. The discipline required to save rather than spend is lacking, and so is the 10 to 15% of gross income that could have been stashed in a money market for short-term needs.

Discipline is not just something for thick-skinned institutional money managers who make their living buying and selling stocks. The average investor would do well to set a target on profit-taking and abide by it. As an example, imagine that you bought Apple Inc. stock in February 2016 at $93 and vowed to sell when it crossed $110, as it did two months later. Instead, you exited the position in July 2016, at $97, giving up gains of $13 per share and the possible opportunity for profit in another issue.

Sense of Timing

Three years out of college, the emergency fund has been established and it is time to reward yourself. A jet ski costs $3,000. Investing in growth stocks can wait another year, you think; there is plenty of time to launch an investment portfolio, right? Putting off investing for one year, however, can have significant consequences. The opportunity cost of buying the watercraft can be illustrated through the time value of money. The $3,000 used to buy the jet ski would have amounted to nearly $49,000 in 40 years at 7% interest, a reasonable average annual return for a growth mutual fund over the long haul. Thus, delaying the decision to invest wisely may likewise delay the ability to retire at age 62, as you would like.

Doing tomorrow what you could do today also extends to debt payment. A $3,000 credit card balance takes 222 months to retire if the minimum payment of $75 is made each month. And don’t forget the interest you’re paying: at an 18% APR, it comes to $3,923 over those months. Plunking down $3,000 to erase the balance in the current month offers substantial savings – about the same as the cost of the jet ski!

Emotional Detachment

Personal finance matters are business, and business should not be personal. A difficult, but necessary, facet of sound financial decision-making involves removing the emotion from a transaction. Making impulsive purchases or loans to family members feels good but can greatly impact long-term investment goals. Your cousin who has burned your brother and sister will likely not pay you back either – so the smart answer is to decline his requests for help. Sure, sympathy is hard to turn back, but the key to prudent personal financial management is to separate feelings from reason.

When To Break Personal Finance Rules

The personal finance realm may have more guidelines and “smart tips” to follow than any other. Although these rules of thumb are good to know about, everyone has individual circumstances. Here are some rules that young adults are never supposed to break, but should consider breaking, anyway.

Saving or Investing a Set Portion of Your Income
An ideal budget includes saving a small amount of your paycheck every month for retirement – usually around 10%-20%. While being fiscally responsible at a young age is important, and thinking about your future is crucial, the general rule of saving a given amount each period for your retirement may not be the best choice for young people just getting started in the real world. For one, many young adults and students need to think about paying for the biggest expenses of their lifetime, such as a new car, home or post-secondary education. Taking away potentially 10 to 20% of available funds would be a definite setback in making said purchases. Additionally, saving for retirement doesn’t make a whole lot of sense if you have credit cards or interest bearing loans that need to be paid off. The 19% interest rate on your Visa would probably negate the returns you get from your balanced mutual fund retirement portfolio, five times over.

Also, saving your money to travel and experience new places and cultures can be an extremely rewarding experience for a young person who’s still not sure about his or her path in life.

Long-Term Investing / Investing in Riskier Assets
The rule of thumb for young investors is that they should have a long-term outlook and stick to a buy and hold philosophy. This rule is one of the easier ones to justify breaking. Being able to adapt to changing markets can be the difference between making money, or limiting your losses, compared to sitting idly by and watching as your hard-earned savings shrink. Short-term investing has its advantages at any age.

Now, if you’re no longer married to the idea of long-term investing, you can stick to safer investments, as well. The logic was, since young investors have such a long investment time horizon, they should be investing in higher risk ventures, since they have the rest of their lives to recover from any losses they may suffer. However, if you don’t want to take on undue risk in your short to medium-term investments, you don’t have to. The idea of diversification is an important part of creating a strong investment portfolio; this includes both the riskiness of individual stocks and their intended investment horizon.


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What is ‘End-To-End’

End-to-end is a term used to describe products or solutions that cover every stage in a particular process, often without any need for anything to be supplied by a third party. It also embraces a philosophy that eliminates as many middle layers or steps as possible to optimize performance and efficiency in any process.


End-to-end is a term most commonly used in the information technology industry to refer to vendors that can see a project through from beginning to end and supply everything needed to make a computer network or technology solution work. These solutions can take any number of forms, but usually refer to vendors that offer comprehensive solutions and keep pace with a business’ ever-changing IT infrastructure needs. When dealing with complex systems or services it is often easier and more cost-effective for the customer to have only one supplier and one point of contact. This is why “end-to-end” solutions that involve multiple partners for different parts of the workflow – which increases the cost of managing the process – are not considered to be true end to end solutions.

End-to-End in Technology

In the technology industry, end-to-end is often associated with suppliers of systems that take care of all the hardware requirements as well as the software, including installation, implementation and maintenance – which eliminates the need for third-party suppliers. An end-to-end technology solution might refer to a solution that covers everything from the client interface to data storage. For example, a company offering end to end video conferencing products will provide everything including the screens and network connections, etc. In e-commerce, end-to-end processing occurs when one company provides a service to another in which it manages the sales, order tracking and delivery of a product.


In the procurement world, an end-to-end process refers to the practice of including and analyzing each and every point in a company’s supply chain – from sourcing and ordering raw materials to the point where the good reaches the end consumer. End-to-end procurement software solutions provide organizations with a complete overview of their supply chain and how long goods are taking to be sent from suppliers and how much those goods cost.

Logistics, Storage & Distribution

Another example of end-to-end processing can be found in logistics, where service providers take care of inventory management, storage and distribution. By eliminating as many layers and steps as possible, a logistics specialist can optimize distribution and minimize disruptions from road congestion, vehicle breakdowns, etc. For example, in the petroleum industry, transport and logistics companies offer customers flexible and cost-effective end-to-end services, from order planning to inventory monitoring, loading and transportation, to delivery. This includes supplying fuel and lubricants to service stations, aviation fuel to airports and bitumen to the asphalt industry.

Horizontal Integration

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What is ‘Horizontal Integration’

Horizontal integration is the acquisition of a business operating at the same level of the value chain in a similar or different industry. This is in contrast to vertical integration, where firms expand into upstream or downstream activities, which are at different stages of production.

BREAKING DOWN ‘Horizontal Integration’

Horizontal integration is a competitive strategy that can create economies of scale, increase market power over distributors and suppliers, increase product differentiation and help businesses expand their market or enter new markets. By merging two businesses, they may be able to produce more revenue than they would have been able to do independently.

However, when horizontal mergers succeed, it is often at the expense of consumers, especially if they reduce competition. If horizontal mergers within the same industry concentrate market share among a small number of companies, it creates an oligopoly. If one company ends up with a dominant market share, it has a monopoly. This is why horizontal mergers are heavily scrutinized under antitrust laws.

Advantages of Horizontal Integration

Companies engage in horizontal integration to benefit from synergies. There may be economies of scale or cost synergies in marketing, research and development (R&D), production and distribution. Or there may be economies of scope, which make the simultaneous manufacturing of different products more cost-effective than manufacturing them on their own. Proctor & Gamble’s 2005 acquisition of Gillette is a good example of a horizontal merger which realized economies of scope. Because both companies produced hundreds of hygiene-related products from razors to toothpaste, the merger reduced the marketing and product development costs per product.

Synergies can also be realized by combining products or markets. Horizontal integration is often driven by marketing imperatives. Diversifying product offerings may provide cross-selling opportunities and increase each business’ market. A retail business that sells clothes may decide to also offer accessories, or might merge with a similar business in another country to gain a foothold there and avoid having to build a distribution network from scratch.

Reducing Competition

The real motive behind a lot of horizontal mergers is that companies want to reduce “horizontal” competition in the form of competition from substitutes, competition from potential new entrants and the competition from established rivals. These are three of the five competitive forces that shape every industry and which are identified in Porter’s Five Forces model. The other two forces, the power of suppliers and customers, drive vertical integration.

Disadvantages of Horizontal Integration

Like any merger, horizontal integration does not always yield the synergies and added value that was expected. It can even result in negative synergies which reduce the overall value of the business, if the larger firm becomes too unwieldy and inflexible to manage, or if the merged firms experience problems caused by vastly different leadership styles and company cultures. And if a merger threatens competitors, it could attract the attention of the Federal Trade Commission.

Examples of Horizontal Integration

Examples of horizontal integration in recent years include Marriott’s 2016 acquisition of Sheraton (hotels) Anheuser-Busch InBev’s 2016 acquisition of SABMiller (brewers), AstraZeneca’s 2015 acquisition of ZS Pharma (biotech), Volkswagen’s 2012 acquisition of Porsche (automobiles), Facebook’s 2012 acquisition of Instagram (social media), Disney’s 2006 acquisition of Pixar (entertainment media), and Mittal Steel’s 2006 acquisition of Arcelor (steel).

Internal Audit

What is an ‘Internal Audit’

Internal audits evaluate a company’s internal controls, including its corporate governance and accounting processes. They ensure compliance with laws and regulations and accurate and timely financial reporting and data collection, as well as helping to maintain operational efficiency by identifying problems and correcting lapses before they are discovered in an external audit.

BREAKING DOWN ‘Internal Audit’

Internal audits play a critical role in a company’s operations and corporate governance, now that the Sarbanes-Oxley Act of 2002 has made managers legally responsible for the accuracy of its financial statements. Besides making sure that a company is complying with laws and regulations, internal audits monitor operating results and verify the accuracy of its accounting and audit trails. They also safeguard against potential fraud, waste or abuse, and seek to identify breakdowns in internal controls. Internal audits provide management and the board of directors with value-added advice, suggesting improvements to current processes and practices which may include information technology systems as well as supply-chain management if they are not functioning as intended. For more on internal auditing, read An Inside Look At Internal Auditors.

Internal Audit Procedures

Internal audits may take place on a daily, weekly, monthly or annual basis. Some departments may be audited more frequently than others. For example, a manufacturing process may be audited on a daily basis for quality control, while the human resources department might only be audited once a year. Audits may be scheduled, to give managers time to prepare the required documents and information, or they may be a surprise, if unethical or illegal activity is suspected.

Assessment Techniques

Assessment techniques ensure an internal auditor completely understands internal control procedures, and whether employees are complying with internal control directives. To avoid disrupting the daily workflow, auditors begin with indirect assessment techniques, such as reviewing flowcharts, manuals, departmental control policies or other existing documentation, or they may trace specific audit trails from start to finish. They may also conduct interviews with staff, if document reviews or audit trails do not fully answer their questions.

Analysis Techniques

Auditing procedures include transaction matching, physical inventory count, audit trail calculations and account reconciliation as is required by law. Analysis techniques may test random data or target specific data, if an auditor believes an internal control process needs to be improved.

Reporting Procedures

Internal audit reporting always includes a formal report and may include a preliminary or memo-style interim report. An interim report typically includes sensitive or significant results the auditor thinks the board of directors needs to know right away. The final report includes a summary of the procedures and techniques used for completing the audit, a description of audit findings and suggestions for improvements to internal controls and control procedures.

Conditional Value At Risk – CVaR

What is ‘Conditional Value At Risk – CVaR’

Conditional Value at Risk (CVaR) also known as the expected shortfall is a risk assessment measure that quantifies the amount of tail risk an investment portfolio has. CVaR is derived by taking a weighted average of the “extreme” losses in the tail of the distribution of possible returns, beyond the value at risk (VaR) cutoff point. It is used in portfolio optimization.

BREAKING DOWN ‘Conditional Value At Risk – CVaR’

Conditional Value at Risk (CVaR) attempts to address the shortcomings of VaR model, which is a statistical technique used to measure the level of financial risk within a firm or an investment portfolio over a specific time frame. While VaR represents a worst-case loss associated with a probability and a time horizon, CVaR is the expected loss if that worst case threshold is ever crossed. CVaR, in other words, quantifies the expected losses that occur beyond the VaR breakpoint.

Safer investments like large-cap U.S. stocks or investment grade bonds rarely exceed VaR by a significant amount. But more volatile asset classes, like small-cap U.S. stocks, emerging markets stocks or derivatives, can exhibit CVaRs many times greater than VaRs. Ideally, investors are looking for small CVaRs. However, investments with the most upside potential often have large CVaRs.

Conditional Value at Risk Formula

Because CVaR values are derived from the calculation of VaR itself, the assumptions that VaR is based on, such as the shape of the distribution of returns, the cut-off level used, the periodicity of the data, and the assumptions about stochastic volatility, will all affect the value of CVaR. Calculating CVaR is simple, once the VaR has been calculated. It is the average of the values that fall beyond the VaR:

Formula for calculating Conditional Value at Risk (CVaR).

p(x)dx = the probability density of getting a return with value “x”

c = the cut-off point on the distribution where the analyst sets the VaR breakpoint

VaR = the agreed-upon VaR level

Capital Reserve

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What is a ‘Capital Reserve’

A capital reserve is an account on the balance sheet that can be used for contingencies or to offset capital losses. It represents the accumulated capital surplus of a company, created out of capital profit, such as the upward revaluation of its assets to reflect their current market value after appreciation, or profits on the sale of assets. Sums allocated to a capital reserve are permanently invested and cannot be used to pay dividends.

The term capital reserve is sometimes used for the capital buffers that banks have to establish to meet regulatory requirements, and is sometimes confused with reserve requirements, which are the cash reserves the Federal Reserve requires banks to maintain.

BREAKING DOWN ‘Capital Reserve’

Capital reserves are an anachronism, because the term “reserve” is not defined under generally accepted accounting principles (GAAP). A capital reserve is a sum earmarked for specific purposes or long-term projects or mitigating capital losses or any other long-term contingencies. It is created through transactions of a capital nature, such selling fixed assets, revaluing assets and liabilities, issuing stock in excess of par value (share premium), and profits on the redemption of debentures and the reissue of forfeited shares.

A capital reserve has nothing to do with trading or operational activities of the business, as it created out of non-trading activities, so capital reserves can never be an indicator of the operational health of a business.

SEC Form 13F

What is the ‘SEC Form 13F’

SEC Form 13F is a quarterly report that is filed by institutional investment managers with at least $100 million in equity assets under management, discloses their U.S. equity holdings to the Securities and Exchange Commission (SEC) and provides insights into what the smart money is doing. Firms that are required to file 13Fs include mutual funds, hedge funds, trust companies, pension funds, insurance companies and registered investment advisers.


SEC Form 13F filings provide investors with an inside look at the holdings of Wall Street’s top stock pickers and their asset allocation strategies. Individual investors and other institutional investors, who want to replicate the strategies of rock star hedge fund managers like Daniel Loeb, David Tepper, David Einhorn, Carl Icahn or Seth Klarman, scrutinize 13F filings to generate investment ideas. And the financial press often reports on what these fund managers have been buying and selling. By looking at the top holdings of some managers, investors hope to put together a best-ideas portfolio without paying management fees.

However, the risk for both professional and retail investors, is that the tendency of hedge funds to borrow investment ideas from each other, and the bandwagon effect, can lead to crowded trades and overvalued stocks. Hedge fund managers are no more immune to behavioral biases like herd behavior, than anyone else. After all, if you are a fund manager, it is safer to be wrong with the majority than to be right alone.

13Fs Only Tell Half The Story

13F reports only require funds to report their long positions, in addition to their put and call options, American Depositary Receipts (ADRs), and convertible notes. But hedge funds also purchase bonds and foreign equities, and sell stocks short. This can give a misleading picture, as some funds generate most of their returns from their short selling, only using long positions as hedges. Also, 13Fs only track investments made on domestic exchanges.

Unreliable and Backward Looking

13F filings are not necessarily reliable – as the SEC itself admits — because no one at the SEC analyzes the content for accuracy and completeness. So, investors should take them with a pinch of salt. After all, the infamous fraudster Bernard Madoff also filed 13F forms on a quarterly basis.

Another major issue with 13F reports is that they are filed up to 45 days after the end of a quarter. And most managers submit their 13Fs as late as possible, because they do not want to tip off rivals about what they are doing. So, by the time other investors get their hands on them, they are looking at stock purchases that may have been made more than four months prior to the filing. Seeing how professional fund managers have been investing in the previous few months can be insightful, but it is backward looking. If the smart money is already fully invested in a stock, retail investors are likely to be late to the party by the time they learn about it.

International Accounting Standards – IAS

What were the ‘International Accounting Standards – IAS’

International Accounting Standards (IAS) are older accounting standards which were replaced in 2001 by International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB), an independent international standard setting body based in London.

BREAKING DOWN ‘International Accounting Standards – IAS’

International Accounting Standards (IAS) were the first international accounting standards that were issued by the International Accounting Standards Committee (IASC), formed in 1973. The goal then, as it remains today, was to make it easier to compare businesses around the world, increase transparency and trust in financial reporting and foster global trade and investment.

Benefits of International Accounting Standards

Globally comparable accounting standards promote transparency, accountability and efficiency in financial markets around the world. This enables investors and other market participants to make informed economic decisions about investment opportunities and risks, and improves capital allocation. Universal standards also significantly reduce reporting and regulatory costs, especially for companies with international operations and subsidiaries in multiple countries.

Progress Towards Universal Adoption of IFRS

There has been significant progress towards developing a single set of high-quality global accounting standards since the IASC was replaced by the IASB. IFRS have been adopted by the European Union, leaving the U.S., Japan (where voluntary adoption is allowed) and China (which says it is working towards IFRS) as the only major capital markets without an IFRS mandate. As of 2018, 144 jurisdictions require the use of IFRS standards for all or most publicly listed companies, and a further 12 jurisdictions permit its use.

The U.S. is exploring adopting international accounting standards. Since 2002, America’s accounting-standards body, the Financial Accounting Standards Board (FASB) and the IASB have been collaborating on a project to improve and converge U.S. generally accepted accounting principles (GAAP) and IFRS. However, while the FASB and IASB have issued norms together, the convergence process is taking much longer than was expected – in part because of the complexity of implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Securities and Exchange Commission (SEC), which regulates U.S. securities markets, has long supported high-quality global accounting standards in principle, and continues to do so. In the meantime, because U.S. investors and companies routinely invest trillions of dollars abroad, fully understanding the similarities and differences between U.S. GAAP and IFRS, is crucial. To learn about the differences between IFRS and GAAP, read What are some of the key differences between IFRS and U.S. GAAP?


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What is ‘Productivity’

Productivity, in economics, measures output per unit of input, such as labor, capital or any other resource – and is typically calculated for the economy as a whole, as a ratio of gross domestic product (GDP) to hours worked. Labor productivity may be further broken down by sector to examine trends in labor growth, wage levels and technological improvement. Corporate profits and shareholder returns are directly linked to productivity growth.

At the corporate level, where productivity is a measure of the efficiency of a company’s production process, it is calculated by measuring the number of units produced relative to employee labor hours or by measuring a company’s net sales relative to employee labor hours.

BREAKING DOWN ‘Productivity’

Productivity is the key source of economic growth and competitiveness. A country’s ability to improve its standard of living depends almost entirely on its ability to raise its output per worker, i.e., producing more goods and services for a given number of hours of work. Economists use productivity growth to model the productive capacity of economies and determine their capacity utilization rates. This, in turn, is used to forecast business cycles and predict future levels of GDP growth. In addition, production capacity and utilization are used to assess demand and inflationary pressures.

Labor Productivity

The most commonly reported productivity measure is labor productivity published by the Bureau of Labor Statistics. This is based on the ratio of GDP to total hours worked in the economy. Labor productivity growth comes from increases in the amount of capital available to each worker (capital deepening), the education and experience of the workforce (labor composition) and improvements in technology (multi-factor productivity growth).

However, productivity is not necessarily an indicator of the health of an economy at a given point in time. For example, in the 2009 recession in the United States, output and hours worked were both falling while productivity was growing — because hours worked were falling faster than output. Because gains in productivity can occur both in recessions and in expansions — as it did in the late 1990s — one needs to take the economic context into account when analyzing productivity data.

The Solow Residual and Multi-Factor Productivity

There are many factors that affect a country’s productivity, such as investment in plant and equipment, innovation, improvements in supply chain logistics, education, enterprise and competition. The Solow residual, which is usually referred to as total factor productivity, measures the portion of an economy’s output growth that cannot be attributed to the accumulation of capital and labor. It is interpreted as the contribution to economic growth made by managerial, technological, strategic and financial innovations. Also known as multi-factor productivity (MFP), this measure of economic performance compares the number of goods and services produced to the number of combined inputs used to produce those goods and services. Inputs can include labor, capital, energy, materials and purchased services.

Productivity Growth, Savings and Investment

When productivity fails to grow significantly, it limits potential gains in wages, corporate profits and living standards. Investment in an economy is equal to the level of savings because investment has to be financed from saving. Low savings rates can lead to lower investment rates and lower growth rates for labor productivity and real wages. This is why it is feared that the low savings rate in the U.S. could hurt productivity growth in the future.

Since the global financial crisis, the growth in labor productivity has collapsed in every advanced economy. It is one of the main reasons why GDP growth has been so sluggish since then. In the U.S., labor productivity growth fell to an annualized rate of 1.1% between 2007 and 2017, compared to at an average of 2.5% in nearly every economic recovery since 1948. This has been blamed on the declining quality of labor, diminishing returns from technological innovation and the global debt overhang, which has led to increased taxation, which has in turn suppressed demand and capital expenditure.

A big question is what role quantitative easing and zero interest rate policies (ZIRP) have played in encouraging consumption at the expense of saving and investment. Companies have been spending money on short-term investments and share buybacks, rather than investing in long-term capital. One solution, besides better education, training and research, is to promote capital investment. And the best way to do that, say economists, is to reform corporate taxation, which should increase investment in manufacturing. This, of course, is the goal of president Trump’s tax reform plan.

3 Top Retail Stocks to Buy Now

There’s been a lot of doom and gloom in the retail industry, and with good reason. The emergence of  and the proliferation of e-commerce have created a tough atmosphere for traditional retail. Vacancies at U.S. shopping malls are at their highest level in six years, as more and more brick-and-mortar retailers make the transition to the digital era.

However, there are traditional retailers that have not only succeeded in embracing online selling, but that have created omnichannel capabilities that are drawing shoppers back to physical stores. There are others whose unique value proposition has made them a destination, sidestepping the e-commerce issue.

Let’s look at three retail stocks that have beaten the odds in this challenging environment and are positioning themselves for future success: Best Buy (NYSE: BBY) , Walmart (NYSE: WMT) , and Five Below (NASDAQ: FIVE) .

View through magnifying glass showing stacks of coins topped by sprouting plants.

Image source: Getty Images.

Back from the brink

It’s hard to believe the turnaround that’s taken place at Best Buy over the past several years. The company was left for dead, with the stock dropping below $12 per share in late 2012. Since then, the stock has come roaring back, recently achieving all-time highs near $80 per share.

The beginning of the company’s turnaround coincided with the arrival of CEO Hubert Joly, who joined Best Buy in August 2012. Joly used a multipronged approach to revive the ailing electronics retailer, making several bold moves in the process. Best Buy invested heavily in improving its website, matching prices from online competitors, and training its employees to encourage better interaction with customers. The company also sought to blur the line between physical and online retail, promoting buying online and picking up items in stores.

That overall strategy has been a smashing success. In its most recent quarter , Best Buy’s revenue increased 6.8% year over year, beating its own forecasts and those of analysts, while it’s comparable-store sales jumped 7.1%, on top of 9% growth achieved in the previous quarter . This impressive top line and same-store sales growth drove profits up by 20% compared with the prior-year quarter.

A Best Buy store seen from the outside.

Image source: Best Buy.

Best Buy is focusing on connected-home products and home visits by its Geek Squad technicians to drive future growth, while continuing to blur the line between sales channels. There’s no reason to believe its success won’t continue.

Meeting the challenge

No company epitomizes the challenges faced by traditional merchants better than Walmart. Its relentless focus on value and low prices help make it the world’s largest retailer, but the emergence of e-commerce threatened to undermine that dominance.

After struggling for years with its own web-based sales, the company jump-started its online sales aspirations with the purchase of start-up for $3.3 billion in August 2016. The company also acquired the talents of Jet’s founder, Marc Lore, who brought a start-up mentality to the storied retailer, while taking the reins of its e-commerce operations.

Walmart made a flurry of other purchases in rapid succession, including outdoor retail purveyor Moosejaw, men’s clothier Bonobos , and women’s fashion outlet Modcloth, among others. Walmart’s latest move was its biggest yet, acquiring a controlling stake in India’s largest online retailer, Flipkart .

A Walmart associate helping a customer with an in-store pickup.

Image source: Walmart.

Walmart has made a number of other moves to maintain its relevance in the changing retail environment. The company has adopted two-day shipping and is encouraging customers to order online and schedule an in-store pickup. Walmart is also targeting millennial shoppers, a large buying demographic that has typically avoided the merchant.

These moves appear to be taking hold. In its most recent quarter , Walmart grew revenue by 4.4% year over year, exceeding expectations, while same-store sales increased 2.1% compared to the prior-year period. E-commerce sales grew 33% over the year-ago quarter, and Walmart expects its full-year online sales to jump 40% year over year.

Cashing in on fads

While many traditional retailers have struggled with changes in consumer behavior and the e-commerce trend, it’s hard to categorize Five Below as traditional. The discount retailer caters directly to the teen and tween demographic, with everything in its stores selling for $5 or less.

“Five Below carries an ever-evolving and exciting assortment of cellphone cases and chargers, remote control cars, yoga pants, graphic tees, nail polish, footballs and soccer balls, tons of candy and seasonal must-haves for Easter, Halloween, Christmas, and more,” according to its website.

Entrance of a Five Below store with its logo, "Hot stuff. Cool prices."

Image source: Five Below.

In its most recent quarter , Five Below posted net sales that jumped 27% year over year, while net income soared 160%. Comparable-store sales climbed 3.2%. The company’s current base stands at 658 sites in 32 states, but Five Below plans to boost its store count by 125 locations this year and eventually grow to 2,500 locations nationwide, providing plenty of opportunity for growth.

Five Below’s unique positioning as a store where teens and pre-teens can spend their allowance has largely bypassed the e-commerce challenges experienced by other retail stores, but that hasn’t stopped the company from adding an online sales channel to boost its growth. The company’s relentless focus on this niche market should keep it growing for years to come.

The story is just beginning

Worldwide e-commerce sales grew 25% in 2017, driven by a 59% increase in mobile buying. Online sales accounted for 10.2% of total retail, but their portion is expected to soar to 17.5% of sales by 2021. Brick-and-mortar retailers will need to evolve in order to survive this ever-growing trend toward online sales. These three companies have each taken a different approach to this conundrum and have shown that it’s possible to adapt to this new retail reality.

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How are direct costs allocated differently than indirect costs?


Horizontal integration, also known as lateral integration, describes the merging of two or more companies that are at the same part of the production   supply chain. They can be in the same or different industries. Here are three textbook examples of horizontal integration, made by companies looking to strengthen their positions in the current market and enhance their current production and/or distribution stage.

One of the clearest examples of horizontal integration is Facebook’s acquisition of Instagram in 2012 for a reported $1 billion. Both Facebook and Instagram operated in the same industry (social media) and were in similar production stages in regard to their photo-sharing services. Facebook, looking to strengthen its position in the social sharing space, saw the acquisition of Instagram as an opportunity to grow its market share, reduce competition and access new audiences. All of these things came to pass, resulting in a high level of synergy.

Another key example of a horizontal integration was the Walt Disney Company’s $7.4 billion acquisition of Pixar Animation Studios in 2006. Disney had started out as an animation studio that targeted families and children. But it was facing market saturation with its current operations, along with a sense of creative stagnation. Pixar operated in the same animation space as Disney, but it had more cutting-edge technology when it came to digitally animated movies, along with more innovative vision. A decade later, the deal was widely seen to have reanimated Disney, not to mention expanding its market share and increasing profits.

Finally there is the 1998 merger of two major oil companies, Exxon and Mobil – the biggest  in corporate history at the time, combining the first and second largest energy corporations in the U.S. Officially, Exxon bought Mobil for $73.7 billion, and the purchase enabled Exxon to gain access to Mobile’s gas stations as well as its product reserves. Thanks to the pooling of resources, increased efficiency in operations and streamlining of procedures, today, ExxonMobil is the biggest oil company in the world, and the 10th  largest by revenue. Shareholders have quadrupled their money.

Why Electronic Arts, Inc. Stop Gained 34.2% in the First Half of 2018

What happened

Electronics Arts (NASDAQ: EA) stock closed out the first six months of 2018 up 34.2%, according to data from S&P Global Market Intelligence . Most of the company’s valuation gains stemmed from the two strong quarterly reports it released in the first half of the year.

EA Chart

EA data by YCharts

The video game publisher published third-quarter earnings results on Jan. 30 and fourth-quarter results on May 8, with performance for both periods generally coming in ahead of expectations and spurring substantial stock-price rallies.

A soccer player dribbling a ball next to the FIFA World logo.

Image source: Electronic Arts.

So what

EA stock climbed in the lead up to the company’s third-quarter report on Jan. 30 and then jumped following the publishing of results . Both sales and earnings for the period actually came in slightly below the average analyst estimate, but the underperformance wasn’t as bad as some had feared.

A rough launch and suspension of in-game monetization for the company’s Star Wars: Battlefront II was expected to weigh on performance, but strong in-game content sales for other titles smoothed out the results. Some of these gains were ceded amid broader stock market sell-offs in February, but the company’s share price rebounded.

The stock’s next big gains came courtesy of its fourth-quarter earnings release on May 8. Sales and earnings came in ahead of the market’s expectations for the period, prompting another steep share-price increase. EA stock also posted gains during the Electronic Entertainment Expo that took place from June 12 through June 14, indicating that investors were generally pleased with the company’s showing at the event.

Now what

EA’s strong stock performance has continued in July.

EA Chart

EA data by YCharts

The publisher normally gets a significant sales boost from its FIFA soccer franchise in World Cup years, and in-game content sales have generally been on a tear. As a result, the company is likely to see strong performance in its next two reported quarters.

As an owner of valuable franchises and a leading player in a video gamer industry that’s seeing a lot of favorable tailwinds, Electronic Arts has a promising long-term outlook. That said, there have also been some less than favorable developments at the company in recent years. EA’s Mass Effect , Dead Space , and Titanfall series were mishandled, and its games based on Disney ‘s Star Wars franchise have fallen short of expectations on some key fronts. The video game publisher recently canceled a Star Wars game that had been in development for several years and closed the studio that was working on it.

Large games publishers like Electronic Arts and Activision Blizzard are benefiting from their customer bases’ voracious appetite for video game content and should still have plenty of room for growth. On the other hand, both companies must contend with the massive popularity of less expensive games like Tencent ‘s Fortnite and Player Unknown’s Battlegrounds — and it’s possible they will need to improve the value propositions of their respective offerings.

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Why Xunlei Limited Stock Fell 30.5% in the First Half of 2018

What happened

Shares of Xunlei Limited (NASDAQ: XNET) lost 30.5% of their value through the first half of 2018, according to data from S&P Global Market Intelligence . The sell-offs appear to be tied to a worsening outlook for the company’s LinkToken cryptocurrency and broader pullbacks across the crypto market.

XNET Chart

XNET data by YCharts

The Chinese company’s stock climbed nearly 300% in 2017, with most of the gains tied to its announcement of a cryptocurrency and the huge interest in virtual currencies that occurred near the end of the year. It could be a rough road ahead for Xunlei shareholders.

Four cubes linked together in a chain.

Image source: Getty Images.

So what

Xunlei’s first big drop of the year arrived after the National Internet Finance Association published skeptical comments about the Chinese company’s cryptocurrency projects on Jan. 12. The big valuation decline also corresponded with Xunlei’s presentation at the Las Vegas Consumer Electronics Show — indicating that investors may have been disappointed with the details of its LinkToken cryptocurrency and OneThing Cloud infrastructure.

News arrived in early February that two class action lawsuits had been filed against the company alleging deliberate misinformation about its cryptocurrency projects, prompting big share-price declines. Sales then saw substantial sell-offs in March on the heels of disappointing fourth-quarter results that arrived a day later than initially planned.

Xunlei started as a provider of torrent downloading services, and then moved into the streaming-video space, and has recently pivoted to focus on cloud services and blockchain technologies. The company’s cloud revenue has climbed substantially over the past year, helping to deliver a 118% year-over-year sales increase in its March-ended quarter. However, cloud revenue was up just 9.4% sequentially, and overall sales in the period were down 4% from the previous quarter, raising questions about the sales-growth outlook.

Now what

Xunlei is looking to bridge its cloud offerings into the U.S. market this year and expects to compete with in the space, according to CEO Chen Lei. However, with much of Xunlei’s valuation seemingly tied to the fate of LinkToken and the volatile nature of the cryptocurrency market, the stock remains a very high-risk investment. There’s limited visibility as to how its cloud, blockchain, and cryptocurrency businesses will fare, and I recommend that investors steer clear of the stock.

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5 New, Must-Read Quotes From Tesla CEO Elon Musk

Though Elon Musk, the CEO of electric-car company Tesla (NASDAQ: TSLA) , has been particularly outspoken on Twitter recently, the number of press interviews he has participated in has dropped significantly compared with past years. But Musk opened up to Bloomberg this week in a rare in-depth interview  for Bloomberg Businessweek ‘s cover story.

With the interview taking place during a time when Tesla is rapidly increasing production and deliveries but is also reporting record losses, it’s worth a read for Tesla investors. Here are five of the most telling quotes, including Musk’s plans to calm down on Twitter, how Model 3 production is faring, and more.

Tesla vehicles outside of the company's factory in Fremont, CA

Tesla’s Fremont, Calif., factory. Image source: author.

Calming down on Twitter

Musk is widely known for his frequent tweeting. But the CEO’s habit reached an all-time high recently. Indeed, Musk was averaging about 88 tweets per month leading up to May 2018, according to an analysis from Quartz of the executive’s tweeting habits over the past two years. But in May, Musk’s tweets, when including replies, exploded to nearly 400.

Worse yet, many of Musk’s recent tweets have centered on topics in which he was clearly irritated. The CEO lashed out at journalists, short sellers, and others. The outspoken Twitter usage even led a partner at one of the company’s largest shareholders to say he wished Musk would quiet down a bit. “We are very supportive, but we would like peace and execution at this stage,” said Baillie Gifford & Co. partner and portfolio manager James Anderson in an interview with Bloomberg. “It would be good to just concentrate on the core task.”

According to Musk’s interview with Bloomberg, the CEO agrees that his tweeting has got out of hand.

I have made the mistaken assumption — and I will attempt to be better at this — of thinking that because somebody is on Twitter and is attacking me that it is open season. That is my mistake. I will correct it.

The tweetstorms were probably tied to the CEO’s stress. “It’s been super hard,” Musk told Bloomberg.

Sustaining a Model 3 production rate of 5,000 units per week

Tesla recently achieved a production rate for its Model 3 of 5,000 units per week . Detractors have argued the higher production rate was the function of an unsustainable burst. But Musk seems determined to keep producing vehicles at elevated rates rate even if it’s a difficult road.

It’s still quite painful to produce 5,000 a week. But I think in a month, it will not be. It used to be hell to make 2,000 S’s and X’s in a week, and now it’s normal. In three months, I think 5,000 will feel normal.

Looking ahead

Over a week into Tesla’s third quarter, the CEO is bullish on how the electric-car maker is executing.

“I do feel good about the months to come,” Musk said. “I think the results will speak for themselves.” These are some bold words at a time when the CEO has told investors the company can go from record losses to profitability and positive cash flow  in both Q3 and Q4 of this year.

Tesla’s risk profile may improve after Model 3

Manufacturing is hard. And building vehicles is widely considered to be one of the most difficult forms of manufacturing. Indeed, the capital-intensive nature of the auto industry has long been considered incumbents’ greatest competitive advantage, as it is nearly impossible for new entrants to succeed over the long haul.

During the interview, Musk said several “bet-the-company situations” were required for Tesla to successfully become a mass-market auto manufacturer. These times, which Musk said were the launch of its Roadster (Tesla’s first vehicle), its Model S, and its Model 3, required raising lots of capital and featured dangerous levels of spending.

Fortunately for investors, the Model 3 is Tesla’s “last bet-the-company situation,” Musk said.

He continued:

It’s not like [I have] a desire to bet the company. There is not a choice. If somebody knows how to do it without betting the company, I would love to talk to that person. But I do not foresee future bet-the-company situations.

Halfway out of hell

Since Tesla first started delivering Model 3 vehicles last summer, the CEO has likened the vehicle’s production ramp to hell.

“Welcome to hell!” Musk said at the Model 3 event for the first deliveries last year.

Having to delay important Model 3 production targets several times, Model 3 production did prove to be tough for Tesla over the past year. But Musk now sees the light at the end of the tunnel.

“I feel like we have got like one foot in hell,” he said in the Bloomberg interview.

Overall, the interview spotlighted a CEO and company in the middle of a major transition.  Though Musk admitted times have been trying, he also seemed hopeful about both near- and long-term initiatives.

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Referenced Symbols: TSLA

Why World Wrestling Entertainment, Inc. Stock Soared 138.1% in the First Half of 2018

What happened

Shares of World Wrestling Entertainment (NYSE: WWE) gained a whopping 138.1% through the first six months of the year, according to data from S&P Global Market Intelligence .

WWE Chart

WWE data by YCharts

The sports-entertainment company’s share price climbed early in the year in anticipation that it would sign a new broadcast deal with a major network. The stock then saw explosive growth beginning in May, following indications that it would ink favorable new deals with Comcast (NASDAQ: CMCSA) and Twenty-First Century Fox (NASDAQ: FOX) (NASDAQ: FOXA) .

WWE wrestler Shinsuke Nakamura striking a celebratory pose at Royal Rumble 2018.

Image source: World Wrestling Entertainment.

So what

News from The Hollywood Reporter arrived in the middle of May suggesting that the WWE was in discussion with major networks for broadcast deals. The report indicated that Comcast’s NBCUniversal division was in talks to review its broadcast rights for Monday Night Raw in a deal would be worth roughly three times the previous contract,

The Hollywood Reporter piece also indicated that Comcast was not seeking to review its broadcast rights for SmackDown Live on its USA Network, opening up the program for bidding from other networks and with Fox emerging as an early favorite. The news quickly prompted the wrestling company’s share price to explode, with the stock climbing more than 30% in the week following the publication of the report on May 16.

Subsequent reports valued the five-year rights deal between WWE and Fox at roughly $1 billion. On June 26, the companies announced that they had signed a five-year deal to broadcast SmackDown Live on the Fox network on Friday nights weekly. The deal should give the WWE its largest major broadcast exposure ever and could create a catalyst for a substantial increase in the popularity of professional wrestling.

Now what

WWE stock has continued to climb in July , with pricing increases stemming from last month’s momentum and favorable ratings coverage and a price-target increase from a major firm.

WWE Chart

WWE data by YCharts

Morgan Stanley released a note on July 13, giving the WWE an “overweight” rating and raising its target on the stock from $58 to $100 — representing roughly 30% upside from the wrestling company’s valuation at the time of publication.

Cord-cutting trends and the rise of streaming media platforms such as Netflix , ‘s Prime, and Hulu have put a premium on already valuable live-sports broadcasts. The exact details of the deal with Fox have yet to be announced, but the Fox channel has a much wider reach than Comcast’s USA Network and, in theory, looks to be a much better venue for the program.

WWE expects that its core content revenue will have grown from roughly $235 million in 2018 to $462 million in 2021, and increased popularity for its broadcasts could also lead to a big increase in merchandise sales.

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New Roku Channel Subscription Helps Unbundle Cable Programming

Roku (NASDAQ: ROKU) is reportedly ready to make its streaming service more cable-like, which isn’t as bad as it sounds. Rather than having to download individual apps to see a particular channel like HBO Now or CBS All Access, viewers will be able to sign up for a video subscription service that will let them choose the channels they want and pay for it all in one place.

According to Variety , which first reported the development, the new Roku service is similar to how ‘s (NASDAQ: AMZN) successful Channels subscription video marketplace operates, where people can subscribe to a particular channel through their FireTV device.

While Roku’s current setup gives viewers access to a broad selection of channels, it’s a rather cumbersome process. First you need to download individual apps to access the channels, and when you’re watching programming on one channel and want to switch to another on a different channel, you have to close one app and launch another to do so. The new service brings it all together and manages the bundle of channels through one program guide.

Woman holding a PC looks at a wall of TV screens.

Image source: Getty Images.

Returning choice to viewers

While the service will be similar to Amazon’s, it’s actually a bigger challenge to the cable companies because it begins to really unbundle the TV-viewing experience. Viewers can pick and choose what programming they want to pay for. And because it is Roku that is doing this, it has the potential to really drive a wedge between the cable operators and those on the fence about cutting the cord.

Roku is the industry leader in streaming devices, with data from research firm Parks Associates estimating that Roku commands an industry-leading 37% of the market (Amazon is moving up quickly with 28%). Its ad-supported Roku Channel is one of the top 15 channels on Roku devices, and Roku-powered smart TVs now account for 25% of all smart TVs sold in the U.S. It added news from ABC, Cheddar, and others to the Roku Channel in April.

In short, for people cutting the cord to cable, or thinking about doing so, it is Roku that offers them the broadest selection of options on how to enhance their TV viewing experience. Making it more simple to consume subscription video more easily could help make the decision easier.

Cable TV has been successful because of its ease of use. There are multiple channels you can subscribe to and watch, and it’s all handled seamlessly within the service. The streaming services are cheaper, but navigation is clunky. Bringing together the ease of use of cable, with the price and benefits of streaming on-demand programming, and doing it through the most prevalent devices on the market, sounds like a winning combination.

The future of television

Already, advertisers are switching their marketing dollars away from cable — some $70 billion is spent on television advertising each year — but as U.S. consumers shift their viewing habits to streaming, the dollars will follow. Roku’s own advertising platform is benefiting from the switch, with revenues from ads and fees surpassing devices for the first time ever in the first quarter.

Cable is still able to reign supreme because it continues to attract the most eyeballs, but the field is changing, and Roku estimates that nearly half of its roughly 21 million active users have already cut the cord to cable, or were never tethered to it in the first place.

Right now, Amazon dominates the a la carte subscription medium with Amazon Channels reportedly delivering more than half of all a la carte subscription services. According to survey data from The Diffusion Group, the service drove 53% of all HBO subscriptions for people who don’t receive it from their cable provider, and it accounted for 70% of Starz direct-to-consumer subscribers and 72% of Showtime direct-to-consumer subscriptions.

Integrating the streamlined viewing package into the Roku Channel would make the most sense, and it would elevate the value of the service even further, helping make it a whole new profit center.

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What are ‘Greeks’

“Greeks” is a term used in the options market to describe the different dimensions of risk involved in taking a position. These variables are called Greeks because they are typically associated with Greek symbols. Each risk variable is a result of an imperfect assumption or relationship of the option with another underlying variable. Traders use different Greek values, such as delta, theta, and others, to assess options risk and manage option portfolios. 

Breaking Down the ‘Greeks’

Greeks encompass many variables. These include delta, theta, gamma, vega, and rho, among others. Each one of these variables/Greeks has a number associated with it, and that number tells traders something about how the option moves or the risk associated with that option. 

The number or value associated with a Greek changes over time. Therefore, sophisticated options traders may calculate these values daily to assess any changes which may affect their positions or outlook, or to check if their portfolio needs to be rebalanced.

Here are several of the main Greeks traders look at.


Delta represents the rate of change between the option’s price and a $1 change in the underlying asset’s price. In other words, the price sensitivity of the option relative to the underlying. Delta of a call option has a range between zero and one, while the delta of a put option has a range between zero and negative one. For example, assume an investor is long a call option with a delta of 0.50. Therefore, if the underlying stock increases by $1, the option’s price would theoretically increase by 50 cents.


Theta represents the rate of change between the option price and time, or time sensitivity. Theta indicates the amount an option’s price would decrease as the time to expiration decreases. For example, assume an investor is long an option with a theta of -0.50. The option’s price would decrease by 50 cents every day that passes, all else being equal. If three trading days pass, the option’s value would theoretically decrease by $1.50.


Gamma represents the rate of change between an option’s delta and the underlying asset’s price. This is called second-order price sensitivity. Gamma indicates the amount the delta would change given a $1 move in the underlying security. For example, assume an investor is long one call option on hypothetical stock XYZ. The call option has a delta of 0.50 and a gamma of 0.10. Therefore, if stock XYZ increases or decreases by $1, the call option’s delta would increase or decrease by 0.10.


Vega represents the rate of change between an option’s value and the underlying asset’s implied volatility. This is the option’s sensitivity to volatility. Vega indicates the amount an option’s price changes given a 1% change in implied volatility. For example, an option with a Vega of 0.10 indicates the option’s value is expected to change by 10 cents if the implied volatility changes by 1%.


Rho represents the rate of change between an option’s value and a 1% change in the interest rate. This measures sensitivity to the interest rate. For example, assume a call option has a rho of 0.05 and a price of $1.25. If interest rates rise by 1%, the value of the call option would increase to $1.30, all else being equal. The opposite is true for put options.

Other Greeks

Some other Greeks, with aren’t discussed as often, are lambda, epsilon, vomma, vera, speed, zomma, color, ultima.

Do You Have the Money to Keep Up With Homeownership? Most Americans Don't

Buying a home is a major financial milestone, but if it’s one you’re not ready for, you’re better off waiting on it. Unfortunately, countless owners jump to buy property without understanding the costs involved in maintaining their homes, and, as such, end up in trouble when things inevitably start to break down.

In fact, 72% of homeowners have delayed making property repairs due to a lack of money, according to data from Discover Personal Loans . Worse yet, 42% of homeowners have delayed important projects for over a year because of financial constraints.

If you’re thinking of buying a home, make sure you have the funds for not just a down payment, but also the eventual upkeep you’re bound to encounter. Otherwise, you may come to regret your decision altogether.

Man hammering in roof shingles


Are you financially prepared to buy a home?

There’s no single savings number that guarantees that you won’t hit a financial snag when buying a home. That’s because owning property comes with many costly unknowns, and if you catch a series of bad breaks, your finances could take a major hit.

Before you buy, you should make certain that in addition to your down payment and closing costs, you have a fully loaded emergency fund with six months’ worth of living expenses. This way, if an unplanned repair does creep up on you right away, you’ll have the money to pay for it without having to rack up costly credit card debt. At the same time, you won’t have to put off that work indefinitely, thereby running the risk that the situation worsens over time.

Incidentally, most current homeowners aren’t financially prepared for a property-related emergency. In the aforementioned study, 59% of homeowners admitted to not having enough money to cover a $5,000 home repair. But according to HomeAdvisor, major repairs can cost significantly more. Case in point: Replacing a central air conditioner can cost up to $10,000, while a new roof can run more than $12,000. Ouch.

Another thing to keep in mind about home repairs is that often, putting them off isn’t an option. Sure, you can wait to replace an inefficient water heater and suffer through lukewarm showers until it’s fixed, but when your roof fails or your furnace blows, waiting three months to save up the money for a repair really isn’t an option. And there lies the importance of going into homeownership with adequate savings, even if that means holding off on buying until you’re more financially stable.

Building your emergency savings

As stated above, a strong emergency fund is one with enough money to cover about six months of living costs. If you own a home and are missing that emergency fund, you’ll need to work on building one right away so that with any luck, you’ll be prepared the next time an unplanned repair sneaks up on you.

You can start by reviewing your budget and cutting non-essential costs. Canceling cable and giving up your gym membership might mean missing out on a few luxuries you’ve come to enjoy, but if that frees up $250 a month to put in savings, you’ll be that much closer to your goal.

Next, look at getting a side hustle . If you’re able to earn, say, $100 a week from that extra work, you’ll be sitting on a cool $5,200 after a year.

Finally, consider selling some items you have lying around but no longer need. If you unload some unused electronics and pocket $100, that’s better than nothing.

One more thing: While home repairs are often unpredictable, you can do your part to minimize them by keeping up with regular maintenance. A little time and, yes, money spent throughout the year could help you avoid a major catastrophe that would otherwise throw your finances for a major loop.

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Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Referenced Symbols: DFS

Why GoPro Inc.'s Shares Are Down 16.6% in 2018

What happened

Shares of action-camera maker GoPro Inc (NASDAQ: GPRO) are down 16.6% so far in 2018, according to data from S&P Global Market Intelligence , as the company faces continued challenges turning its business around.

So what

Financial results continue to look terrible, with revenue falling 38.1% in the fourth quarter of 2017 and 7.4% in the first quarter of 2018. Revenue, gross margin, and net income have all been trending in the wrong direction for GoPro over the past three years .

GPRO Revenue (TTM) Chart

GPRO Revenue (TTM) data by YCharts

What has to be concerning for investors is that GoPro’s options for growing the business seem to be dwindling as well. The Karma Drone was pulled off the market a little over a year after it launched, and the media business is gone as well. That leaves GoPro’s traditional action cameras and the nascent Fusion 360 camera for GoPro, which both have to be hits for the company to survive.

GoPro's Hero camera.

GoPro’s Hero camera. Image source: GoPro.

Now what

Until GoPro can prove its ability to expand beyond the traditional point-and-shoot action camera or increase sales to a volume that will make it profitable, this is a company in dire straits. Cameras are proliferating on smartphones, and competitors are building action cameras with equivalent, if not better, features. GoPro will continue to be a volatile stock as operations show signs of improvement or pull back, depending on the quarter. But long-term GoPro has to prove it can be more than a one-trick pony, and that’s where I have my doubts about this stock.

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EQUITY NOTICE: Rosen Law Firm Reminds Mercury Systems, Inc. Investors of Important Deadline in Class Action – MRCY

NEW YORK–()–Rosen Law Firm, a global investor rights law firm, reminds purchasers of the securities of Mercury Systems, Inc. (NASDAQ: MRCY) between October 24, 2017 and April 24, 2018, both dates inclusive (the “Class Period”) of the important September 10, 2018 lead plaintiff deadline in the class action. The lawsuit seeks to recover damages for Mercury investors under the federal securities laws.

To join the Mercury class action, go to or call Phillip Kim, Esq. or Zachary Halper, Esq. toll-free at 866-767-3653 or email or for information on the class action.


According to the lawsuit, throughout the Class Period defendants made false and/or misleading statements and/or failed to disclose that: (1) Mercury’s decision to in-source processing was adversely impacting Mercury’s operating margins and free cash-flow generation and conversion; (2) Mercury’s model was becoming structurally more working capital intensive; and (3) as a result of the foregoing, Mercury’s public statements were materially false and misleading at all relevant times. When the true details entered the market, the lawsuit claims that investors suffered damages.

A class action lawsuit has already been filed. If you wish to serve as lead plaintiff, you must move the Court no later than September 10, 2018. A lead plaintiff is a representative party acting on behalf of other class members in directing the litigation. If you wish to join the litigation, go to to join the class action. You may also contact Phillip Kim or Zachary Halper of Rosen Law Firm toll free at 866-767-3653 or via email at or

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Rosen Law Firm represents investors throughout the globe, concentrating its practice in securities class actions and shareholder derivative litigation. Rosen Law Firm was Ranked No. 1 by ISS Securities Class Action Services for number of securities class action settlements in 2017. The firm has been ranked in the top 3 each year since 2013. Attorney Advertising. Prior results do not guarantee a similar outcome.