In March 2018, the U.S. Supreme Court voted to strike down the 1992 Professional and Amateur Sports Protection Act (PAPSA), ending the federal ban on sports betting in every state except Nevada. This allowed states to decide if they wanted to legalize sports gambling. Today, 38 states, Washington D.C., and Puerto Rico have done so.

For many years, the major sports leagues’ concerns with gambling were primarily to do with the integrity of their product. The leagues felt that allowing gambling could compromise their sports and pose as a destructive force. Eventually, they began to realize that gambling could actually increases interest and revenue tremendously. In the 2010’s, the league’s began to change their tune by investing in casinos and gambling companies, putting teams in Las Vegas, and joining the push to end PAPSA. The league’s and the government realized legal gambling would create jobs, generate tax revenue, and lower the rate of crime involved with illegal gambling.

Now that we are five years since legalization, we can look at how sports betting impacted the U.S. economy. According to the American Gaming Association, The legal U.S. sports betting market generated$7.56 billion of total revenue in 2022, an increase of about 75% from 2021. Americans legally wagered $93.73 billion, compared to $57.53 billion in 2021. New York accounted for $1.37 billion of the national revenue total, as their launch of online sports betting in January 2022 saw it become the largest legal sports betting market in the country by a long shot. New York imposes a 51% state tax on gross gaming revenue. Tax rates vary across states, but in 2022, 27 of those states combined for $1.5 billion tax revenue from sports betting.

It’s not just the tax revenue that has positively impacted the economy. According to a report published this May by IBISworld, there are more than 24,000 businesses employing over 200,000 workers related to sports betting. The leagues are also making more money, not just from partnering with the sportsbooks and casinos, but also selling their data to technology companies that work with the casinos, as well as increased viewership and interest. Specifically, the NFL has increased viewership every year since 2018.

Another interesting financial aspect about gambling is that even when the Casinos are on a losing end of a wager, tax is still being paid. If you, as a gambler, made more than $600 for the year, you have to pay income tax on that. What this means is that nearly every wager placed, whether won or lost by the casinos, generates tax revenue.

It’s no secret that gambling has supplied a boost to the U.S. economy in the form of tax revenue, job creation, and consumer spending. However, everything comes with a cost. Gambling addiction has been on the rise each year since legalization. The lack of regulation in the beginning allowed for extremally predatory and misleading ads that lured in people to start betting with promotions described as “risk-free bets” when in fact, you had to risk money in order to get credits that were in the form of bonus bets. While there is very limited data on this subject because it is all so new and hard to quantify, there are probably plenty of people that would never have placed a sports bet prior to 2018 who now have an addiction. It will be interesting to see how regulation evolves over the years and whether or not the monetary gains for the economy are worth the social costs.

Over the past few years, we have experienced a period of high inflation, leading to a rise in interest rates. Although it my sound complicated, having a basic understanding of how they relate to you and your business can help you make more informative decisions, when it comes to borrowing, hiring, spending, expanding, and much more.

The most common challenge small business owners face is the cost and quality of labor, which are directly impacted by inflation. After the pandemic, the labor market began to tighten, meaning that the number of available jobs increased more rapidly than the amount of available workers. When this happens, workers are able to demand higher wages because there is little competition for job openings.

Imagine you are a business owner needing to hire someone. When interest rates are low and the labor market is tight, you may start looking for a candidate and find that there are not many applicants to choose from. Let’s say you finally find someone with just enough qualifications, however, they are demanding a wage of $22/hour which is more than you have offered for a similar position in the past. Due to the lack of applicants, you decide to make the hire anyway. In order to pay your new employee, you go and borrow money from the bank until your sales are able to catch up with the new cost. The bank offers you a loan and charges a 3% interest rate. Now that you have an employee with a higher wage and a loan to pay back, you decide to raise your prices a bit. Inflation.

In order to combat inflation, the Federal Reserve raises interest rates. By doing so, they are essentially trying to slow down the economy by discouraging borrowing, and loosening the labor market, which would lead to a slow down in rising prices.

Let’s go back to your business. A year goes by and you want to hire more employees to keep expanding your business. The labor market has only gotten tighter, but the Fed has begun to raise interest rates. The new candidates are demanding a wage of $25/hour, so you go back to your bank and ask for a bigger loan. But now the bank is charging an 8% interest rate. You figure that it would be too costly between the higher wages and the interest, so you decide to hold off until the interest rates go back down.

Instead of borrowing more money, hiring more people, and selling more product, you are choosing to wait, which is what the Fed’s goal is when they decided to raise interest rates. Other business owner’s facing the same predicament as you also choose to hold off on borrowing and hiring. As less businesses create job openings, the labor market begins to loosen. With fewer openings, more people become unemployed for longer; the competition in the labor market increases.

The person you hired for $22/hour is not panning out, so you decide to replace them. You’re pleased to find that there are plenty of eager applicants and they are only demanding $19/hour. Since your labor cost just got lower, you want to gain an edge on your competition so you decide lower your prices back down. More and more businesses like yours cut their labor costs and lower their prices, while the interest rates are high. Inflation defeated.

Eventually the Fed is happy with the decrease in prices, and can gradually begin to lower their rates. Allowing you to reconsider borrowing money, hiring more people, and selling more product.

Back to reality. Interest rates are still high and the Fed is debating whether or not to raise them even more, as the labor market is still tight. However, It is likely that they will begin to lower them at some point next year.

As you navigate your business over the next couple of years, you’ll want to keep all of this in mind. By understanding economic factors like interest rates, and inflation, make better decisions for your business. It is important to pay attention to what the Fed is planning to do with interest rates in the near future, as you will understand how this will affect your cost of borrowing and labor. If you are planning to borrow money, you may want to consider whether or not you can hold off until interest rates ease up.

Taylor Swift is perhaps the most popular music artist on the planet. However, her rise to stardom was not faced without many legal battles over her music right’s that will have a lasting impact on the industry as a whole. From her early years as a budding country singer to her evolution into a global pop superstar, Swift’s career has been marked by legal disputes and a relentless pursuit of creative freedom.

In 2019, Swift faced significant copyright challenges when her former record label, Big Machine Label Group, was acquired by Scooter Braun’s company, Ithaca Holdings. The acquisition included the rights to Swift’s early master recordings, a move that Swift vehemently opposed. This sparked a highly publicized feud, with Swift publicly accusing Braun of bullying and attempting to control her artistry. Swift eventually announced her decision to re-record her early albums, reclaiming ownership and control over her music.

The legality of Swift’s decision to re-record her music lies in her rights as the songwriter and copyright holder of the underlying compositions. While the melodies and lyrics of her songs are protected by copyright, the sound recordings themselves have a separate copyright owned by the record label.

Swift is fully within her rights to re-record her songs as long as she does not infringe on the rights of the original sound recordings owned by Big Machine Label Group and Ithaca Holdings. By creating new recordings, she can and has already been releasing them independently or through her new record deal with Republic Records, thus retaining ownership and control over her music.

Re-recording her music not only allows Swift to regain control but also serves as a strategic move to assert her artistic autonomy and reclaim her narrative within the music industry. It enables her to make a statement about the importance of artists having ownership and control over their own work, and it provides her with the opportunity to connect with her fans through fresh versions of her beloved songs.

Swift has further emphasized her desire for artistic control by partnering with Republic Records and establishing her own production company, Taylor Swift Productions. This strategic move has allowed her to have a greater say in the creative direction of her music and maintain ownership over her master recordings. Swift’s determination to be in the driver’s seat of her own career has become a symbol of empowerment for artists in an industry often criticized for its exploitative practices.

Taylor Swift’s copyright conundrum and battle for artistic control have had a profound impact on the music industry. Her high-profile disputes have sparked important conversations about the rights of artists, fair compensation in the digital age, and the importance of creative autonomy. By taking a stand and advocating for herself, Swift has become a voice for artists who often find themselves at the mercy of powerful industry forces. Swift’s actions have also prompted changes within the music industry itself. Her decision to re-record her early albums not only allows her to regain control over her music but also serves as a bold statement against the traditional power structures that artists have long struggled against.

Copyright battle’s aside, Swift has also been atop headlines to do her ticket sales. Ticket scalping and resale have been ongoing concerns in the music industry, and Swift’s concerts have not been immune to these practices. Despite efforts to prevent scalping, tickets for her shows have appeared on secondary markets at inflated prices, often to the disappointment of fans who were unable to secure tickets during the initial sale. This has sparked frustration and allegations of unfairness, as scalpers profit from the high demand for Swift’s concerts.

To address these issues, Swift has taken steps to combat ticket scalping and improve the ticket purchasing experience for her fans. She has partnered with ticketing platforms that implement various anti-scalping measures, such as dynamic pricing, ticket limits per customer, and verified fan programs. Additionally, she has advocated for legislative changes to address ticket scalping and protect fans from inflated prices.

Her influence has prompted other musicians to re-evaluate their contracts and seek more equitable agreements with record labels and streaming platforms. As she continues to push boundaries and challenge the status quo, Taylor Swift remains a formidable force in the pursuit of artistic control and fairness within the music industry. Personally, her music is not my cup of tea but it’s safe to say that Taylor Swift’s prowess, business moves, and advocacy will have a lasting impact on the music industry.

As I grind through my job, I often wonder how I could possibly make more money than my parents. After all, my parents made more money than their parents, who made more money than their parents.

Being the typical millennial I am, as I scroll through social media, I see plenty of memes and jokes about “boomers” telling their millennial children, that ‘at their age, they were able to afford a house and feed an entire family, all while saving for retirement.’ There is indeed actual data outside of memes that support this notion. So, it’s not just me, but millennials, on average, are less wealthy than their parents at the same stage in life, despite making more money and being more educated. Why?

There are a multitude of factors we can point to, and it’s not because millennials are dumb or lazy (okay some us are but not more so than other generations). Socioeconomic factors like cost of living, economic growth, and overall views on saving money are the real culprits for millennials finding themselves at a financial disadvantage compared to their parents.

Let’s start by taking a look at the cost of living. It costs way more to live as an adult now, that it did 30-50 years ago. Just think about all of the little things you need* to spend on that your parents and grandparents did not. Internet, cable, Wi-Fi, email, and most other tech-related “utilities”, that are so common now, did not exist as little as 25 years ago. In addition, many items that did exist have drastically increased in price, outpacing wages. Increases in college tuition, housing, healthcare, and child care have out paced wages. Simply put, it costs way more to live in this current society and wages have not compensated to the same extent.

Another huge factor is the differences in generation population and corresponding economic growth. Boomers are typically the children of the traditionalist/silent generation, those people born between 1928-1945. The traditionalist generation was one that grew up on the heels of the Great Depression and WWII, causing their parents to have less children, yielding a smaller demographic compared to other generations. Boomers get their name because their parents had far more children due to changing mindsets about war and family than their grandparents, thus leading to the “Baby Boom” in the 50s and 60s. Naturally, with more boomers entering a growing workforce, job opportunities were plentiful as they came of age because there were way more of them in a growing economy fill than there were incumbents to block them from filling such roles.

While boomers had more children, on average, than Millennials do now, they still did not have as many as their own parents. This would create less opportunities for millennials in the workforce to replace the boomer incumbents in higher paying jobs, not just because there were less of them to replace their predecessors, but also because the economy came to screeching halt in both 2008 and 2020.

Millennials came of age during The Great Recession of 2008, thus the economy ceased to create the same level of opportunities to out earn their parents. Prior to the financial collapse of 2008, many people were able to buy a house and reasonably expect that property to appreciate significantly over the course of their ownership. Once the housing market collapsed, this was no longer true for millennials, leading to far less of them becoming home owners than their parents were at the same age.

On top of these major factors, millennials have a much different mindset than their parents and grandparents when it comes to saving money. Boomers and their parents were taught to earn and save for retirement, climb corporate ladders, own a home and have children. Millennials on the other hand, are much more influenced by social media to spend, have more of a work life balance, travel, and delay having children. There fore millennials spend way more of their paychecks than their parents did at their age, leading to less investments in their retirement.

The point of all this is not to complain or blame the generations before us, but to understand the financial position we’re in so we can all prepare for our future. It is not impossible to get a mortgage and buy a house as a millennial, our parents faced very high interest rates as well. You can still travel and delay having children thanks to advances in medicine and fertility treatment. There are ways to budget for this and still save, so it is important to think about your retirement and how much you are actually spending, and focus on how you can adjust your budget to accomplish your desired lifestyle to a reasonable degree while also putting some money away for retirement.

While our parents were taught and conditioned to work and save, work and save, work and save, it is OKAY that our generation prefers to actually try and enjoy life to some degree while also trying to make a living wage. Just as every generation before us had jobs that did not exist when they were children, so do millennials and we will keep finding jobs tomorrow that do not exist today. Take me for example.

(Full disclosure: I am a white male raised by an upper-middle class family, so I do recognize that the odds are stacked in my favor, but I think my experience is still valuable.)

I graduated with a bachelor’s degree in finance, and went on to work traditional 9-5 jobs for big companies in my first few years out of college. During the pandemic, and more so the shift to a more virtual workforce, I found that I had a greater opportunity to offer my skills and services by freelancing. This allows me to serve multiple clients, and customize my workload to some degree. I am not relying on a single employer to fund my life, and I can adjust my work and amount of clients to fit my desired work/life balance. I find that an increasing amount of my peers are choosing a similar route, especially those who work in marketing, advertising, PR, and graphic design industries.

So if you are a millennial (or older Gen Zer) concerned with your future retirement and earning potential, the best thing you can do is strategically consider how you can leverage you’re knowledge, education and skills, in way that may be a tad less “traditional”, but one that can allow you to work in an environment that is more suited for your lifestyle and spending habits.

On Sunday, The Federal Deposit Insurance Corporation (FDIC) took control of Silicon Valley Bank (SVB), following bank’s historic collapse on Friday. This marks the 2nd largest bank collapse in U.S. history. Not long after, Signature Bank collapsed as well, making it the 3rd largest in U.S. history.

How did SVB Collapse?

SVB became one of the largest tech lenders in the nation, an industry that saw a massive boom since 2020, but has since regressed. Many venture capitalist firms and tech companies had been putting in massive amounts of deposits over the last few years. Just like any other business banks try to make money, and they do this by taking (some) of the money deposited with them, and generating a higher yield through lending and other investments.

In order to generate profit, SVB invested a large portion of their capital into bonds. Bonds are debt-securities, and are typically considered less risky compared to equity securities. Bond investors receive interest payments until the bond matures, when the principal of the bond is paid back. Typically, the interest payments are tied to the current interest rates.

Just like publicly traded stocks, bonds can be bought and sold on the open market. Therefore, when interest rates rise, the market price of bonds declines. Think about it… if I have a bond that pays a 4% interest rate, and someone can easily go and get a new bond at the current higher rate of, let’s say 6%, the market value of my bond will go down because it does not pay as much as the higher rate bonds available on the market.

In order to combat rising inflation, the Fed has been continuously raising interest rates, which lowered the value of the bonds SVB was invested in. Seeing the value of their investments plummet, SVB began to sell them at a huge loss in order to improve its liquidity and shore up its balance sheet, but instead it scared some of its larger investors and depositors, leading to a huge demand of withdrawals that the bank could not afford to pay back.

What Is The Government Doing?

The Biden Administration told the public that SVB depositors will receive all of their funds.

But how?

They are using FDIC funds, which is essentially an insurance program that banks pay in to cover accounts up to $250,000. Additional funds are being made available under the new Bank Term Funding Program (BFTB) which offers very low interest, short-term loans to banks. This allows the government to ensure depositors receive their money until the Fed can sell off SVB’s assets.

Is This a Bailout?

No. SVB is done. Out of business. All of their management has been fired. Investors in the bank’s stock or SOL as it is now worthless. According to the plan laid out by the Biden administration, they are not using taxpayer money to keep the bank in business, but instead keep public faith in the US banking system, and to ensure the deposit holders, and most importantly those small businesses who need their money to make payroll are made whole.

Why Didn’t Regulators Prevent This?

After the 2008 Financial Crisis, The Obama administration passed the Dodd-Frank act which enacted strict regulation in the banking industry. However, in 2018, the Trump Administration eased some of those regulations, most importantly the barometer of which banks would fall under this tight regulation. Under Dodd-Frank banks with assets under management of $50 billion or more were considered systematically important, but that was raised to $250 Billion in 2018. SVB had roughly $200 Billion in AUM, making it the country’s 16th largest bank.

Would the tighter regulation have prevented this? It’s hard to say for certain right now, before all the dust has settled, but one aspect of the act’s regulation was a stress test for banks in scenario’s where interest rates raise dramatically.

What Happens Now?

Hopefully, the actions taken by the government will ease concerns and prevent a ripple effect of depositors across the country withdrawing all of their funds from regional banks, which would be very very bad. But as for now, will have to wait and see. Biden has already asked congress to act quickly and pass a bill to enforce tighter regulation going forward.

Inflation. Ever heard of it?

Well, if you’ve put on the news in the last 6 months I’m sure you have, as the US is continuously fighting rising inflation which is largely due in part to the lingering effects of the pandemic.

But let’s take a trip back to the Global Financial Crisis of 2008. Shortly after the US housing bubble burst, the entire world experienced the largest financial recission of all-time and the biggest crisis since the Great Depression. Even though it was caused by the US, the effects were felt around the world…hence why it is referred to as the global financial crisis. Duh.

Different countries respond to economic problems in different ways, especially if they are run by a corrupt regime. One of those countries, Zimbabwe, ended up causing their citizens to experience hyper-inflation. If you think the current inflation rate of roughly 6% is bad, in 2008 Zimbabwe’s peak month of inflation was estimated at 79.6 BILLION percent month-on-month, and 89.7 SEXTILLION percent year-on-year in mid-November 2008. In case you’re wondering how much one sextillion is, it’s a 1 followed by 27 zeroes… or in other words one billion trillion.

In the U.S., the Federal Reserve tries to maintain a “healthy” inflation rate of around 2%. When inflation surpasses 2%, as it does today, it is considered high. Hyperinflation is an extreme case of inflation, to say the least. This occurs when prices have risen by more than 50% per month. Safe to say they should have invented a new word for what Zimbabwe was experiencing, they had the 50% covered by about 79.1 Billion%.

Imagine you always buy the same items at the grocery store. If the economy were experiencing a rising inflation rate of 5% per day, your grocery bill might rise from $500 per week to $675 the next week, to $911 per week the following week, and so on. In Zimbabwe people literally had to carry money in barrels just to pay for items, which eventually led to the creation of the One Hundred Trillion Dollar Bill, the largest denomination for a bank note in the history of the world.

How could inflation like this possibly have occurred? The corrupt government of Zimbabwe couldn’t afford to pay their debts, let alone the paper they were printing these dollars with, so they just kept printing more money. Parlayed with their struggling economy, and failure to do trade with other countries, their inflation quickly spun out of control resulting in this absurd hyper-inflation and need for larger bank notes.

As a result, Zimbabwe reverted to allowing the use of the US Dollar and South African Rand as acceptable currencies in their country which eventually led to stabilization, and in turn, completely abandoning the ZWD.

But now that the infamous mega bills are obsolete and becoming a rare novelty, they are being bought for upwards of $250 on sites like eBay by collectors.

On August 16, 2022, The Inflation Reduction Act of 2022 (IRA) was signed into law. The IRA was created to direct new federal spending toward reducing carbon emissions, lowering healthcare costs, funding the Internal Revenue Service, and improving taxpayer compliance, all in an effort to help curb the rising inflation.

However, the House GOP is sending a message by passing a partisan bill yesterday (that WON’T make it through the Senate) that would cut that IRS funding.

So, what does this all mean?

Why is inflation so high? What is the purpose of the new IRS funding from the IRA? What message is the GOP sending by passing this bill?

Why Inflation is High

Inflation is reaching historically high levels due in large part to lingering effects from the pandemic. At the start of the Covid-19 outbreak, consumers began spending less because of lockdowns, and in turn, started saving more. Then, when Covid-19 restrictions eased, people started spending more again. Companies, however, couldn’t keep up with this increased consumer demand. 

Just as there are many causes of broad-based inflation, there are many factors that have given way to higher energy prices. Large in part, due to Russia’s invasion of Ukraine and the resulting Western countries’ sanctions which put severe limits on the import of Russian oil. Both events played a significant role in rising energy prices and supply-chain issues.

The result of all these things? Higher prices for most goods and services.

Corporations and wealthy individuals have been getting away with not paying taxes. Ergo, most people can’t afford to buy things while those who can do not fund the government with their taxes, which is contributing to inflation and leaving the economy in a very shaky state.

IRA Funding From The IRS

Excerpts from the nonpartisan Joint Committee on Taxation (JCT) indicated that the legislation might lead to increased payments on personal taxes for Americans of all incomes. However, this calculation was based on an assumption that companies would pass on parts of the minimum corporate tax to employees, which was criticized by Steven M. Rosenthal, a senior fellow at the nonpartisan Tax Policy Center (TPC). The TPC estimated that the bottom 80% tax filers by income would actually receive a net benefit. The 80th-99th percentile would incur a small cost (0-0.1% increase in average federal tax rate) while the top 1% would incur a 0.2% increase. The costs mainly are imposed indirectly as corporations facing higher taxes, which may end up reducing the wage increases for workers; individual tax rates were not changed.

Treasury Secretary Janet Yellen directed IRS Commissioner Charles Rettig to NOT use the new funding to increase the rate of audits of those making less than $400,000 a year above historical levels, but to instead focus on “high-end noncompliance.”

The GOP Response

“Our first bill will repeal funding for 87,000 new IRS agents, because the government should be here to help you, not go after you,” declared the very newl House Speaker Kevin McCarthy, who was barely able to get elected by his own party.

Republicans claimed throughout the midterm campaign that Democrats were sending “an army of IRS agents” to go after middle and lower-class taxpayers with the new agency funding in the IRA. A tad misleading. 

Republicans also say they are not buying the assertions from administration officials stated above and have vowed to keep up scrutiny of the IRS.

The Democrat Response to the GOP Response

“They don’t want a fairer tax administration, they think it’s bad for some of their supporters,” Rep Richard Neal, the top Democrat on the Ways and Means Committee, said in debate with Republicans. “What they’re attempting to do tonight is bad for middle-class families. It’s bad for small businesses.”

This new House Republican measure would increase the budget deficit by more than $114 billion through 2032, according to the Congressional Budget Office.

My Interpretation

Inflation is high. Corporations haven’t been paying the limited taxes they owe. Lawmakers are trying to curb rising inflation by funding various programs, including the IRS so that it can collect from the top 1% more efficiently. The GOP is trying to appeal to their supporters and say that Democrats are spending money and use it to come after poor people to force them to pay more taxes with guns. The Democrats are saying, “false”.

Will any of this actually reduce inflation? We’ll just have to wait and see.

Speaking of tax… If you need help getting your businesses’ 2022 financial statements ready you should hire an outsourced CFO or bookkeeper from Skyview! For more info email me at brandon@skyviewcfo.com!

When Charles Duhigg published The Power of Habit in 2012, it was an instant best seller and became widely regarded in the psychology and business reading communities. As the title suggests, the book focuses on the science of habits and how we can utilize them to our advantage. I know I’m about 10 years late here, but the book still holds up today as the lessons can be applied to multiple aspects of life and business.

I often find self-help books to jump all over the place, often failing to focus on one main message. Duhigg, on the other hand, does an excellent job of creating a linear flow, as each chapter builds upon each other, allowing the reader to follow along and learn as the book progresses. Below I will outline the major points Duhigg brings up, but I do strongly recommend giving this book a full read. You can order it on Amazon with this link.

How Habits Work

The first part of the book discusses how habits are formed, and how the brain uses a system to create them, for better or worse. He describes “The habit loop”, which is essentialy a cue which triggers an action that is followed by a reward. For instance an alarm clock cues someone to wake up and go to shoer, brush their teeth, and have a coffee without butch though which they are then rewarded by feeling ready to start their day. He uses many different examples of habit loops, and how the brain can turn tasks that can be at first complex to the brain, but get turned into habits as the brain gets more accustomed to the loop.

Changing Habits

After educating the reader on how Habits work. Duhigg goes on to demonstrate how people can effectively change habits if they so desire. The main point is that habits can be changed if you keep the cue and reward the same but change the habit. For instance someone who is trying to stop smoking may be cued by seeing someone else light up a cigarette, they then light and smoke one themselves, and are rewarded from the feeling of destressing from smoking. If someone wanted to change that habit instead of smoking a cigarette they could have a few cups of coffee or a piece of nicotine gum. The cue and rewards are the same, but the action is different. Habits are tough to change at first but the more you get your brin accustomed to the new loop, the change becomes possible.

Keystone Habits

The next lawyer, Duhigg introduces is Keystone Habits. These are the important habits that when changed can have a domino effect on other habits. The example he uses is someone that starts an exercising habit can see other habits begin to form as a result. They might start to eat healthier, do drugs less, and so on. When it comes to business, identifying keystone habits within and organization that can have a major ripple effect on other habits the organization has fallen into is how successful CEOs make change.

Takeaways

This book does an excellent job of explaining how habits can be used effectively, by using tremendous examples from both life experiences and real-world business examples including a dysfunctional hospital, the King’s Cross fire of 1987, and how CEO Paul O’Neil transformed the aluminum producing conglomerate, Alcoa.

A growing concern in America these days is the health of the middle class. The wealth gap has continuously been expanding for over a decade, and has been the main topic of political debates for as long as I can recall. This isn’t a post about which side of the isle is right, who should be taxed what, but rather an explanation of why basic statistics allows for people with more money to grow their wealth faster than those with less money.

A famous, yet concerning statistic is that most Americans would not be able to afford an unexpected $400 bill. That’s very concerning considering unexpected bills come up all the time. Flat tires, floods, a terrible war that causes a tremendous rise in gas prices, a global pandemic that shuts down the entire world, and whatnot. Because so many Americans are just $400 away from bankruptcy, that brings us to my first point of how probability makes the rich richer: insurance.

Insurance companies make billions of dollars by utilizing probability. To make things simple, let’s say that you own a car worth $20,000 and you pay a $400 monthly premium. In exchange for your monthly payments, the insurance company will pay to replace your $20,000.00 should it be lost, stollen, or damaged (yes, I’m ignoring plenty other contingencies for simplicity) (and deductibles). If buy this policy and your car is stolen one month later, the insurance policy was well worth it, and a loss for the insurance company. However, the insurance company has predetermined the likelihood of your car being stolen or damaged to be 4% in any given year. For the insurance company to make money on this policy they want you to make it at least 4 years without needing the $20,000 payout ($20,000/$400/12mos=4.1 years). If there is a 4% chance per year that you will need a payout, there is a 16% chance over a 4 year period; that’s pretty good odds for the insurer. Also, the further into your policy you need to make a claim, the less of a loss the insurance company bears (If you crash one month into the term, you’ve only paid them $400 and they need to cough up $20,000, if it’s one year in than you’ve paid them $4,800). Despite the odds being in insurance company’s favor, they have a risk you will crash and they will lose on your policy. The goo thing for them is that you’re not their only customer. The insurers make sure they will be profitable by providing many policies to many people with similar odds. The collection of all these premiums allows them to pay you in the event you smash that car into a tree. I’m not even going to mention the reinsurance industry. That’s right, there are insurance companies that insure insurance companies.

So why should you be paying a policy that only has a 16% chance of being “worth it?” Well, as I just mentioned, most Americans cannot afford an unexpected $400 bill. So we can safely assume wayyy more Americans cannot afford an unexpected $20,000 bill. The idea here is that you’d rather pay $400 each month to avoid a situation that would completely derail your life. You can’t afford the risk.

Let’s replay this scenario but now pretend you’re Warren Buffet (or any billionaire of your choosing). I highly doubt you’d be buying a $20,000 car, but let’s just pretend you are for some weird reason. $20,000 won’t even make a dent in your bank account, so it would actually make sense for you to forego the car insurance (ignoring the fact that it’s required by law) because there is only a 16% chance that it will be worth it, and even if you do end up having to pay $20,000 to replace the car, it will not derail your life. This principle shows that being rich literally affords you to the ability avoid a monthly payment that those with less money need to make. If both you and Warren Buffet bought the same $20,000 car, you essentially have to pay an additional $19,200 over 4 years than for the same car because you cannot afford the risk.

Risk is another way of describing probability. I know what you’re thinking, rich people aren’t getting richer because they’re avoiding insurance premiums. No, but the same principle applies to investment and generating wealth. A core investing concept is that the riskier an investment is the greater the rate of return needs to be. This is due in large part to the fact that there are such things as risk free investments. I can put a dollar into a savings account that pays 1% interest each year with zero risk. Given that fact, I would never make an investment that pays the same 1% rate but also has a 10% chance of failing, because I can make the same amount of money with no risk. Because there is such thing as risk-free rates, risk needs to be compensated when it is taken on.

Let’s say the 10% risky investment will pay off 25% if it is successful. You have a decision to make now: do you want to make a guaranteed $0.01 on your $1 investment or do you want to risk losing that $1 investment for a 90% chance to walk away with $1.25?

We can use simple math to evaluate this: since the risky investment has a 10% of failing, the law of probability tells us that if you make this investment nine times out of ten you end up with $1.25 nine times and nothing one time. Therefore the expected value of the investment is $1.125 ($1.25 x 90% + $0 x 10%). Based on this principle, it makes sense to take on the risk as you have a greater chance to make more money than the mere penny you get from taking on no risk.

But wait! Think back to the insurance dilemma.

You bought the policy, not because you think its a sound investment, but because you want to avoid the situation that will leave you homeless. You, unlike Warren Buffet, cannot afford the risk of foregoing the insurance. Circling back to the investment scenario you can obviously afford to lose $1.00, if not then you should probably stop reading this and file for unemployment. But let’s say the investment was $100,000 instead of $1.00. The same percentages still apply and it still makes sense to make the risky investment from a math standpoint. The expected value is you’ll end up with is now $112,500 compared to the risk free option where you would walk away with $101,000. There’s only a 10% chance you end up with nothing and a 90% chance you make a $25,000 profit. But if that 10% were to happen would you lose your house? Your car? Your spouse? Probably (pun intended). Would Warren Buffet? He probably wouldn’t even notice.

You decide that you can’t pass up the opportunity. Uh oh! The investment backfires! The dreaded 10% outcome happens and you lose $100,000 quicker than you can say “I should’ve just kept my money under my mattress”. Perhaps you still have some savings left, and you convinced your spouse things will be fine. Life is fine… for now.

But now a new opportunity comes your way. This one requires the same $100,000 investment and has the same 10% risk rate, but the potential earning is a whopping 50%! You can make half your loss back! There’s just one problem: you no longer have $100,000 to invest again. You need it to pay for your $20,000 car loan and the $400 insurance premiums. Not to mention your mortgage, daycare, gas, and all your other bills. Unfortunately, you have to pass up the opportunity, and wouldn’t you know it? It’s a winner. Not only did it go up 50% it went up 200%!! You would have made up your loss and then some!

Now imagine you’re Warren Buffet again, you hardly noticed the loss of the original $100,000 so invest in the winner without much thought. Your investment is now worth $300,000! You’re up $100,000 even after losing out on the first investment.

Do you see what I’m getting at?

Risk is a type of probability. The richer you are the more risk you can afford. Warren Buffet can afford to make millions of these $100,000 investments (literally) because he can afford the risk/probability of losing $100,000 a few times and still be able to continue on with his way of life. By being able to invest in many different opportunities the law of probability tells us that he will indeed continue to keep making money in the long run, as the likelihood that every investment with a 10% risk rate failing gets smaller and smaller the more there are.

Another large factor I haven’t brought up yet is that by having more money you have access to more investment opportunities than those with less money. For example many private investment opportunities are only available for very large minimal investment amounts. Warren Buffet can invest $10 Million into a company that wouldn’t even bother with you even if you were willing to invest your entire life savings, despite the percentages being the same.

There’s an old saying that goes something along the lines of “the first million is the hardest to make”. That’s true, to some degree. Of course, most people do have to work hard to generate their initial wealth, but growing that wealth once it exists is a lot easier than building it from scratch. Wealth generation is like inertia; it takes a lot more energy to get started than it does to keep going. Probability tells us that the more investment opportunities you participate it, the more money you will make in the long run. However, opportunities are costly, and you’re risk tolerance (should be) determined by the amount you can afford to lose without derailing your life. Risk tolerance cost money, and the more money you have the more risk you can afford.

Probability keeps the rich rich, and the poor poor. What do you think?

Brand value describes the worth that a particular brands has based on a variety of factors. It essentially follows the notion that the owner of a well-known brand name can generate more money than another business selling similar products with a lesser known name. It is kind of similar to a common baseball statistic known as “wins-above-replacement” (WAR). WAR describes how many wins a particular player contributes to his team compared, to the wins his team would have if they were to be replaced with the league average player at that particular position.

While a brands numerical value is an estimation of multiple variables, it can be derived by following the International Organization for Standardization’s guidelines which maps out the appropriate process for determining brand value by utilizing six key requirements: transparency, validity, reliability, sufficiency, objectivity and financial, behavioral and legal parameters.

A brand is an intangible asset that identifies one seller’s product from another and is often a corporation’s most valued asset. A strong brand can influence customer choice and create loyalty; attract and retain motivate talent. It can also serve valuable by lowering the cost of financing. A lending institution would be more likely to fund a project for Google than they would for Skyview CFO, at least at the moment. Of course, Brands also play a key role in shaping public perceptions and purchasing behavior.

With all that being said, let’s take a look at which brands are considered the most valuable across the globe as of this year (2022).

10. Verizon – $69.6 Billion

9. Hauwei – $71.23 Billion

8. ICBC $75.1 Billion

7. Facebook $101.2 Billion

6. Samsung – $107.3 Billion

5. Walmart – $111.9 Billion

4. Microsoft – $184.3 Billion

3. Google $263.4 Billion

2. Amazon $350.3 Billion

1. Apple $355.1 Billion

It’s no surprise that Apple, Amazon and Google top the list as they have the most recognizable global brands. But when you look at this closely you can see a significant drop off between Amazon and Apple, followed by Google which has a brand value almost $80 Billion more than #4 Microsoft on the list. $80 Billion is a lot. In fact is more that ICBC’s brand value which ranks number 8 on this list.

Source: https://brandirectory.com/download-report/brand-finance-us-500-2022-preview.pdf