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What's Your Net Worth?

Assets minus Liabilities = Net Worth. It is always a good idea to know what this number is. It is a measure of financial health. It will tell you whether you are financially stable or a ticking time bomb. Net worth is like your vital signs (i.e., blood pressure, heart rate, respiratory rate, temperature). Just as it is important to check your vital signs periodically, it is also critical that you measure your net worth every now and then. Doing it once a year is usually adequate. If your net worth is growing by at least 10% annually (or is at least outpacing inflation), then you are getting richer. If your net worth is decreasing annually, then you are on your way to the poor house - a mathematical certainty that you can't escape from.

Net worth grows if assets increase while liabilities decrease. Examples of assets are stocks, bonds, cash, real estate, commodities, equity in a privately-held business, cash surrender value of life insurance etc....while examples of liabilities are all outstanding debts (credit card balances, mortgages, car loans, personal loans etc). Net worth grows in 3 basic ways:

1. by increasing assets while reducing liabilities
2. by keeping assets unchanged while reducing liabilities
3. by increasing assets while keeping liabilities unchanged

Many people make the mistake of focusing only on growing their assets while neglecting to reduce their liabilities. I have some friends who are so gung-ho about investing in the stock market, watching their stock holdings appreciate in value week by week....yet they also pile on more debt on the side....splurging away their profits. Or they trade too much, thus incurring more expenses through trading commissions and taxes. By looking only at one side of the balance sheet, they forget to take a GLOBAL VIEW of their financial health. One should never forget that it is the TOTAL FINANCIAL PICTURE that matters, and that the true determinant of this is NET WORTH....Assets Minus Liabilities.
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Comments

  • tekton12 wrote: »
    I have some friends who are so gung-ho about investing in the stock market, watching their stock holdings appreciate in value week by week....yet they also pile on more debt on the side....splurging away their profits.
    Debt is not always a bad thing. And it is wrong to make a "perception" about a person simply because he is "piling on more debt", unless you examine and mention what the debts are used for. Some people use debt as a leverage to earn more profits. It may look bad on the short term, but that is where risk appetite differs from person to person. Some people are forced to incur debts out of immediate personal necessity and continue investing in the stock market hoping to ride the improving economy and use his stock gains to cancel his debts (and interests incurred). It's another form of risk approach, but like I said, risk appetite differs from person to person.

    "Piling on more unnecessary expense" is probably a more qualified conclusion of a "bad debt".

    tekton12 wrote: »
    Or they trade too much, thus incurring more expenses through trading commissions and taxes.
    Trading commissions and taxes on FREQUENT trading is the PRICE a person pays about his personal uncertainty about the future. It is the conservative approach to stock trading to preserve the liquidity of your capital.

    Again, the value of long-term trading versus short-term trading is a PERSONAL style. If you were able to recover your capital and earned "some" profit, then you don't have any reason to "grumble" about the commission fees and taxes you paid that should have been part of your profits. You pay for "assurance". While some people have faith on historical charts, just like what the banks say - past performance is not a guarantee of future outcome. If you are nail-biting about the possibility of losing your capital, then sell in the short-term and pay your broker his fees (and taxes). There's no use being greedy and wanting to have your broker's commission in your pocket too.

    And also, confidence about the future is an individual call and belief, no matter how many historical charts are out there.
  • Debt is not always a bad thing. And it is wrong to make a "perception" about a person simply because he is "piling on more debt", unless you examine and mention what the debts are used for.

    And that's why it makes more sense to look at the totality of a person's financial picture (i.e., his net worth), because for as long as this is improving, then debt per se isn't a harmful thing. The idea is to ultimately pay off debt, not to let it linger in perpetuity.
    Trading commissions and taxes on FREQUENT trading is the PRICE a person pays about his personal uncertainty about the future. It is the conservative approach to stock trading to preserve the liquidity of your capital.

    That may be the case, but as the saying goes, "people are entitled to their own opinions but they are not entitled to their own FACTS". The fact remains that frequent trading reduces returns. In a prior thread, I have posted some voluminous academic research from the University of California (Davis) that supports this conclusion. Jumping in and out of stocks in the hope of obtaining short term gains will eventually harm the investor. It may be a matter of personal style (or opinion) as you say, but still, we have to respect the facts. I may believe I can fly (my personal opinion) but if I jump out of a plane without a parachute, the FACT of gravity will ultimately intervene to expose the fallacy of my opinion.
  • tekton12 wrote: »
    The fact remains that frequent trading reduces returns.
    "Returns" should be measured based on a defined span of time. If your span of time was unfortunate enough to have caught a market collapse like the tech bubble burst of 2000, or maybe a prolonged bear market beyond your tolerable waiting period, then there will be frequent traders who would have possibly outstripped you in terms of collected cash at the end of that defined span of time (note that we are not adding the element of diversification in this discussion, per se).

    Thousands of long-term investors lost big time during the tech downturn. It was a sudden collapse out-of-the-blue. Sure, many will simply extend their "patience" and start the waiting period all over again, but many others have already died without reaping the fruits of their long-term stock investment.

    And then, of course, there is Enron, and Worldcom, and countless other catastrophes. Long-term hopefuls who ended up with nothing but a fraction of their capital.

    If we will remove all these "unforseen" factors from the equation, then the mathematics that frequent trading reduces returns will always be true, just as day follows night.

    Diversification is another story. But frequent traders also have diversified positions, and we are not really privy into how much capital they put on their other baskets to cancel the adverse effects of frequent trading.
    tekton12 wrote: »
    Jumping in and out of stocks in the hope of obtaining short term gains will eventually harm the investor. It may be a matter of personal style (or opinion) as you say, but still, we have to respect the facts.
    "Harm" is a relative term here.

    Reduced earnings is not necessarily classified as "harmful". And you will only get a reduced capital, when you sell below your buying price. A lot of frequent traders are prepared to hold when they make a bad call. So we cannot always preempt their strategy (and goals) in doing short-term trades.

    Reduced returns is a fact, if we are confined to the mathematics alone and there is no defined tolerance waiting period on when to redeem your gains. But like I said earlier, stock trading is not always a contest on who earns the highest amount of cash in the end. So unless people are absolutely clueless about what they are getting into, the option of doing long-term and short-term stock investments should both be VALID and ACCEPTABLE choices to the investor who understands how to use them to fit his personality.
  • "Returns" should be measured based on a defined span of time. If your span of time was unfortunate enough to have caught a market collapse like the tech bubble burst of 2000, or maybe a prolonged bear market beyond your tolerable waiting period...

    I agree that returns should be measured over a given time span. However, I take issue with the claim that frequent traders "would have possibly outstripped" the buy and hold types during the 1990s tech bubble and subsequent crash. Is this conjecture or is this fact? Well, let's look at the data. How indeed did active managers/traders fare during the stock bubble? Did their short term trading save them from perdition?

    According to this paper "Survivor Bias and Improper Measurement" written by Amy Barrett and Brent Brodeski of Savant Capital, "actively managed mutual funds in all nine of the Morningstar Principia® “style boxes” lagged their related indexes from 1995-2004." This study covers the 10-year period that includes the tech bubble and crash. Keep in mind that these managers/traders are professionals considered the best in the business - trained in the best business schools in the US. They are not daytraders who chase after stock tips on messsage boards. If even they had a hard time beating the indices and avoiding the tech wreck, how much more for mere mortals? It is safe to conclude that the statistical probablity of outstripping the buy and hold investor is slim indeed. This is not to say that nobody ever beats buy and hold. Some people do. But the odds are just not in their favor and it would be the height of irresponsibility to suggest that market-timing and short term trading are in the best interest of ordinary investors. The fact remains that financial markets are hard to predict, and investors are better off not timing them.
    And then, of course, there is Enron, and Worldcom, and countless other catastrophes. Long-term hopefuls who ended up with nothing but a fraction of their capital.

    Actually, this argument applies only to those who pick individual stocks thinking they can identify good investments using superior skill. But for the indexer, the Enron debacle did not do any damage due to the benefit of diversification.
  • whats up with the ego? i mean come one? wtf? did your mother not love you enough? why do you have low self esteem that you need to prove your so much smarter than everybody else with your longs posts and your equally long arguments i mean come on who gives a rats @$$ about the....oh crap i fell asleep reading all the bs that was written

    i mean enough with the self righteous im so much richer and smarter than everyone else becouse my net worth is so much higher than yours and i can prove that with my arguments about net worth and long posts
  • mean enough with the self righteous im so much richer and smarter than everyone else becouse my net worth is so much higher than yours and i can prove that with my arguments about net worth and long posts

    So is this your "contribution"? Grow up dude. If you have a rebuttal, then present it in logical fashion. Present your facts. Cut the name calling and ad hominem attack, you're only demeaning yourself.
  • I'm saying it again, people invest in the stock market for various reasons. It is not a contest on who should be looked upon as the No.1 money-maker who will be crowned as the king of the stock market.

    But you will find that in any gathering of stock investment enthusiasts, the long-term guys will always pick on the short-term guys. There is not a single time that a long-term investor will not stand-up and emphasize that they are earning more money than short-term daytraders.

    Instead of downsizing the daytraders with "research facts" that are already known for decades, you just need to understand why daytraders do what they do. Daytrading can be a profession, an outlet for gambling, a source of quick money, or perhaps an inescapable first-time stock trading experience. Daytraders and Long-term Haulers have their own worlds. There is no need to cross the bridge for a debate on who earns the greatest amount of money. But you will find that the long-term haulers are the ones who have this burning urge to cross that bridge and pick on the daytraders.

    Maybe you can wait for 1 year. I can wait for only 3 months or 2 weeks. Maybe you earned a million dollars, and I earned $200,000 only. I'll just shrug my shoulder. My net worth is based on cash, your net worth is based on paper certificates. I made my broker rich due to frequent trading commissions, but who cares anyway? What's important is, I got my capital back safe in my pocket with some earnings on my own. It doesn't matter if we split the earnings 50-50 with my broker. Some are greedy. Others are just playing safe. You're either a fundamental investor, or a technical investor. A long-term investor, or a daytrader. People choose what they want to be. Welcome to the world of the stock market.

    In the end, the most important fact is: Short-term trading is not for everybody, just like long-term investment is not for everybody.
  • I will be surprised if someone answer this question in all honesty....
  • you just need to understand why daytraders do what they do. Daytrading can be a profession, an outlet for gambling, a source of quick money, or perhaps an inescapable first-time stock trading experience

    There is no need to explain what daytraders do. I'm amused that some are getting so defensive about daytrading when this thread is simply about explaining the concept of "net worth". The purpose of this thread is to discuss a basic topic in personal finance. This is a personal finance forum, right? "Net worth" is so basic because it will tell you where you stand before you can even contemplate about investing in whatever it is you want to invest in. Knowing your net worth will give you an idea of what you need to do to improve it. It is not about having a "contest" of who will be the "number 1 money maker in the stock market". It is about self-evaluation. If a person's net worth is already so huge as to be able to sustain his lifestyle indefinitely, then he may not even need to invest in stocks at all. Why bother? But if his net worth is zero or negative, then he may want to do something about it. Knowing your net worth is an act of self-evaluation.
  • But you will find that in any gathering of stock investment enthusiasts, the long-term guys will always pick on the short-term guys. There is not a single time that a long-term investor will not stand-up and emphasize that they are earning more money than short-term daytraders.

    Hmmm....from what I recall, it was you who compared the performance of long term investors to frequent/short term traders. Here's what you said:
    there will be frequent traders who would have possibly outstripped you in terms of collected cash at the end of that defined span of time

    This statement of yours came from out of the blue. It is not even directly relevant to the thread on "net worth". Be that as it may, I reacted to it by saying that this is not supported by the data, as published by Barrett and Brodeski in their paper Survivor Bias and Improper Measurement which came out last year. Barrett and Brodeski showed that active investors/traders did not do very well during the dot com bubble compared to buy-and-hold indexers. But I would not have cited this paper had you not claimed that frequent traders "outstripped" the buy-and-holders during the time span in question.

    My original post did not even say anything about daytrading. If anything, the reference to trading was made to buttress my larger point which is that net worth will not grow if people only focus on increasing assets without reducing their liabilities. Since liabilities include taxes and trading commissions, then it makes a whole lot of sense to adopt an investing strategy that will minimize those. There's nothing in my original post that says "long term investors will be crowned number 1 in the stock market" although that may well be the inevitable result. It seems to me you are reading too much into what I wrote.
    My net worth is based on cash, your net worth is based on paper certificates.

    This is a dubious distinction. Cash is a form of "paper certificate" so I'm not sure what your point is exactly.
  • Matanong ko lang, now that the topic is about net worth, I remember an article in the Inquirer during the days of the proposed tax amnesty. The then president of the Chinese Chamber of Commerce claims that there are about 15000 families in the P30M Net worth, and about 7000 in the P50M,that belong to their organization. Can anyone confirm this? Curious lang ako.
  • revhardrevhard PEx Veteran ⭐⭐
    you guys rock!
  • tekton12 wrote: »
    There is no need to explain what daytraders do. I'm amused that some are getting so defensive about daytrading when this thread is simply about explaining the concept of "net worth". The purpose of this thread is to discuss a basic topic in personal finance.
    Your lecture on "net worth" is indeed good, for beginners, and a reality check for the old-timers... until you started hitting on your friends whom you said are "so gung-ho about investing in the stock market, watching their stock holdings appreciate in value week by week....yet they also pile on more debt on the side....splurging away their profits. Or they trade too much, thus incurring more expenses through trading commissions and taxes."

    That's the reason why this "net worth" discussion was diverted to stock trading. You used narrow examples of people's practices as part of your "bad examples" on net worth.

    People pile their debts all the time. But does being in a pile of debt "per se" justified to make them a bad example to others? You need to go deeper on "why" and "for what" they are in debt for. There's a lot of justified reasons for "piling debts". Did your friends get loans just to buy a Volvo? Did they pile debts so they can eat at Manila Pen every night? Unless you cite specific examples of "piled bad debts", you cannot project a general impression that people who "pile debts" is a bad example.

    And besides, net worth goes up and down during a person's lifetime. And there's plenty of good reasons why it is so. Many other people have intentionally reduced net worth at the moment as a reflection of their risk-taking appetite. We cannot discuss net worth if we only cite the narrow, one-sided view, on how different people run their finances in life as viewed from the outside in a third-person perspective.

    tekton12 wrote: »
    Since liabilities include taxes and trading commissions, then it makes a whole lot of sense to adopt an investing strategy that will minimize those.
    Again, they are paying for those liabilities for a reason. It's the assurance that they were able to get their capital back into their pockets, and the ability to have cash to spend NOW.

    A long-term investing strategy may make a whole lot of sense to you, but as I have said, many people can't wait to stick it out for the long run like you do. The element of time and patience differs from person to person. Just as different people have different appetites for risk, there are also different people who have different appetites for patience.

    tekton12 wrote: »
    Barrett and Brodeski showed that active investors/traders did not do very well during the dot com bubble compared to buy-and-hold indexers. But I would not have cited this paper had you not claimed that frequent traders "outstripped" the buy-and-holders during the time span in question.
    I said: "there will be frequent traders who would have possibly outstripped you in terms of collected cash at the end of that defined span of time".

    tekton12 wrote: »
    This is a dubious distinction. Cash is a form of "paper certificate" so I'm not sure what your point is exactly.
    You can't pay for your groceries using your stock certificates.

    So again, the wealth of short-term stock investors are in spendable cash, while the wealth of long-term stock investors are written in unspendable paper certificates.
  • And besides, net worth goes up and down during a person's lifetime. And there's plenty of good reasons why it is so.

    So your point is, there is no need to know net worth because it changes all the time? I think people already know that, that's why I said net worth has to be checked periodically. Matter of fact, net worth has to change, but it should change in the POSITIVE DIRECTION. To be honest, I'm not sure what your point is. You seem to be fixated on the following items:

    1. net worth changes all the time because people borrow money for whatever reason, affecting their net worth at a given moment

    2. different people have different risk appetites and time horizons

    3. trading commissions and taxes are necessary evils to pay for the assurance of liquidity

    Items 1 and 2 are non-issues. Nobody disagrees with them. You are belaboring the obvious. And the obvious has little to do with the point of the thread, which is to show that assets minus liabilities = net worth. I think you are pursuing a red herring.

    On item 3, now that's debatable. Are paying taxes and commissions really needed to provide assurance of liquidity? These are transaction costs that are simply that: transaction costs. They do not provide the assurance of liquiditiy. Think about it. If the stock market crashes, your stock will not become any more liquid just because you paid commissions to your broker. You can pay as much commissions as you want, but if nobody will buy your stock at your asking price, your stock is still illiquid at that particular price. The paying of commissions has nothing to do with the liquidity of the stock. The liquidity of the stock is determined by market forces, i.e. supply and demand.
    Unless you cite specific examples of "piled bad debts", you cannot project a general impression that people who "pile debts" is a bad example.

    Who is using the term "bad debt"? I never used the term "bad debt". You are the only one who is using this term. Please don't confuse what I said with what you think I said. My original post did not make any distinction between "good debt" and "bad debt". These are value judgments that came only from you. What I said was that the piling on of debt will reduce net worth. That is not debatable. It is a fact that whether you use your credit card to buy a Volvo or pay for your son's medical bills, you incur some debts which have to be repaid at some point in the future. And just as 1+1=2, assets-liabilities = net worth. No amount of verbal gymnastics will change that mathematical fact.
    So again, the wealth of short-term stock investors are in spendable cash, while the wealth of long-term stock investors are written in unspendable paper certificates.

    This is false. Stocks can be converted into cash fairly quickly (matter of minutes). The only question is what price you'll get when you convert it. Barring a major volatile move, you should be able to encash your stock within a reasonable +/- 5% of its last closing price with the click of a mouse.
  • My, you guys should probably rent a boxing ring and slug it out. But, kidding aside, let me share something from my own experience. I am more inclined to side with tekton 12. My wife and I, we don't borrow money, we don't use credit cards, we even don't use an ATM card. We only buy when we can afford it totally. So, now, we own our house and cars debt free, our savings are twice more than the value of our house, and our material goods? About half the value of our house. Yes, we're super frugal, and we just hate buying things that depreciate in value. The trap of leverage is that, even when your intentions are good, , something can always go wrong. It is always more sound to avoid it, no matter what the banks and the books tell you. Just ask the millionaires in Binondo and Greenhills.
  • tekton12 wrote: »
    So your point is, there is no need to know net worth because it changes all the time?
    No, my point is, you are using examples in a negative way about other people's lives on how they run their finances without stating or analyzing their goals in acquiring debt or why they trade frequently.

    A lot of people are piling debt. A lot of people trade frequently. If you lump them ALL together and label them as "making mistakes", then you are not lecturing about net worth alone but promoting a strategy that works for you, and for people like you - at the expense of those investors who are not like you. So this is not an unbiased lecture on net worth.

    And you can't cite book authors/analysts as the ultimate judge on financial right or wrong in how a person should mold his own personal financial strategy. You can't use the reasoning that "If even they had a hard time beating the indices and avoiding the tech wreck, how much more for mere mortals?". Even the author of "Rich Dad, Poor Dad" has may financial experts saying his theories are completely wrong. So let's not call upon our idols to back us up on who is making a mistake, and who is not. It's not adding anything to the issue.

    It's good to lecture about how to compute and use net worth, but you can't pass judgment on how people run their lives and say their practices are mistakes. Unless they personally hired you to give them financial advise.

    tekton12 wrote: »
    You can pay as much commissions as you want, but if nobody will buy your stock at your asking price, your stock is still illiquid at that particular price.
    I keep telling you this: Many short-term traders are doing frequent trading because they want to get their profits without the fear that their capital will get stuck on a certain position for a long time. By doing short-term trading (and I'm referring to completed transactions only), you get your earnings and your capital back. You pay frequent commission fees in exchange for that assurance of always having your capital given back to you.

    tekton12 wrote: »
    Who is using the term "bad debt"? I never used the term "bad debt". ..... My original post did not make any distinction between "good debt" and "bad debt".
    That's why you should make the distinction between bad debt and good debt, because you started using examples of other people's lives and calling them "mistakes". If your LECTURE simply stated the mathematics of net worth, without nitpicking bad impressions on other people's chosen practice on debt, taxes, and commissions, then your LECTURE would not have been debatable in itself.

    tekton12 wrote: »
    Stocks can be converted into cash fairly quickly (matter of minutes). The only question is what price you'll get when you convert it. Barring a major volatile move...
    So you see, the value of your stock certificates is not yet assured. But the value of a person's $100 bill, is still $100, whether the market has crashed or not.

    There are many ways to lecture the fact that a person should build his net worth on the POSITIVE DIRECTION. However, you chose to pick stock trading styles as an example to lecture what style is a mistake in relation to net worth, and what is not. People have various beliefs on what stock investing style fits them. You brand those investment styles as mistakes, then you should expect some form of rebuttal. Because unlike net worth computation alone, stock trading styles are subject to individual beliefs and preference.
  • doc pio wrote: »
    I am more inclined to side with tekton 12. My wife and I, we don't borrow money, we don't use credit cards, we even don't use an ATM card. We only buy when we can afford it totally. So, now, we own our house and cars debt free, our savings are twice more than the value of our house, and our material goods? About half the value of our house. Yes, we're super frugal, and we just hate buying things that depreciate in value. The trap of leverage is that, even when your intentions are good, , something can always go wrong. It is always more sound to avoid it, no matter what the banks and the books tell you. Just ask the millionaires in Binondo and Greenhills.
    So that's okay! There are different paths to increasing your net worth. I'm not as frugal as you, but that is your style. You don't use credit cards, I use credit cards all the time - that's my style (and of course, I pay the entire amount in full every month). You believe that a leverage is always bound to go wrong - so you are more conservative than I am. Some people play safe. Some people are risk-takers. You are free to do what you want to do.

    One thing we can't do is label their practice as a mistake, until we fully analyze their goals, personality, and philosphy in life.

    Computing net worth is just arithmetic. It's not debatable. Nitpicking other people's financial style in life, is bound to end up in a long argument.
  • That's why you should make the distinction between bad debt and good debt, because you started using examples of other people's lives and calling them "mistakes". If your LECTURE simply stated the mathematics of net worth, without nitpicking bad impressions on other people's chosen practice on debt, taxes, and commissions, then your LECTURE would not have been debatable in itself.

    I think you are utterly confused, my friend. You need to relax and get over it. Read my original post again. Take a deep breath while reading it so you can digest it better. To recap, here's what I said: Many people make the mistake of focusing only on growing their assets while neglecting to reduce their liabilities.

    The mistake I am referring to is the mistake of not looking at the big picture....it's the mistake of focusing only on one side of the balance sheet while neglecting the other. The examples I gave are common examples of how people load up on debt, without passing judgment on their moral character. Apparently, you want to find out people's motives for incurring debt, and then decide whether these debts are good or bad. But why should I do that? I do not have the time or inclination to interview each and every single person to find out what they are using the debt for. Now that would be nitpicking.

    And the reason I cited trading commissions as an example is because this is an investing forum. Where else should we talk about trading commissions if not in an investing forum? Do you want me to post this in the entertainment forum instead?

    Let's face it: trading commissions are liabilities. The more you trade, the more commissions you have to pay, and the more liabilities you incur. And the more liabilities you incur, the greater negative impact this will have on your net worth. Now your motives for trading excessively could be the purest of the pure. Maybe you want make as much money in the shortest period of time so you can donate the proceeds to your church. Maybe you just want to be charitable to your broker. It really doesn't matter what your motive is. From the point of view of your balance sheet, wracking up trading commissions will still be a drag on your net worth. Mathematics is agnostic and amoral.
    By doing short-term trading (and I'm referring to completed transactions only), you get your earnings and your capital back. You pay frequent commission fees in exchange for that assurance of always having your capital given back to you.

    Of course if you don't pay commissions to liquidate your stock, you will not be able to get your capital back. This is true whether you trade once a minute or once a year. Do you know anyone who doesn't pay commissions? Everyone pays commissions.
    You seem to have this misconception that just because you pay commissions frequently, you are somehow more "assured" of having more access to your capital. Are you suggesting the your broker will only honor your trade if you are frequent flyer? I have never heard such a thing before. Bottom line, please don't equate the paying of commissions with liquidity. Liquidity is a whole different issue; it is determined by market forces, not by the paying of commissions.
    So you see, the value of your stock certificates is not yet assured. But the value of a person's $100 bill, is still $100, whether the market has crashed or not.

    The value of a $100 bill also fluctuates everyday, according to prevailing exchange rates. Exchange rates are not static.
  • Matanong ko lang, now that the topic is about net worth, I remember an article in the Inquirer during the days of the proposed tax amnesty. The then president of the Chinese Chamber of Commerce claims that there are about 15000 families in the P30M Net worth, and about 7000 in the P50M,that belong to their organization. Can anyone confirm this? Curious lang ako.

    Hi Doc Pio,

    Yes I remember reading this news item vaguely. From what I recall, it said that about 45000 households in the Philippines have a net worth of at least 1 million pesos. Assuming a total Filipino population of 80 million, and total number of households of 16 million (assuming 5 members per household, 80 mil/5 = 16 mil households), then 45000/16 million = 0.0028 or 0.28%.

    Thus, if you have a net worth of at least 1 million pesos, you belong to the elite, the top 0.28% of households. Unfortunately, 1 million pesos may only be enough to buy a car. It doesn't go far enough. A lot more work needs to be done to uplift our fellow Filipinos from poverty. The first step in achieving this is to define the problem. This is where net worth calculation comes in. Ideally, everyone should compute their net worths regularly to see where they stand. Once this information is available, people can then decide what they need to do....how hard they need to work, save, and invest in order to increase their net worths. The point is not to compare yourself with others in some sort of contest, but to diagnose your own condition so you can improve yourself.

    Thanks for your comments.
  • tekton12 wrote: »
    I think you are utterly confused, my friend. You need to relax and get over it. Read my original post again. Take a deep breath while reading it so you can digest it better.
    I'm addressing the issues to you with direct responses. Now you are doing evasive replies.

    tekton12 wrote: »
    The mistake I am referring to is the mistake of not looking at the big picture....it's the mistake of focusing only on one side of the balance sheet while neglecting the other.
    So now you are detaching your mistake-calling statement away from your friend-hitting examples. That's a good way to clarify, since you placed them all in one paragraph in succession in your first post.

    tekton12 wrote: »
    Apparently, you want to find out people's motives for incurring debt, and then decide whether these debts are good or bad. But why should I do that? I do not have the time or inclination to interview each and every single person to find out what they are using the debt for.
    Then make it a point to be careful not to give impressions of right or wrong when you don't know the real story behind the things that other people do based on your mere observations. Unless of course you are already expressing your opinion and no longer lecturing.
    tekton12 wrote: »
    And the reason I cited trading commissions as an example is because this is an investing forum. Where else should we talk about trading commissions if not in an investing forum? Do you want me to post this in the entertainment forum instead?
    That's why I'm addressing the issues on your lectures. Since you went beyond just telling people how to compute net worth, but you're now picking on people's practices trying to give an impression on what practice is bad, without attempting to know the real story behind their practices.
    tekton12 wrote: »
    From the point of view of your balance sheet, wracking up trading commissions will still be a drag on your net worth.
    The word "drag" by your example, is a subjective word. When the cost of acquiring your profits is inherent to the practice you made, then the liabilities you incurred is not a drag at all but a natural expense in doing business. It becomes a "drag" when you compare it to something else and you compare the resulting profits minus the expense, and measured in a defined span of time limit.

    Let's say my time limit is 1 month. Can you immediately claim that your net worth will be higher than mine, if you will make only 1 trade, and I'll make 10 trades without seeing our actual profits by the end of the month?

    You cannot even claim that I will consider my paid commission fees as "dragging" my own net worth since my balance sheet labels it as a natural cost of my chosen method of doing business. It's a natural expense of frequent trading. Why should it be "dragging" my net worth?? If I'm giving my broker an extra 5% tip on top of his commission fees, then those tips are "dragging" my net worth since they are unnecessary liabilities.

    And lastly, broker commission fees nowadays are so low for anyone to be worried about "losing" your supposed income to your broker. Unless, of course, you are THAT greedy for profits.

    tekton12 wrote: »
    You seem to have this misconception that just because you pay commissions frequently, you are somehow more "assured" of having more access to your capital. Are you suggesting the your broker will only honor your trade if you are frequent flyer?
    I said: Commissions are paid, when transactions are completed. If you earned a profit, however small, your access to your capital is already in your pocket.

    tekton12 wrote: »
    The value of a $100 bill also fluctuates everyday, according to prevailing exchange rates. Exchange rates are not static.
    The correct comparison in our discussion is the inflation rate. Not the exchange rate. The value of a $100 bill in relation to its capacity to buy goods, compared to your unspendable stock certificate the value of which, can drastically change any single day (or minute) without warning.
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