December 22, 2014

Why Do Oil Prices Continue to Fall?

Those who drive their own cars surely must have noticed that the price of gas has gone down in the past few weeks. When I put gas in my car last week, the gas boy was happy to inform me that my timing was perfect because they had just rolled back prices that morning.

I am sure many consumers are happy with the reduced prices, but the question is why are prices falling and how long will this last?

Many people are quick to blame OPEC for the decline in prices. OPEC though is quick to deny that they are the direct reason. Although their refusal to cut their output in the face of excess supply is sure to have, at the very least, been the indirect reason.

Speculators point to political reasons why OPEC has refused to prop up the price of oil by limiting their output, and thus lowering supply. 

December 15, 2014

Dislike Button on Facebook Coming Soon?

Some recent news has Facebook founder Mark Zuckerberg discuss ways how Facebook is "thinking about" how to implement a way to dislike posts.

As a user, I think this sentiment is very consumer driven. Many of us share not just good news on our news feeds. And it has always been awkward to "like" a post wherein bad news is being shared. Facebook though has withheld implementing a dislike button for the possible negative connotation it can bring. Think about YouTube and how fanatical those who comment are on that platform. Does Facebook want to go down the same path and open up its users to more negativity on its platform? You can't blame them for being careful. Why mess with a good thing?

December 12, 2014

Uber has been valued at $40billion

Keeping in line with the theme of business valuation, the latest round of fund raising conducted by Uber has valued it at $40billion dollars.

Even when using either DCF or multiples method of valuation (or both), it is extremely difficult to put a finger on how such a massive figure has been placed on a company that is only 5 years old.

For one, it is almost impossible to use multiples given that Uber is a unique company. Who do you benchmark against?

December 8, 2014

Intrinsic vs Extrinsic Value

A recurring theme in our finance class this period is that of intrinsic vs extrinsic value. Intrinsic value is the value of the company from the eyes of insiders and includes the value of assets while extrinsic value is the value of the company from the point of view of outsiders and includes public perception.

It is particularly interesting concept, especially in the context of business valuation and the stock market. A lot of times, when valuing a business there are two schools of thought: using projections of future cash flows and using multiples. The first takes an intrinsic valuation approach while the second takes a extrinsic valuation approach.

The problem with the first method is that most casual observers do not have the capability or the resources to do it properly. The problem with the second method is that the stock market is volatile and extrinsic value as dictated by the market rarely matches a company's intrinsic value.

So where does this put us casual investors? I am not an expert, but in theory, it should be possible to use both methods hand in hand. Here are a few tips:
  1. Before investing in a company, review the basics financial statements like their balance sheet and income statement. Having a strong balance sheet and income statement is a good signal that the intrinsic value of the company is sound. What to look for? Aside from profit and income ratios, also take a look at the ratio of assets to liabilities.

December 3, 2014

Donating via Tweets

While browsing through the web, I stumbled upon this short feature by Fast Company on a new way to donate to charities.

It simplifies the act of donating by allowing people to donating in two steps. Just click on the link on the tweet or retweet, enter your credit card details and donation made! It looks to be particularly appealing to a younger demographic who will likely donate more impulsively but in smaller amounts (say $5-$10).