Countercyclical Capital Buffer (aka emergency fund)

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From the Wall Street Journal this week:

“Some Fed officials want to use one of the regulatory tools the central bank developed after the crisis, called a countercyclical capital buffer. It can require the U.S.’s largest banks to sock away additional capital during good times so they have more to fall back on when loans go bad during bad times, like socking oil away in the nation’s strategic petroleum reserve.”

This is something that everyone should do regardless of regulation. Not just banks. Not just companies. Everyone.

There are three faithful friends – an old wife, an old dog, and ready money.

-Benjamin Franklin

People do this already with predictable cycles. Many businesses and family budgets are use to seasonal variations. When a farm sells its crop in the fall, they do not go out and blow it all thinking that next month will be the same. It is a predictable annual cycle. Multi-year cycles are harder for people to plan for. Especially if it is of an unknown duration. It isn’t as tangible. It is like saving for retirement. Even if they know it is inevitable, it is a long way off and so it takes a back seat.

Continuing with the farm analogy, when you get a bumper crop, set some aside for a drought year. This is a best practice that takes discipline. The hard question isn’t if you should have a “countercyclical capital buffer”, it’s how big should it be?

read full article here (subscription required)

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Make money doing anything…

It seems like there are some businesses, industries or products that are more lucrative than others. However, I have seen examples time and again that you can be very financially successful doing almost anything, if you do it the right way. This is a mind expanding fact that helps you toss aside any preconceived notions as to where you must go or what you must do to be financially successful.

The most recent example? Selling fake Christmas trees online. $120M a year of them. As they say, “The grass is always greener not on the other side but where you water it” (apparently even if it is a fake tree)

Read the Forbes Article on Balsam Brands Here.

Timing the peak


“The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities – that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future – will eventually bring on pumpkins and mice. 

But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands.” 

– Warren Buffett, Berkshire Hathaway 2000 shareholder letter

Quote of the day

alen mulally

“Leadership is having a compelling vision, a comprehensive plan, relentless implementation, and talented people working together. People also want meaning. All of us want to know that we are doing great things, that we are touching a lot of people, and that what we are doing is something bigger than ourselves.”

-Alan Mulally

Life Truth #7

 

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Life Truth #7 – No matter how good things look on the outside there are things behind the scenes you can't see at first glance. Whether it is a trade show booth, a picture in a magazine, a perfect social media post or the person sitting next to you. All have loose wires, disorganization, are being held together with clips and all have baggage. This is where the real work lies. The messiness of life. Whether being an entrepreneur building a business or a person building a relationship. It's the things that are hard that are worth doing. So, get your hands dirty. . . #entrepreneur #lifelessons #kmn #humanity #people #life #lifelonglearner #hardwork #mess #behindthescenes #keithnielson #keithmnielson

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