Professional Guide to PayDay Loans

If the issuer does not default, which is, measured by historical standards, extremely unlikely for an A-rated company, an investor earns an incremental coupon income of 100 bp over a 1-year horizon. Conditional on the fact that the bond receives a downgrade to Baa during the course of the year, a price depreciation of 50 bp times the duration of the bond at the end of the year, that is approximately 3.5, would have to be expected. Since Baa-rated US corporate bonds on average traded at 150 bp over treasuries, 50 bp represents the spread widening that has to be expected as a consequence of the downgrade. Consequently the investor expects a negative excess return of 100 – 3.5x 50= -75 bp, if the rating is downgraded from A to Baa. Table 9.4 details the same computation for the other potential rating changes.

The following checklist provides a framework to ensure decisions help build a firm’s competitive strength.

Develop market awareness Developing a keen sense of market awareness requires keeping up-todate with what your competitors are doing, how they are perceived in the market, and why. Decisions should take the following into account according to the importance attached to each:

• pricing policies and product offers;
• brand reputation and recognition;
• customers’ perceptions;
• product quality;
• service levels;
• product portfolio;
• organisational factors such as size, economies of scale, type of employees, training, expenditure on product development and distribution channels;
• organisational culture;
• staff loyalty;
• promotional campaigns, timing, nature and channels used;
• customer loyalty;
• financial structure and performance and cash reserves.

Suppliers wield significant power if the item they provide is scarce or unique, or if there are only a few suppliers. They have considerable power to damage a competitive position. One response is to build close relations with important suppliers to secure delivery and control prices.

In the long term, the solution may be to move into the supplier’s industry to safeguard supplies.

The power of the customer is another source of competition. The issues that need consideration are how dependent the business is on individual customers, the ease with which customers can move to another supplier, the customer’s knowledge of the business’s competitors and the conditions (price, quality, overall offer) that are prevailing. The growth of the internet as a sales channel has empowered customers. In an increasingly networked, global marketplace, prices become transparent and it is much easier to discover when prices for the same thing are different in separate geographic markets. Price transparency became even more of a strategic issue for businesses in euro zone countries when they adopted a single currency.

All investments have emotionally trying elements. It is not possible for a human being to invest unemotionally.

Every investment involves adversarial relationships in whole or in part. This explains some of the stress. If you feel like it is an emotional battleground trying to make money investing, you are right; it is. Winning the battle financially can be just as draining as losing.

Adversarial relationships are built into most investment transactions. Stockbrokers, realtors, and insurance salespersons are not bad people out to rip you off. Most are honest and hard-working. However, their livelihood requires that they extract fees from you whether you are aware of this or not. Once you understand all the fees, both up-front and hidden, you can make a decision as to whether or not these fees are money well spent or exorbitant. Unfortunately, it is likely you are unaware of both the hidden fees and the adversarial relationship you have with investment professionals.

Hiring a personal money manager is not the way out either. Some charge hefty fees; require huge minimums; invest to preserve their fees instead of growing your portfolio; and spend a lot of time either on their own portfolio or trying to sell their money management business to a big mutual fund house for a killing, none of which benefits you.

There’s an old analogy about frogs and boiling water that I think applies to your individual struggle with debt. (Please, for the sake of the frogs, take my word for it and don’t try this at home.) The idea is that if you drop a frog in boiling water, it will immediately jump out. It senses it is in deep trouble and does what it needs to make a change for the better. However, if you put a frog in a pot of cool water and slowly raise the temperature, it’ll sit there until it becomes an appetizer.

Debt in America is no different. Thirty to forty years ago, cash was king. People buried it in the backyard in coffee cans and woke up with backaches because they stuffed their mattresses with it. Credit card debt, payday loans, and adjustable rate mortgages weren’t part of most people’s vocabulary.

Back then, if someone acquired too much debt, especially high-interest debt, they knew it was bad. They would be the talk of the neighborhood and would probably get a scolding from their family. There was an immediate incentive to change their financial behavior. They were like that frog dropped into a pot of boiling water.

Now, however, credit is everywhere. Not only have you likely been encouraged to use it by everyone from advertisers to financial experts, but you might actually feel scolded if you don’t! Young people are foolishly encouraged to build credit. Supposedly savvy investors borrow money to make more money. It’s everywhere.

If you grew up and learned the basics of personal finance in this environment, you were like that frog dropped in a nice comfortable pot of cool water. As the water “got hot” and your debts mounted, no one really acted that concerned. All the other frogs in the pot just sat there smiling right back at you. Eventually, your debts got too hot to handle, and here you are.