Incentives

This is a less serious video this week.

It’s about incentives.

I tell a story about a friend who has a $75,000 a year meal & entertainment budget, but the negative incentives put upon him by his accounting department have some unintended consequences.

In evaluating an investment, public or private, be sure you think about the managers, organizers, and CEOs to ensure their goals are aligned with yours and with the right supportive incentives.

Take 2.5 minutes to watch/listen to my video

 

TRANSCRIPT:

Hi Clients and Friends, Mike Brady here. I just got done with the detailed video of “Vix” (Volatility Indexes) from last week, and if you haven’t seen it, go ahead and click on my archives and watch last week’s video, kind of a more technical, showing more graphs on Vix, which is volatility indexes.

I just have a funny story that I wanted to share, I just wanted to share it with you because I think it is funny. It’s about incentives. I’ve got a buddy who is a salesman for a company and we go out for a beer. And he has two beers and I have two beers over a couple of hours and ready to pay the bill and he’s like “no Mike, let me take the bill.” And I’m like, “Oh, OK.” He’s like, “Mike order some food, take it home for your wife!” I’m like, “I’m not going to take any food home for…, you know, I don’t need to take advantage of you like that.”

He’s like “No, no, no Mike, you don’t understand. I have a $75,000.00, a year meal and entertainment budget. And if I submit this bill with our beers on there without food, I’m not going to get reimbursed.” I’m like, “OK.” He’s like, “…so order food for yourself, order food for your wife because if you don’t do it, I’m going to have to order, I’m going to have to pick a table here and buy the people food.” I’m like, “OK, wow, I can’t believe that.” I order some food.

And he’s like, “yeah.” He goes “Next they’re going to start looking at the ratio of food to alcohol to insure that it is the right ratio.” And I’m like, “wow, that seems extreme.” He’s like “and Mike, if I don’t spend the entire $75,000.00, a year, they’re going to take it off my, the difference between what I spend and what I have to spend, they’re going to take it out of my bonus.” He goes, “so here I am, all I want to do is spend $10 or $12 on a few beers with a buddy, and instead I’m forced to spend $30, $40, $50 just so I can get reimbursed!” He goes, “What kind of an incentive is that?”

And so, I think that is a really interesting, disturbing, but interesting story about making sure you have the right incentives. And from an investment point of view, of course, it is make sure that the people who are either proposing a project, or working in the project, or managing the project, whatever it might be, the investment, whether it is private investment or public investment, doesn’t matter, make sure that their incentives are aligned with the positive outcome that you want- both for the project and, of course, for your particular investment.

Anyway, I was just thinking about that and wanted to share it with you. And so that’s this week’s video. You have a wonderful week.

I’m a registered representative with Cambridge Investment Research. My company is Generosity, let’s see if I can get out here, Generosity Wealth Management in Boulder, CO. 303.747.6455. A little bit lighter video for this week but I’ll try to get something more technical next week. You have a wonderful, wonderful time, bye bye.

Generosity Wealth Management in Boulder, CO

 

S&P Downgrades Japan from AA to AA-

S&P Downgrades Japan from AA to AA-

Japan has been in a continued recession for the past 20 years.

The deficit levels of the Japan government are among the highest of the developed countries, and expected to increase in the coming years.

This is not good news for Japan. As the rating decreases, the extra premium paid to borrow money goes up. So, a 3% cost of borrow might increase to 4%.

Anyway, this is something to watch as the United States deficit to GDP is increasing rapidly.

CLICK FOR FULL ARTICLE – S&P DOWNGRADES JAPAN FROM AA TO AA-

Just When You Thought the Euro Was Out

Just When You Thought the Euro Was Out

You’ve been reading my newsletters and saying “boy, that Mike Brady knows everything”. That may be true, but it’s good to remember the markets have a mind of their own.

The Euro has rallied against other currencies recently.

Do I think this is a short term rally? Yes. Do I think the Euro and Europe in general still have long term problems? Yes.

CLICK FOR FULL ARTICLE – JUST WHEN YOU THOUGHT THE EURO WAS OUT

World Inequality

World Inequality

The poorest 5% in the United States are richer than 70% of the rest of the world.

The poorest 5% in the United States are richer than the richest 5% in India.

What conclusions do we draw from this? I suppose it depends on your view of the world. My liberal and conservative clients are going to draw different ones, so I guess I’ll sidestep the whole question.

I know I’m a wimp.

 CLICK FOR FULL ARTICLE – WORLD INEQUALITY

Food You Can Make in a Coffee Maker

Food You Can Make in a Coffee Maker

I try to make my newsletters useful to you, so what better public service can I provide than 10 foods you can make in a coffee maker.

I know we’ve all been in the situation where there’s no skillet or oven around, you’re hungry, and there sits the coffee maker.

Luckily, I’ve got your back. I gave you an article and you’re prepared.