Herman Ye

With as many locations as Starbucks, and even more locations than Mcdonald's, you're never too far from a payday loan. Payday lenders are a staple of shady neighbourhood corners and rundown strip malls. You'll recognize one by the many "get money fast" signs plastered all over their windows. Storefronts are often bleak, rundown, and unwelcoming. As someone who've never step foot in one, they've always been a mystery to me.  Why do they exist? W hy are there so many of them? Payday Loans Payday loans are short-term loans offered by alternative lenders (non-banks). These loans usually range from $100 - $1,500. Loans last typically 1 - 4 weeks (depending on the borrower's pay schedule). Payday loans are due on your payday,  hence the name . They're designed for people can't access funds through traditional lenders, could be due to low credit scores, low assets, high debt, etc. Payday loans don't require a credit check or a depos...

The Time Value of Money (TVM) is the benefit of receiving money now over receiving the same amount later. A dollar today is worth more than a dollar tomorrow.  This is because of money's potential. It can be invested in the stock market, earn interest in a savings account or used to start a business. The earlier you have money, the earlier you can take advantage of this potential. TVM Formula The TVM formula is a great tool to demonstrate this concept. Below are the variables behind TVM. FV = future value PV = present value r = rate of return n = # of compounding periods per year t = # of years The formula can be used to calculate  future value : FV = PV x [ 1 + (r / n) ] ^ (n x t) This formula can also be re-arranged to calculate  present value : PV = FV/[ 1 + (r / n) ] ^ (n x t) The TVM formula can be rearranged to calculate any of the above variables, but today we'll focus on present and future value. Let's take a l...

If you've procrastinated on investing and is now sitting on a big pile of cash, getting started can be pretty intimidating. What if the market tanks right after I invest all my money?  This is completely possible. If you invested in the S&P 500 in October 2007, at the peak price of $1,900 ( right before the financial crisis ), in less than 2 years, your investment would've collapsed to $900. Yikes. So what if I don't want to go all in?  Dollar-Cost Averaging (DCA) is a popular alternative to Lump-Sum investing. DCA is investing fixed amounts over a period of time. If you had $12,000, instead of investing all at once, you could invest $1,000 per month over the year. With DCA, you reduce the impact of dramatic declines. If the market crashes, you luckily only invested a small portion when the market was high, with money leftover to invest when the market is low. DCA allows you to buy less shares when markets are expensive and buy more when markets are che...

Last week, we talked about how ETFs are not breaking the market. Today, let's take a step back and discuss some ETF basics, like the players involved, how they're created and how pricing works. But first, what exactly is an ETF?

As passive investing becomes more popular, there's growing concern around indexing and its impact on the integrity of the stock market. Michael Burry, portrayed by Christian Bale in  The Big Short   for famously predicting the 2008 collapse , went as far as calling it a " bubble ". “This is very much like the bubble in synthetic asset-backed CDOs before the Great Financial Crisis in that price-setting in that market was not done by fundamental security-level analysis, but by massive capital flows based on Nobel-approved models of risk that proved to be untrue.” - Michael Burry These concerns stem from indexing's lack of price discovery. Unlike active trading which involves analysis, passive investing simply buys stocks relative to their size in an index. Trading sets prices, each trade is a vote for a stock's value. Critics fear that passively investing based on relative size will drive up the price of larger stocks and suppress the price of smaller stoc...

Today we get back to basics and answer some of the most common questions about the stock market.

In a 1991 study , researchers randomly divided Cornell University students into two groups. One were gifted mugs, the other received nothing. The fortunate group were asked how much they're willing to sell the mug for. The mug-less were asked how much they were willing to pay. The owners were unwilling to sell for anything less than $5.25 . The buyers on the other hand, were unwilling to pay more than $2.75 . The seller's expectation was almost twice the buyer's market. This is a classic example of the endowment effect , the tendency for us to irrationally overvalue items we own. A 2000 study  demonstrated an even greater expression of the endowment effect. Duke University conducts a lottery for basketball tickets before critical games, as demand greatly exceeds supply . After one of these lotteries, researches called up a random group of winners and losers to ask about selling and buying prices respectively.   Sellers on average expected over $2,400...

Hendrik Bessembinder , finance professor from Arizona State University studied stock returns from 1926 - 2016, looking at all public companies listed on the NYSE, AMEX, and NASDAQ. He found that most stocks are weak investments. Many not even strong enough to put up a fight against  Treasury bills . Stocks as a whole have generated tremendous wealth. The total US stock market is worth over $ 30   Trillion . However, Bessembinder discovered most stocks don't contribute much. Most are under-performers that piggyback of the performance of a few key players ( like group projects in school ). Just 4% of companies account for all stock market returns. While the remaining 96% failed to have much of an impact, their gains and losses washing each other out. Approximately 25,300 companies were studied and a small number of top performers account for a   disproportionate percentage of the market's return. # of Top Performing Companies % of Market Return 5 ...

Despite what your parents tell you, a house is not an investment. It's a depreciating asset. A house, like any physical asset lose value over time. They age and wear down. To slow down the depreciation, you need to constantly throw money at it for maintenance. This is simply to maintain the value, not to increase it. Houses without maintenance is like an unrefrigerated milk, it goes bad fast . Take a look at any abandoned home. After only a few months you see damaged roofs, clogged gutters, cracked windows, and probably some unwelcomed furry tenants. Maintenance can be pricey. A conservative rule-of-thumb is 1% of your home's value annually. So if your home is valued at $500K, you should budget $5K a year for maintenance. Obviously this is a ballpark figure and should be taken with a grain of salt. Your cost will vary depending on a number of factors such as home age, weather conditions, etc. You've heard the stories from friends and family, homes doubling in val...

If you've ever sat down with a big bank " financial advisor " to discuss funds, you might've been amazed by the market-beating returns they advertised. Look at all those gains? Take my money! Before you go all in, you should ask yourself: Is this too good to be true?  What about all the research showing how most active funds fail to beat their benchmark?  Market data has repeatedly shown that an overwhelming majority (< 80%) of active managers fail to beat their benchmark over an extended time period. So why do these funds look so good? The answer is survivorship bias . Survivorship bias is looking only at winners (and ignoring the losers) to formulate your opinion. This leads to an incredibly inflated view of reality. When funds perform poorly, they fall out of favour. They struggle to attract capital and eventually shut down. When these funds vanish so do their performance record. What remains are the strong performers with the attractive (i.e. m...