H is for Hedge

“Greed is good,” trader and arbitrageur Ivan Boesky told our MBA class of 1984. He arrived with a stretch limo and an entourage, wearing a fur coat and an expensive Italian suit. He explained that his job was to find opportunities that others missed and that the trade-off in risk and reward was real. Those willing to accept more risk–the risk of losing money because a ship sinks or a drug fails–should get the bigger payout when the exotic cargo comes into port or the cure for disease proves successful.

The risk part is the problem. How can you minimize the risk and still receive high enough payouts to cover costs? Entourages aren’t cheap. One answer is a hedge fund.

English hedge maze. Photo at atlasobscura.com.
Continue reading “H is for Hedge”

E is for Earnings

While we look for harmonious balance, we are also creatures of change and achievement. We yearn also to count. Any youngster who approaches a pond with pebbles will toss them in and count the skips or try to hit the lily pad ten times. Or a crew rows by us on the river and we count the strokes. Well, maybe I just do because I was raised on Sesame Street. Remember The Count? Vun…doo…tree bats… ah.ah.ahh…

The river of time flows by, but we are compelled to stop and take reckoning every so and often, after a month, the year. What comes in, what goes out? Are we draining our resources or building a surplus?

Drawing by Leonardo Da Vinci, “study of water passing and falling,” shown in kensycooperrider.com.

That’s the purpose of an Income Statement.

Continue reading “E is for Earnings”

D is for Double-Entry

Cosmic balance sheet, drawn by Ledger Light.

We are bipedal creatures. We are symmetrical by nature. Two eyes, two hands, back and front, left and right. Our fundamental concepts reflect this: good and evil, dark and light, the Jedi and the Sith. It should be no surprise that multiple cultures–the Chinese, Indian, and Renaissance Italians–created counting systems built around two entries.

One of my favorite authors wrote a series where the people on another planet organize everything around threes instead. Two is infelicitous; you need three to balance. The eighth birthday is unlucky, the ninth harmonious. Scientists have to build models factoring in three. Dinner parties are a nightmare. It is possible to conceive thinking systems not built around two.

Or, imagine, if sentient creatures had five limbs like starfish. Instead of left and right, you’d build your counting around pentagons.

Continue reading “D is for Double-Entry”