The fractal nature of asset-liability matching

What type of asset-liability matching am I talking about Asset-liability matching means different things to different people, even when you think you’re dealing with a specific situation and therefore talking about the same thing. Painting with broad strokes, there’s asset-liability matching (ALM) when managing a pension fund, an insurance business, or a corporation’s balance sheet. …

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Time-weighted vs. money-weighted return

For money managers (and for our personal investments), rate of return is the most important number that is expressed in percentage terms. But how do we calculate it? Do we use the simple and intuitive total rate of return formula? Not so fast… A distinction without a difference In the absence of intraperiod external cash flows, …

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What’s the expected return on buybacks (a theoretical view)

Realized return of buybacks When we think about returns on buyback programs, we normally look back and estimate the realized return of holding the company’s stock. For example, company X has the following characteristics: Stock price (beginning of period) → Pb=$100 Stock price (end of period) → Pe=$150 Dividends → D=$10 Buybacks: 1 share repurchased …

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How to think about swaps

Swaps is one of those topics that is perceived to be basic, easy, and intuitive. But not really. We study them briefly in business school and in the CFA curriculum, but that happens in a vacuum. We cannot see the thing*. Later on in life, we find ourselves in meetings with financial advisors discussing swaps. …

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This website

As of January 2022, this site is set up and maintained with a few tools. hardware and apps I use a MacBook Pro (14-inch, 2021) with the Apple M1 Pro chip and 16 gigs of RAM. It’s connected to a 34-inch curved monitor, an Apple Magic Keyboard (with keypad), and a Microsoft Surface Precision mouse. Everything is silver(ish) …

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How to think about minimum cash balance

Over the years, I’ve asked this question to my banker friends: “what’s our minimum cash balance?” The topic would come up from time to time, but not very often because in the high margin industries of biopharma and high tech, there’s always been ample cash lying around. Unsatisfactory answers The responses I received were typically …

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How is VWAP calculated?

When equity brokers pitch their share repurchase capabilities to corporations, they never fail to mention their ability to outperform VWAP. When asked how they outperform so consistently, the answers tend to be non-answers: “we have proprietary algorithms” “our traders are top notch” “we can see the flow”. They forget to mention that in many cases …

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Yield vs. Return, what’s the difference?

Many times we use the terms return and yield interchangeably, and that may be because both concepts describe investment performance. But they are not the same. The difference is this simple: return is backward-looking, yield is forward-looking. Return Return is a measure of earnings and gains/losses achieved on an investment over a time period in …

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