old words
can’t express
new
insights
learn the new language of Superfund Finance
for putting Other People’s Money to work
creating a new prosperity, of peace
Other People’s Money
society’s shared savings
superfiduciary superfunds
money
Finance
investing
Capital
Capitalism
the new capitalism of The Capitalisms
corporation
Corporate Finance
enterprise
Banks and banking
Lending
Debt
Equity
Growth
evergreen
fiduciary
superfiduciary
superfund
stewardship
fiduciary prudence
ordinary prudence
extraordinary prudence
The Hypothetical Reasonable Person
prosperity
peace
speculation
price
value
liquidity
NPV
compounding
Markets
Capital Markets
Free Enterprise
the most important new words
Other People’s Money
society’s shared savings
superfiduciary superfunds
The most important ingredient in prosperity today is money in the particular form of Other People’s Money. Other People’s Money is surpluses saved by individuals that are aggregated for investment by professionals who are expert at putting that money to work, making more money.
The most important channel in operation today for aggregating Other People’s Money for investment by professionals is the actuarial risk pool for programmatically providing certainty against certain of life’s uncertainties. We know these pools more popularly as insurance, especially life insurance, and pensions. Life insurance and pensions are the obverse and reverse of the same coin: where life insurance provides protection against dying too soon, pensions provide protection against living too long.
Additional channels for aggregating Other People’s Money in use today include endowments for education, religion and philanthropy, and sovereign wealth funds.
Together, Insurance, Pensions, Endowments and Sovereign Wealth Funds represent the primary channels for aggregating pools of society’s shared savings. Some individually, and all, taken together, as a form of Finance, control vast amounts of society’s shared savings, representing as much as half of all money invested in enterprise today, globally.
All of these superfunds have fiduciary duties to invest with prudence, except, perhaps, Sovereign Wealth Funds, because as sovereign funds, they have the duty the sovereign chooses to accept. For technical reasons relating to how the laws are applied to regulate activities of these superfunds, we focus especially on pensions, and also endowments.
Pension superfunds have a superfiduciary duty, to generate through their investments sufficient superfund cash flows, forever, to keep their actuarial risk pools correctly full, and prosperously flowing benefits to their retirees, across the generations. Because the supefiduciary duty of pensions is intergenerational and evergreen – it just keeps going, as long as the pension continues to have participants – their duties are not just financial, but also physical: they cannot make investments that benefit current retirees at the expense of future retirees. They must invest in a forever that will be good for future generations to flow into.
Endowments, technically, are not actuarial risk pools. But they are superfunds, and they are evergreen, so they also have a superfiduciary duty, to generate through their investments sufficient superfund cash flows, forever, by investing in a forever that will be good for future generations to flow into.
These – pensions and endowments – are the primary stewards of Other People’s Money who need a new language of Superfiduciary Superfund Finance for putting the Other People’s Money entrusted to their good judgment to work creating a new prosperity of peace in the 21st Century, and beyond…
key words
money – Michael Mainelli of Long Finance defines money as “a technology that communities use to trade debts”. Debts are created when one person takes a benefit from another without giving equal value, immediately, in return, but on condition that value will be given at some future point in time. All debts begin as a physical exchange. As long as the debt remains physical, the debt remains personal. And therefore, non-transferable, i.e. not tradeable. When debts cannot be traded, the scope of possibility for the exchange of benefits in limited to the size of one’s personal network of connections with others, and the capacity of that network to do work that creates benefits for sharing is also limited. If money is used to measure debts, that money can be traded with others, for other benefits. One person’s debt becomes another persons earnings. Money becomes a container of purchasing power. Debts can be traded. The scope of possibility for concentrating efforts to create benefits for sharing expands to the limit of the community willing to use the same money as a measure of debt that is also a container of purchasing power within that community.
Money becomes the basic unit of counting in a system of accounting for the trading of debts to purchase benefits within a community that agrees to use that money as legal tender for the financial payment of physical debts.
Finance – Finance is the language of money. It is how we talk about our debts, and complete our purchases. It is also how we accumulate savings, and aggregate accumulated savings for investment in enterprise for doing new work, and creating more debts that can be converted into money for trading with others.
Personal prosperity is sustained through a recurring cycle of learning that empowers earning that empowers spending that empowers saving that empowers investing in new learning that supplements and eventually substitutes for earning by working as we each get older and find it increasingly challenging to keep pace with the constantly changing pace of commerce.
Populations prosper as this cycle repeats across the generations, constantly evolving prosperous adaptations to life’s constant changes through inquiry, insight, enterprise and exchange, making new choices available that become more popular as better fit to changing times, and previously popular choices fade into history as a good fit in an earlier time.
Finance is the social structure of patterns, pattern languages, places and professionals for aggregating savings for investment and deploying those aggregations as capital investment in new learning being put into action through enterprise and exchange
When Finance functions correctly it circulates sufficient surpluses sufficiently, throughput the populations and across the generations in patterns that are reasonably inclusive and fundamentally fair, and the people prosper in peace
When Finance does not function correctly, surpluses get trapped in patterns of unreasonable elitism and fundamental unfairness, the cycle of prosperous adaptations slows and sputters, the people do not prosper, and the social order disintegrates into disorder.
Investing – Investing is giving someone the use of money for an agreed purpose, in exchange for an agreed return; most commonly to visionary individuals leading creative enterprises for their making more money, through their enterprise, in exchange for an agreed share in the more money that enterprise creates.
Capital – Capital is a word that describes accumulated surpluses saved for investment in enterprise that has been given to enterprise, for its use in making more money; or to a professional financier who is in the business of making investments into enterprise using Other People’s Money.
Capitalism – Capitalism is a social structure of vision-valuing patterns, pattern languages, places and professionals for aggregating surpluses saved by individuals in money form, and deploying those aggregations as capital investment in enterprises for making more money, in exchange for an agreed share in the more money created by the enterprise invested, which the capitalist then shares with the individuals who supplied the savings that the capitalist used to form the capital.
The new capitalism of The Capitalisms – The new capitalism of The Capitalisms is a theory of prosperity that recognizes six different forms of capitalism in use in our economy today, six different forms of Finance, each with its own unique vision-valuing patterns, pattern languages, places and people, and it own language for talking about money, for aggregating surpluses saved by individuals for a shared purpose, and deploying those aggregations as investments of capital into enterprise that value a shared vision of prosperity.
The six Capitalisms are:
- Family & Friends aggregating surpluses saved for caring for our own, and deploying those aggregations into enterprising visions that value IMPACT, speaking the language of Patronage.
- Church & Philanthropy aggregating surpluses saved for caring for others, and deploying those aggregations into enterprising visions that value MISSION, speaking the language of Grants.
- Taxing & Spending aggregating surpluses saved for public health, public safety and public welfare, and deploying those aggregations into enterprising visions that value POLICY, speaking the language of Contracts and Subsidies.
- Banking & Lending aggregating surpluses saved for managing money, and deploying those aggregations into enterprising visions that value PROFITS, speaking the language of Credit and Collateral Value.
- Exchanges & Funds aggregating surpluses saved for opportunistic and idiosyncrative wealth building, and deploying those aggregations into enterprising visions that value GROWTH, speaking the language of Speculation.
- Pensions & Endowments aggregating surpluses saved for programmatically providing certainty against certain of life’s uncertainties, and deploying those aggregations into enterprising visions that value PEACE, speaking the language of Negotiated Agreements for Prioritizing Cash Flows.
Corporation – The corporation is a legal form of ownership and control over enterprise for investment by shareholders who may or may not also be personally involved in the business and affairs of that corporation. A corporation is a creation of state law. It’s twin defining characteristics are limited liability and unlimited life. The liability at law of shareholders in a corporation is limited to the amounts they committed to invest in the corporation as the agreed price for purchasing their shares. The corporation is recognized under the law as a legal person, separate and distinct from its owners (shareholders/investors) and managers (directors, officers and executives). A corporation is immortal. Under the law, it never ends, unless and until its owner/shareholders choose to dissolve and liquidate it, either voluntarily or in bankruptcy.
A corporate share is a standard form contract of investment with the issuing corporation that gives every shareholder a ratable share in the same set of pre-defined contract rights. The most important of these rights are the right of free alienability: that is, the shares can be sold at any time, to any buyer, for any price, without notice to, consent from or participation by the corporation in any way – except to process the transfer of share ownership on its books, and the issuance of new shares in the name of the new holder. The price of the shares is derived from the value of the corporation, a pro rata share of which each share is entitled to, IF the corporation decides to liquidate and dissolve. There are also rights to share in any dividends that the corporation may decide to pay on its shares, IF the corporation decides to pay a dividend. And there are limited rights to vote on limited matters: the election of directors and certain transactions that alter the capital structure of the issuing corporations, such as increases in authorized shares, mergers and acquisitions involving stock, and dissolution and winding up. There can be different classes of stock that carry different rights to dividends (preferred stock, for examples, entitles the holders to a dividend payable according to an agreed formula as set forth in the governing charter of the corporation) and voting rights.
The corporation is the preferred form of enterprise ownership for investment by Exchanges & Funds through speculation on GROWTH in future selling price of corporate shares, replacing the trust, which was the legal form preferred for speculation on growth before the creation of the general business corporation in the 19th Century.
Corporate Finance – Corporate Finance is another name for the Exchanges & Funds form of finance through speculation on GROWTH. It involves incorporating an enterprise (i.e. transferring ownership of the enterprise to a legal person that is a corporation) and securitizing its shares by listing them for trading as commodities at a market clearing commodity price over one or more public – are alternative private – markets for buying and selling shares at their market clearing prices.
Enterprise – An enterprise is a physical coming-together of people to do the work of putting specific learning into action collaboratively co-creating specific surpluses of that learning put into action for sharing with others in exchange for a price paid in money or other value. Visionary leaders of creative enterprises see the possibilities for evolving prosperous adaptations to life’s constant changes through the flourish and fade of a social contract with popular choice. When Vision needs money to optimize pursue social contract with popular choice, The Capitalisms provide it, using the form of Finance that values the values that vision is valuing.
Banks and Banking – A proper bank is a deposit-taking institution that holds money on account for depositors – providing safekeeping, disbursement, accounting and other money-management services to depositors – and lending money held on deposit to individuals and enterprising individuals, at interest. A primary money-management service of banks is lending money, at interest, to individuals to pay for current purchases in anticipation of future earnings. These may be loans for special purchases, like mortgages for real estate or auto loans; or revolving credit for general purchases, through overdraft rights, or in the form of credit cards. These banking activities are sometimes referred to as Personal Finance or Consumer Finance. Similar services are also provided to enterprises, for managing cash flows from commercial exchanges, and enterprise purchases made in anticipation of earning future cash flows on future commercial exchanges. These activities are sometimes referred to as Commercial Banking. There are speciality forms of lending activities and lending enterprises that compromise the banking industry today.
Most banking systems today are regulated by national governments, through some form of government-authorized central banking system that issues money as legal tender within the judiciary systems of that issuing government and its subsidiary governments, backed by the full faith and credit (i.e. the taxing authority and capabilities) of that government.
Money is created today as paper notes, metal coins and credit issued within the banking system. A major purpose of the central banking system is to maintain the integrity of the money system, making sure there is always enough money in circulation to effectuate all the commercial transactions taking place within that nation – or the larger international trading networks – but not too much. Experience has shown that if too much money is created within a banking system, the value of that money becomes unreliable. People lose confidence in that system, and stop using that money in favor of other measures of debt and containers of purchasing power.
Lending – Lending is a form of investment in which an investor, as the Lender, gives a sum of money to an enterprise (or individual, on which more below), as Borrower, under a contract that requires the Borrower to repay the amounts loaned, plus interest at an agreed rate, on demand, on a date certain, or over time, according to an agreed schedule for repayment.
Loans are advanced as a credit against the expected future earnings of the borrower, or as a cash advance against the expected future selling price of property owned by the borrower and pledged as security for repayment of that loan (“collateral”), or both. Loans against collateral are called secured loans, or mortgage loans (a mortgage is a form of lien on property, most commonly used in connection with real estate pledged as collateral). Secured loans may be recourse, which means the borrower is responsible for repayment, but the property pledged as collateral can be seized and sold if payment is not made) or non-recourse, which means the lender’s only means of recovery if the loan is not repaid voluntarily is foreclosure and sale of the property.
A loan payable on a date certain has a maturity date, which is the date on which repayment of the principal (the amount advanced) and payment of all accrued interest is due. These loans are sometimes issued as bonds (or debentures), especially if they are being sold as securities issued for trading over an exchange or in some other public or private alternative trading markets.
A loan that is repaid in scheduled installments is said to amortize. Each schedule payment includes a portion of principal repayment – or amortization – and a payment of currently accrued interest.
Loans may be advanced as revolving lines of credit, that allow the borrow to episodically draw down and repay loan amounts, up to a stated maximum.
Credit cards are a variation on the revolving line of credit construct that is married to a variable amortization schedule that allows sums drawn down to be repaid in increments, over time, according to a schedule for paying all current interest currently, and making amortization payments against the outstanding principal balance in increments that vary over time, as the outstanding balance increases or decreases, with additional drawdowns or repayments.
Debt – Technically, a debt is any obligation that one person owes to another. A debt may be a personal obligation to return a favor, or to deliver value in an exchange, or a financial obligation to make a money payment for purchases made, or sums borrowed or as a return on equity invested (or legally a obligation to do a thing or make a payment in restitution or compensation, or as punishment for a wrongful act against another).
Legally, debt is ahead of equity (see next) in priority of repayment, especially in the case of bankruptcy or insolvency, where the borrower does not have to ability to meet all their obligations.
Financially, debt follows equity, because debt is loans made as a discount against credit and collateral values. Debt does not determine value. Equity does. Debt relies on Equity to establish the values from which it then takes a discount when calculating borrowing capacity. This is why speculative asset prices booms that start on the Exchanges (the equity markets) always go bust when a credit bubble bursts. When Equity inflates trading prices (as an indicator of value), those inflated prices inflate credit and collateral values that are used in calculating borrowing limits. Loans get made that look good on paper, but are not safe, in fact. Unlike Equity, Debt has to be repaid. Repayment requires cash flow. Cash flow reflects value, not market pricing. When market trading prices overstate real cash values, there eventually comes a time when there is no cash with which to repay the loan. Unpaid loans go into default. Defaulting borrowers go into bankruptcy. The music stops, and the bubble bursts.
To avoid creating Debt/Credit Bubbles, we need to avoid creating Equity Pricing Booms.
Equity – Equity in Finance is an investment in an enterprise that has no fixed obligation to repay, and no right to a specified return, other than as a specified percentage share or other formula-based on the cash flows flowing through an enterprise, or other agreed measure of value inhering in that enterprise. In Corporate Finance, equity is capital stock as a share of ownership in the issuing corporation. Equity rights are “last, but unlimited”. That is, an equity interests shares in whatever value is in the enterprise, however that value is being measured at the time, after all trade debts, financial debts and preferred, but limited, claims are satisfied. Equity is often associated in the popular mind with ownership, but it must be pointed out that under the law “ownership is a bundle of rights”, and different forms of ownership can be created by bundling different rights. For example, in corporate finance, shareholder “own” the corporation, but the ownership rights of corporate shareholders are severely limited. They can participate in dividends, if paid (unless they hold a special class of shares that carry mandatory dividends; the participate in liquidating distributions, if any, at liquidation, IF there is a liquidating event; they vote on the election of directors (but not officers, officers are appointed by the directors, acting as a board, i.e. by consensus, or, if a consensus cannot be reached, by majority vote); and they can vote on transactions that affect the capital structure of the corporation, such as the authorization of additional shares, the creation of new classes of stock, mergers and acquisitions, etc.
It is sometimes said that corporate directors have a fiduciary duty towards their shareholders, but that duty is quite limited. It really only prevents self-dealing by directors at the expense of shareholders, and the favoring of one group of shareholders to the detriment of others.
Technically, majority shareholders do control a corporation, indirectly, through their ability to control the election of directors. This can be meaningful if a corporation is privately owned (sometimes called “closely held”). If a corporation has shares listed for trading over a public exchange, that corporation is actually owned, as a practical matter, by the market in which its shares are traded. Only the very largest shareholders can actually influence how the corporation conducts its business. For the most part, the rights of shareholders in publicly owned corporations is to “vote their pocketbooks” based on how they believe the corporation is being managed. They can buy, if they do not already own (or buy more, if they own some). They can sell, of they do already own. Or they can hold, if the own and do not want to sell. That’s pretty much it.
Generally, Management of a public corporation only pays attention to the movement of its share price in those markets where its shares are traded. Beyond politeness, Management does not heed to wishes of its individual shareholders.
And what the markets want is for the share price to go up. If the price is going up, the markets will be happy. They do not really care how the price is being managed. If the price does not go up, the markets will be unhappy. it does not matter what other socially good things the company may be doing.
evergreen equity splits are both debt-like and equity-like. They are debt-like in that they have a claim on free cash flow according to an agreed formula, until a superfund minimum cash flow is delivered by the enterprise to its superfund sponsors. They are equity-like in that free cash flow is dependent on how the cash flows are flowing through the enterprise. There is no absolute obligation to receive any specific amounts on any specific dates, and their can be no default (unless there is free cash flow to share, but shares are not disbursed, in violation of the investment contract). Since there is no fixed payment/repayment, there is also no security for repayment. Also, once the agreed superfund minimum cash flows are actually paid out, the evergreen residual share is an agreed percentage of whatever may be available, without limit based on the amount invested or caps on the amounts that can be earned.
Equity splits are a form of super equity, in a sense, because the superfund investors enter into a direct agreement with the enterprise leaders that give them specific powers relative to the conduct of the business. These mostly take the form of negative covenants, i.e. affirmative undertakings by the enterprise not to change the way it does business without the consent of its superfund sponsors. These will relate primarily to the nature of the business, additional financial transactions and the line item structure of its operating budgets. Through these agreements, superfiduciary superfunds can protect themselves, financially, against deviations from the business plan they originally agreed to underwrite, and physically, against business practices that violate its superfiduciary stewardship responsibilities to society at large.
Growth – Growth is perhaps the single most important word in the language of Modern Finance, even though it is rather loosely defined, poorly understood and ambiguous as to its meaning. The word “Growth” is universally equated with prosperity in the language of Modern Finance, although the exact causal connection between Growth and prosperity is never actually articulated. Always it is implied, assumed, presented as beyond question. Sometimes there is Jobs Growth. Other times, it is GDP (Gross Domestic Product). Always, it is about growth in the Stock Market. This, actually, is the real Growth that Modern Finance is always talking about: growth in share prices for shares traded on the public exchanges, or in alternative private markets. This is Growth in the scale of corporate bureaucracies, and the net present value (NPV) of the cash flows expected to be flowing through those bureaucracies, from which the market clearing prices for shares are ultimately derived.
In Modern Finance, Growth is both the normal condition of prosperity, and one phase in a recurring cycle of alternating periods of Growth and Recession/Depression.
This is not our best. We can do better.
core words
evergreen – We take this word from the law, and legal drafting, where it is used as jargon for a clause in a contract that provides for automatic renewal from time to time, indefinitely, unless and until one or other party to the agreement chooses to go another way. We use to refer to the similar ways in which
- the social contract between enterprise and popular choice episodically renews, and just keeps going, until times change, and people start making new choices as better fit to those changing times
- society’s superfunds for insurance, pensions, educational endowments, endowed charities/philanthropies and sovereign wealth funds are created by law to be open-ended, ongoing and automatically self-regenerating;
- the residual sharing portion of an agreement for prioritizing cash flows between an enterprise and its superfiduciary superfund investors that is open-ended, ongoing and automatically renewing, unless and until either the enterprise of its superfund investors choosing to negotiate an lump sum buy-out/cash-out of the residual position;
- by association, an investment agreement for prioritizing cash flows that includes an evergreen residual sharing provision, as above;
- also by association, an enterprise that is being financed by one or more evergreen superfunds, as above, through a negotiated agreement for prioritizing cash flows that includes an provision for evergreen residual sharing, as above.
fiduciary – a legal obligation owed by a person who has been entrusted with discretionary authority over someone else’s money to the person over whose money they exercise that control; also, a legal or natural person who owes a fiduciary duty to another
superfiduciary – a fiduciary person who has been entrusted with discretionary authority over Other People’s Money, and who has also been burdened by society with an obligation to programmatically provide certainty against certain of life’s uncertainties through investment of entrusted funds; these include actuarial risk pools for insurance and pensions, endowments for education and charity/philanthropy and sovereign wealth funds; also, the duty owed to all of society by a superfiduciary steward of society’s shared savings entrusted to their good judgement to programmatically provide certainty against certain of life’s uncertainties by investing to generate sufficient superfund cash flows, forever, in forever that is good to flow into
superfund – an aggregation of society’s shared savings entrusted to a superfiduciary for investment to generate sufficient cash flows to meet the superfunds programmatic purposes, indefinitely; supefiduciary funds are superfunds because they are large, purposeful and evergreen, they just keeps going; this gives superfund superfiduciaries the power to negotiate; they do not have to speculate
stewardship – the obligation of a superfiduciary to invest in visionary individuals leading creative enterprises in evolving prosperous adaptations to life’s constant changes to circulate sufficient surpluses sufficiently throughout the population and across the generations in patterns that are reasonable inclusive and fundamentally fair, promoting earth peace and people peace, while generating cash flows from investment that are constantly and continuously sufficient to keep its superfund properly full and flowing benefits to its intended beneficiaries, and to all of society.
Fiduciary prudence – Every fiduciary has three duties under the law: loyalty, prudence and competence. Prudence means that what they do with other people’s money entrusted to their good judgement must be thoughtful; it can’t be reckless.
Ordinary prudence – The standard of fiduciary prudence under the law is not a rule. Instead, it is a reference to what people of ordinary care think is properly careful when making decisions with their own things, for their own benefit, where they suffer the harm if their choice does not work out.
Extraordinary prudence – Extraordinary prudence is a higher standard of care that applies to superfiduciaries who have are entrusted with society’s shared savings, and invested with the powers of size, purpose and time through which to invest those savings to generate adequate superfund cash flows, forever, in a forever that will be good to flow into. Because, individually, and taken together as a community, superfiduciary superfunds have a super power to affect society for good, or ill, because of the vast sums of Other People’s Money that are entrusted to their good judgement, they have to exercise an extra level of prudence in making sure they use their superpowers responsibly. Because their duties are intergenerational, they cannot favor current beneficiaries at the expense of future beneficiaries. They must invest not only to generate sufficient superfund cash flows today, but to keep on generating sufficient cash flows, tomorrow, across an endless sequence of tomorrows. This means their obligations are not just financial. They must make financial decisions today that are prudently calculated to make a better tomorrow tomorrow – or to at least do nothing today that creates harm tomorrow.
That is, of course, the exact opposite of market wisdom on Wall Street, which teaches us to worry about today today, and wait until tomorrow to worry about tomorrow. That is not extraordinary prudence.
The Hypothetical Reasonable Man – The Hypothetical Reasonable Man is lawyerspeak for the standards of prudence that fiduciaries and superfiduciaries must adhere to. It is a fictional embodiment of the common sense and common wisdom of the people as to what is the right thing for a fiduciary or superfiduciary to do under the circumstances. It changes with the circumstances, and over time, as circumstances change. It changes through conversation and consensus building about what reasonable people believe is the reasonable thing to do.
Prosperity – Prosperity is a condition within a population where there is enough, and to spare. People can live well, and pursue happiness. Prosperity is provisional, suited to the times, and subject to chain as the times change. With prosperity, there is peace. If there is not peace, then a population cannot truly be said to be prospering, no matter how much aggregate wealth it may create or control.
Peace – In the context of superfiduciary superfund finance, peace is not just stillness and quiet, or non-violence, or the absence of conflict. Peace is a positive state of being in a prosperous condition, where there is enough, both for now, and for later. Peace is the true measure of prosperity for a population, and the only real test of whether Finance is functioning correctly, circulating sufficient surpluses sufficiently throughout the population and across the generations, in patterns that are reasonably inclusive and fundamentally fair, episodically evolving prosperous adaptations to life’s episodic changes, through inquiry, insight, enterprise and exchange, as times change, and people make new choices more popular as a better fit to changing times, letting previously popular choices fade into history, as a good fit at an earlier time.
additional words
Speculation – Speculation is the practice of purchasing something at one price in expectation of selling at an unknown future point in time, to an unknown future time, for a hoped-for better price, anticipating changes in price that are driven by market forces that are largely, if not completely, beyond the ability of the speculator to influence, or even really understand, except intuitively, by “feel”.
Price – Warren Buffett teaches, “Price is what you pay. Value is what you get.” Price is the amount a buyer agrees to pay, and a seller agrees to accept, for effecting a transfer of something, from the seller, to the buyer. It is usually expressed in money, but may consist of other things, as well.
Value – Value is the physical usefulness of a physical experience to someone in a particular place, at a particular time, under particular circumstances. A price can be determined by consensus agreement in a market for commoditized value, but value itself is always individualized and personal to the person who is paying the price in order to get a benefit that they value for whatever reasons they value it.
Liquidity – Liquidity is the ability to sell a thing for a price, on demand. Liquidity is very important to speculators, who need to be able to sell their position on demand, whenever they fear they are going to suffer a loss that will just get bigger over time, if they don’t sell out.
NPV – NPV is net present value, a mathematical calculation that reduces a stated stream of future cash flows to a single price at a single point of time, at a specified rate of earnings on a compound-interest-equivalent basis. NPV is the fundamental calculation from which market clearing prices are derived for corporate shares or other financial commodities traded on Stock Exchanges or in other financial commodity trading markets.
Share prices derived from NPV are always more or less wrong.
This is because the expected future cash flows are artificially truncated, in order to make the calculation possible.
Also, the expected future cash flows are not predictable, for many reasons. One is short term fluctuations in commerce. Another is longer term flourish and fade of the social contract between enterprise and popular choice. A third is that over time every enterprise that uses Corporate Finance is eventually compelled to become a mutual fund, buying and selling a portfolio of enterprises, to keep its corporate bureaucracy, and the cash that flows through that bureaucracy always growing. Once a corporation becomes a mutual fund, there is no way of knowing what enterprise Management will buy or sell, or even who Management will be. It is all highly speculative, uncontrollable and unpredictable.
Compounding – Compounding is a mathematical equation for adding accrued earnings on invested capital periodically, when those earnings are not actually paid out currently. Compounding increases account balances, asset values, and selling prices over time.
Markets – Markets are places where transactions take place. Commercial markets are places where commercial transactions take place: that is, physical values are transferred for a price paid in money, or other value. Financial markets are places where shares in investment contracts are offered for sale on commercial terms. Free Enterprise happens in commercial markets. Corporate Finance happens in financial markets. Free enterprise and Corporate Finance are not the same thing. Enterprise is a physical coming-together of visionary people to collaboratively co-create surpluses for sharing through exchange. When vision needs money, Finance provides it. Corporate Finance is one form of Finance; one form of capitalism; one of The Six Capitalisms.
Capital Markets – Capital Markets are financial markets where shares in investment contracts are bought and sold as commodities, for a market-clearing price, through auction or other price-setting mechanism.
Free Enterprise – Free enterprise is the ability of visionary individuals to organize and operate an enterprise for putting learning into action collaboratively co-creating surpluses for sharing through exchange without the need to get permission form a king or governor. It is the historical subsequent to the antecedent form of aristocratic prosperity, where the permission of an aristocrat was required before a commoner could embark upon an enterprise.
Socialism is a theoretical variation on aristocratic enterprise, that posits that a governing bureaucracy that controls all enterprise, directly, can be held accountable to the popular choice through electoral politics.
Free enterprise is not free because it is unregulated. It is free because there is no entitled aristocracy whose permission is required before enterprise can be conducted. All enterprise is contracting, and all contracting is the private law of negotiated agreement that depends upon the public law of jurisprudence for enforceability. Laws require governments. Enterprise requires laws. Therefor, enterprise requires government, both to enforce private contracts, and to regulate the public impact of private enterprise on public health, public safety and the public welfare.