Finance & Investing

Barbell Strategy

Nassim Nicholas Taleb

Concentrate at extremes of safety and risk, avoid the mediocre middle.

Circle of Competence

Buffett & Munger

You have an edge in some domains and not others — and the boundary between the two is where most catastrophic decisions happen. Knowing where your knowledge actually ends, not where your confidence ends, is the single most protective mental model.

Discounted Cash Flow

John Burr Williams

Value equals future cash flows discounted to present value.

Margin of Safety

Benjamin Graham

Buy below intrinsic value to protect against errors and the unforeseen.

Arbitrage

Arbitrage is profiting from a price difference for the same or equivalent asset across markets, with no net risk. Buy low in one place, sell high in another. The arbitrageur...

Asymmetric Upside

Asymmetric upside is a payoff structure where the best-case gain is large relative to the worst-case loss. You risk a bounded amount to participate in unbounded or outsized...

Cost of Capital

Cost of capital is the minimum return a company or project must earn to justify using investors' money. It is the price of capital — what providers of debt and equity demand for...

Dollar-Cost Averaging

Dollar-cost averaging (DCA) is investing a fixed amount of money at regular intervals regardless of price. You buy more shares when the price is low and fewer when it is high....

Financial Ratios

Financial ratios compress a company's financial statements into comparable, interpretable numbers. They answer questions like: How profitable is this business? How leveraged? How...

Hedging

Hedging is taking an offsetting position to reduce the risk of an existing exposure. You own something that could lose value; you add a position that gains when that thing loses —...

Intrinsic vs Market Value

Intrinsic value is what an asset is worth based on its fundamental ability to generate cash flows or utility — independent of what anyone is willing to pay for it today. Market...

Margin Call

A margin call is the broker's demand that you add collateral or close positions when the value of your margin account falls below the maintenance requirement. You borrowed to...

Mr. Market

Benjamin Graham

Mr. Market is Benjamin Graham's allegory: a manic-depressive partner who shows up every day and offers to buy your share of the business or sell you his at a price. Some days he's...

Option Value

Option value is the worth of the right — but not the obligation — to do something later. In finance, an option pays when the underlying moves in your favour; you can let it expire...

Position Sizing

Position sizing is how much of your capital you put in any single bet. It's not which assets to hold — it's how much. A great idea with 100% of your capital is a single point of...

Risk-Reward Ratio

Risk-reward ratio is the comparison of what you can gain to what you can lose on a bet. If you risk $1 to make $3, the ratio is 1:3 (or 3:1 reward to risk). It doesn't tell you...

Time Value of Money

Time value of money (TVM) is the principle that a dollar today is worth more than a dollar tomorrow. You can invest today's dollar and earn a return; a dollar promised later...

Too Tough Basket

Warren Buffett / Charlie Munger

The too-tough basket is the set of decisions or opportunities you explicitly choose not to make — because they're too hard to evaluate, outside your edge, or not worth the effort....

3-6-3 Rule

The 3-6-3 Rule is the old banking joke: borrow at 3%, lend at 6%, and be on the golf course by 3pm. It describes the era when banking was a simple spread business — take deposits...

AD-AS Model

The AD-AS (Aggregate Demand–Aggregate Supply) model is the standard macroeconomic framework for understanding how the overall price level and total output are determined....

Cockroach Theory

The cockroach theory holds that when you see one piece of bad news, there are almost certainly more hiding behind it — just as seeing one cockroach in a kitchen implies many more...

Double Entry Accounting

Double entry accounting is the system in which every financial transaction is recorded in at least two accounts — a debit and a credit — so that the accounting equation (assets =...

Fisher Effect

Irving Fisher

The Fisher Effect states that the nominal interest rate equals the real interest rate plus expected inflation: i = r + π^e. Lenders demand compensation for the erosion of...

Luxury Paradox

Thorstein Veblen

The luxury paradox is that for certain goods, higher prices increase rather than decrease demand — the opposite of standard economics. Luxury goods function as status signals: the...

Minsky Moment

Hyman Minsky

A Minsky Moment is the sudden collapse of asset prices after a long period of growth fuelled by increasing speculation and debt. Named after economist Hyman Minsky, the core...

Negative Returns

Negative returns describe the zone beyond diminishing returns where additional input actively makes the outcome worse, not just less productive. Diminishing returns means each...

Pari-Mutuel System

In a pari-mutuel system, all bets are pooled together and the payout is determined by the share of the pool held by winning tickets — minus the house take. The odds aren't fixed...

Penny Problem Gap

The penny problem gap is the disproportionate behavioural cliff between free and any positive price — even one cent. The gap between $0 and $0.01 is vastly larger than the gap...

Phillips Curve

A.W. Phillips / Milton Friedman / Edmund Phelps

The Phillips Curve describes the observed inverse relationship between unemployment and inflation: when unemployment falls, wages and prices tend to rise, and vice versa....

Say's Law

Jean-Baptiste Say

Say's Law — "supply creates its own demand" — holds that the act of producing goods generates the income needed to purchase them. In its strong form: there can be no general...