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Financial Crises? Here's the Cure

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Information about Financial Crises? Here's the Cure
Business & Mgmt

Published on February 19, 2014

Author: raj62

Source: slideshare.net

Description

For more than 50 years, one fundamental flaw had wreaked havoc in the corporate world, breeding 'Financial Crisis' like a silent cancer, undetected. Billions of dollars have been destroyed due to corporate bankruptcies, and entire economies suffered, while the root cause remained hidden. Even the 2013 Nobel Economics Prize Committee hit a dead end after several years of research by eminent experts in economic sciences, and minced no words in saying '“....we do not yet have complete and generally accepted explanations for how financial markets function......Mispricing of assets may contribute to financial crises”. But all this can become history, because the cure for the fiscal cancer has now been found.
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Rational Investor Vs. Corporate Finance Chronic conflict = Financial Crisis Copyright 2013: Rajesh D. Mudholkar, Author, The Timeless Essence of Financial Sci

Financial Planning Standards Board Ltd Certified Financial Planner Board of Standards Highest Global Standard Financial planning professionals help investors make rational investment decisions, promote long term investment planning aligned with defined goals. Copyright 2013: Rajesh D. Mudholkar, Author, The Timeless Essence of Financial Sci

Rational investors follow & expect long term equity returns linked to business performance, not speculative short term price Copyright 2013: Rajesh D. Mudholkar, Author, The Timeless Essence of Financial Sci

Long term planning makes short term volatility irrelevant “ The riskiness of an investment is not measured by beta but rather by the reasoned probability of that investment causing its owner a loss of purchasing power over his contemplated holding period.” period Warren E. Buffett, Chairman, in a letter to Shareholders of Berkshire Hathaway, February 25, 2012 Copyright 2013: Rajesh D. Mudholkar, Author, The Timeless Essence of Financial Science, http://valueerodingfallacies

Jan,1990 to Feb,2014 Berkshire Hathaway The Result Dow Jones Index Copyright 2013: Rajesh D. Mudholkar, Author, The Timeless Essence of Financial Science, http://valueerodingfallacies

What Corporate Finance Prescribes “the opportunity cost of capital depends on the project’s beta. ...Siemens, a Siemens German industrial giant, uses 16 different discount rates, depending on rates the riskiness of each line of its business.” Fundamentals of Corporate Finance, 3rd edition, ISBN 0-07553109-7, Richard A. Brealey, Stewart C. Myers, Alan J. Marcus, Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan, pages 421-423. Copyright 2013: Rajesh D. Mudholkar, Author, The Timeless Essence of Financial Science, http://valueerodingfallacies

Feb,2004 to Feb,2014 The Result Siemens Copyright 2013: Rajesh D. Mudholkar, Author, The Timeless Essence of Financial Science, http://valueerodingfallacies

Both, the ‘short-term’ and ‘beta’ are irrelevant for ‘opportunity cost’ of equity Copyright 2013: Rajesh D. Mudholkar, Author, The Timeless Essence of Financial Science, http://valueerodingfallacies

Corporate financial practice conflicts with rational investor expectations, breeds ‘Financial Crisis’ such as 2008 Copyright 2013: Rajesh D. Mudholkar, Author, The Timeless Essence of Financial Science, http://valueerodingfallacies

“....we do not yet have complete and generally accepted explanations for how financial markets function......Mispricing of assets may contribute to financial crises” crises - 2013 Nobel Economic Sciences Prize Committee Copyright 2013: Rajesh D. Mudholkar, Author, The Timeless Essence of Financial Science, http://valueerodingfallacies

Raises questions, ‘Financial Economics’ never asked Answers those, ‘Financial Economics’ never could To prevent ‘FINANCIAL CRISIS’, and transform ‘Financial Management’ from a ‘Cultivated Art’ into a truly ‘Objective Science’ Copyright 2013: Rajesh D. Mudholkar, Author, The Timeless Essence of Financial Science, http://valueerodingfallacies

http://valueerodingfallacies.blogspot.in Copyright 2013: Rajesh D. Mudholkar, Author, The Timeless Essence of Financial Science, http://valueerodingfallacies

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