Knowing the concepts of the Time Value of Money can help achieve astronomical yields. We measure the relationship of the Five Variables applied to the Time Value of Money. As a quick review the five variables are:

N = Number of Periodic Payments
I/YR = Yield
PV = Present Value
PMT = Amount of Periodic Payments
FV = Future Value

As explained in The Note Professor Notebook, these variables relate to one another. When one variable is changed, another variable is affected.

In this issue I am going to concentrate on PV, N and I/YR. More specifically, how a small decrease in PV will translate into "Obscene Yields" when N is a small number.

Let's take a real example of how I applied the concepts of the Time Value of Money to achieve a WHOPPING 138.65% yield. Better yet, it was tax free.

Scenario: I was lease optioning a condo at $700 a month. When I was paying my rent at the first of the month, I approached my landlords with the offer to pay them three months in advance if they would discount my rent by 10%. A little math tells us that $700 x 3 months equals $2,100. Subtracting 10%, or $210, from this total leaves us $1,890.

A point to remember: Unlike mortgages that are paid in arrears, rents are paid forward. This is what is called Annuity Due. To calculate Annuities Due, we must place our calculators in the BEGIN mode. Let's see what this transaction looks like from my point of view, as well as my landlords.

N = 3 Months
I/YR= 138.65% WOW
PV = -$1,890 Amount Paid in Advance
PMT = $700 Rent Payments I Put In My Pocket
FV = 0

NOTE: A 10% Discount for Three Months in the BEGIN mode will ALWAYS produce a 138.65% yield. I LOVE AMERICA.

Let's break this down. The landlords took only a $70 a month discount in order to receive a lump sum of cash for three months. I, on the other hand saved $70 a month, which translated into a 138.65% yield.

To put it another way,
in three months I saved $210 to invest in other transactions like this one.

Question: What would your yield be if you borrowed the money from you bank, friend or even your credit card for three months. Your yield would be "infinity" since you would have no money of your own invested. The symbol for infinity is the number 8 on its side. Hence, the phrase your return is a "Lazy Eight".

You can apply this technique to almost anything. For example, one of my students uses this technique to pay her hair dresser. Still another student uses this technique to pay his yard man. The same principle applies to "two for one sales" or "buy two and get one free". If you use the products, think about taking advantage of these deals, and with the money you save, invest in similar deals.

Along the same lines, a franchise hair cutting business offers to cut hair for $15. However, they offer to sell 5 cuts for $60, and better still, you could purchase the discounted price at the time you received your first hair cut. This is another Annuity Due scenario, which means your calculator should be set in the BEGIN Mode. Here is what this transaction looks like:

N = 5 Number of Hair Cuts
I/YR= 151.08% AWESOME
PV = -$60 Amount For Paying In Advance For a Discount
PMT = $15 Regular Price for the Hair Cut
FV = 0

Are you noticing the relationship of N, PV and I/YR? When N is a small number, a slight discount in PV will translate into "Obscene Yields". For a little calculator practice; the above scenario was based on getting a hair cut once a month. What would your yield be if you got the hair cut once a week?

Another one of my students applied the concepts of the Time Value of Money to loans. One of his tenants, who also worked for my student, mentioned his daughter wanted a bicycle for her birthday, but the tenant did not have the money to purchase one because the price was around $200. It just so happens my student was at a city police auction that weekend and found an almost new girl's bike that he picked up for $75.

He offered the bike to his tenant for $15 a month for one year. The tenant was pleased and upon receiving the bike, immediately gave my student $15. From what I was told, the young daughter's eyes lit up, and jubilation took over her from head to toe when the bicycle, along with a pink ribbon on the handle bars, was presented to her on her birthday.

Happy story for all. We know the tenant and his daughter were overjoyed, but how did my student come out.

Let's look. Remember, since my student received the first $15 immediately upon selling the bicycle, we will put our calculator in BEGIN Mode.

N = 12 Number of Months the Bike Was Finance
I/YR = 203.31% Double WOW
PV = -$75 The Amount My Student Paid for the Bike
PMT = $15 Amount of Monthly Payments with The First Payment Immediately Upon Receiving the Bike
FV = 0

Here is another example of how when N is a small number, small discounts translate into astronomical yields. When giving my presentation on "How To Obtain Obscene Yields with Small Money" at a national note convention, I asked my audience what they considered to be "small" money. I was flabbergasted when I got answers like "$20,000", $50,000", with the smallest amount being $5,000. If you fall into this category, simply add zeroes to the above case studies.

For example, after hearing my presentation, I got an email from one of the attendees telling me how his handyman's truck had broken down, and the handyman did not have the money to immediately purchase another. My attendee found a used truck that was in good condition, and could be purchased at a discounted price of $3,000. He sold the truck to his handyman for $5,000 with 36 payments of $138.89. Although my attendee realized ONLY a 36.86% yield, his primary purpose was to provide his handyman with an affordable vehicle to get to and from my attendee's rent houses. By applying TIme Value of Money concepts not only did my attendee solve the problem of transportation to and from his rent houses for his handiman, he enjoyed a 36.86% yield.

Summary: When N is a small number, a slight decrease in PV will increase I/YR to astronomical levels. It makes no difference if you are dealing with $30, $3,000 or even higher. Knowing how to apply the concepts of the Time Value of Money will solve problems, while at the same time increase your wealth.

If you have questions or comments, be sure to CONTACT ME I get the topics for my newsletters from your input.

Copyright © H&P Capital Investments LLC
All rights reserved
Tom Henderson
a.k.a. THE NOTE PROFESSOR

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I have been asked to comment on the Republican debate. I will do so, but only from an economic standpoint. I will try of summarize the Republican stand point by the remarks of a couple candidates.

Let's start with Jeb Bush's comments on Planned Parenthood. Bush favored to end federal funding for PP, but to fund other organizations. In other words, in Bush's world, like most Republicans, redistributing wealth to one group that he disapproves is bad, but redistributing wealth to another group he favors is good.

This philosophy of "good" wealth redistribution can also be recognized by Kasich's answer to his expanding Medicaid in his State of Ohio, even though it is over budget. He defended his actions by stating: "when we get to Heaven, St. Peter is not going to ask them how small they kept government, but what they have done for the poor."

This is just another weak attempt to invoke God in order to justify wealth redistribution. What is omitted is the "we and them" refers to his taking money out of other individual's pockets, transferring it to Washington, which takes out 80% for administration costs, and redistributes the wealth to the states. This is forced charity.

If we are looking at this from a moral standpoint, ask the question, who is being moral in a forced charity scenario?

Is Kasich being moral by forcing his citizens to pay for other's health care? Are the citizens who do not contribute voluntarily, but rather have their earning forced from them in the form of taxes being moral? Or how about voters who use the ballot to vote for wealth redistribution programs; are they being moral?

From a philosophical point of view, charity is voluntary action, not forced compliance.

A better scenario with Kasich at Heaven's Gate would be for St. Peter to ask, "Why did you forcibly take property that did not belong to you and redistribute it to others invoking God's name, then claim you are being moral and good. Don't you know that theft is a sin?"

His final statement of justifying using tax payer's money to fund medical care of others is the epitome of the faulty reasoning of a health system based on wealth redistribution.

Kasich stated, "Everybody has a right to their God-given purpose." (Speaking of those who receive health services at the expense of tax payers). His "goodness" is misplaced. Kasich is implying that a sick person's plight or misfortune gives Kasich the right to lay claim to another person's life to finance the sick person's God-given purpose. The moral question has to be asked, "Does a system based on laying claim to one person's life so that another person can fulfill his/her God-given purpose morally justified?"

We are back to old Note Professor Newsletter observation that both Republicans and Democrats believe in wealth redistribution. The Democrats justify it by claiming "We care". The Republicans counter claim is "We have good intentions and can do it better".

Which brings us to what Kasich completely ignored? His program, no matter how well intended is going broke. I suggest it might be "God's purpose" to remind us that consumption cannot exceed production.

Ok. Ok. Let's get to Donald Trump. Does Donald believe in free markets? Not even close. Remember that individuals trade with one another, not countries. Trump's assertion that he can negotiate better than anybody in the universe with the Chinese, begs the question: For whom is he negotiating? The manufacturers(which manufacturers?), the consumers, the workers, the unions, the banks, the State Department, the EPA, the Defense Department, his business cronies, the farmers, the retailers and a host of other entities that goes into a simple trade.

The fact is nobody can negotiate for all the entities involved in a simple trade, much less a complicated one. (For insight into what it takes to "negotiate" a simple product, I suggest you read "I, Pencil" by Leonard Read.

All that Trump, or any president can do is to gain power by granting favors or punishment to those he wishes to reward or penalize. Is this not really the objective of all "free trade" agreements?

As for the illegal immigration issue, all have overlooked the real cause. Mexico and Central America have a more corrupt system of government and economics than does America. It is no wonder individuals are willing to risk life and limb to come here. Economic Axiom: Immigration always flows from a less free market system to a more free market system. Addressing this reality would go a long way to finding a solution. Do I have a solution? Yes, but we are getting into the realm of politics and leaving the sphere of economics. I try not to do that.

As far as China "stealing" American jobs, I have explained in back issues of The Note Professor Newsletter how China's selling a shirt in America cheaper than an American manufacturer does not cost jobs. You can look for it, or if you want me to discuss it again, Contact Me and I will go over the subject again. I do not have space in this issue to cover this subject and I want to get to Mike Huckabee and Carly Fiorina.

Huckabee is classic illustration of the illusion held by many that if we change the tax system to the "Fair" (put your hand on your billfold when you see this word) Tax, all ills would be solved. Why is the Fair Tax an illusion? All that is being changed is the method of taxation, not the problem of embracing a collectivist system of economics and wealth redistribution programs.

If the government spends the same amount on wealth redistribution programs, how is a Fair Tax going to eliminate the problem?

It is like taking a bucket of water from the deep end of a swimming pool, and pouring it in the shallow end.

Let's get to Carly Fiorina. She comes the closest to understanding our economic problems. However, her big mistake is she is addressing the results of a statist/collectivist system of economics, not the cause. It is true that government has put regulations and taxes on small businesses that not only inhibits growth, but also discourages individuals even entering the market. Yes, removing regulations and taxes from the equation would promote the start of new enterprises, yet in the background, we still have a collectivist system of economics. It does no good to cut taxes from one group, only to have to raise them on another group. The wealth redistribution programs must be funded by someone. Collectivist systems are not sustainable.

While I believe she thinks she could reign in the bureaucracies and make them accountable, she will at worse be fighting a losing battle because they are too massive, and at best have no effect.

The size and scope of government bureaucracy is out of control. It is just too big. Sadly, she does not realize that the problem is the collectivist system that allows all these agencies to exist . The bureaucracies are but a result of almost a century of decay from a more free economic system to the chaos we have today. I would have liked her better if she would have said she wanted not to reform, but to eliminate all wealth redistribution programs and agencies. With that being said, of all the Republican candidates, from an economic point of view, from what I heard from all the candidates, she would be least harmful.

Conclusion: Not addressing we do not have a free market system, but rather a more statist/collectivist system is the Republicans main downfall. In fact, I contend they are more dangerous than the Progressives. At least the Progressives admit they favor a collectivist system over free markets, while the Republicans tout free markets, while continually favoring and funding collectivists programs they deem "good".

DO NOT look for a knight in shining armor from this bunch. It is not there.

If I did not get to your favorite candidate, I am constrained by space in this newsletter forum. I am sure if you will find your candidate making similar statements.

If you have a comment or a topic you would like discussed, CONTACT ME It is from your input I get many of my topics.

Copyright © H&P Capital Investments LLC
All rights reserved
Tom Henderson
a.k.a. THE NOTE PROFESSOR

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