SYNTHETIC EQUITY: Deferred Compensation for Financial Advisors

Posted on December 8, 2024 by Dr. David Edward Marcinko MBA MEd CMP™

DEFINED FOR FINANCIAL ADVISORS

By Dr. David Edward Marcinko MBA MEd

SPONSOR: http://www.MarcinkoAssociates.com

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Think of synthetic equity as a communal garden. You don’t own the plot, and you don’t necessarily have a say in what’s planted, but you’re guaranteed a share of the crops that are harvested. 

CITE: https://www.r2library.com/Resource/Title/0826102549

Synthetic equity is a form of deferred compensation that mirrors some of the benefits of real stock ownership without granting actual shares. It’s a contractual agreement between you and your employer that entitles you to a payout upon certain events—such as an IPO, acquisition, or surpassing earnings milestones.  

Companies use synthetic equity plans to motivate their personnel through growth-related incentives. In other words, it grants employees a sense of ownership without issuing shares or altering the business’s ownership structure. As the company succeeds and appreciates in value, so does your potential payout. Although you don’t own actual shares of company stock, you are compensated as if you did. 

READ: https://tinyurl.com/mr3upbn6

According to Carla McCabe, synthetic equity programs also have a significant tax advantage to both business owners and the key employees.

For example, when a key employee receives shares under the firm’s synthetic equity program, the IRS does not recognize that receipt as taxable income to the employee until he or she actually receives the money. This usually occurs when the firm is sold or when the employee retires and is cashed out (assuming the employee’s synthetic shares are vested). This is very attractive considering that regular shares are taxed as ordinary income and the employee basically has to pay the associated tax even though he or she didn’t receive any cash.

Of course, all this begs the question: Why would a company offer synthetic equity instead of actual equity?  

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DOOMSCROLLING & DOOMSURFING: Defined

Posted on December 8, 2024 by Dr. David Edward Marcinko MBA MEd CMP™

By Dr. David Edward Marcinko MBA MEd

SPONSOR: http://www.MarcinkoAssociates.com

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Two years ago, prior to the 2022 election, mental health experts alerted the medical world to their version of an assessment scale for yet another new condition – “doomscrolling.”

As defined by the National Library of Medicine in the article, “Constant exposure to negative news on social media and news feeds could take the form of ‘doomscrolling’ which is commonly defined as a habit of scrolling through social media and news feeds where users obsessively seek for depressing and negative information.”

And so, formally Doomscrolling or doomsurfing is the act of spending an excessive amount of time reading large quantities of news, particularly negative news, on the web and social media. Doomscrolling can also be defined as the excessive consumption of short-form videos or social media content for an excessive period of time without stopping. The concept was coined around 2020, particularly in the context of the COVID pandemic.

Surveys and studies suggest doomscrolling is predominant among youth. It can be considered a form of internet addiction disorder. In 2019, a study by the National Academy of Sciences found that it can be linked to a decline in mental and physical health. Numerous reasons for doomscrolling have been cited, including negativity bias and FOMO [fear of missing out], and attempts at gaining control over uncertainty.

QUERY: What about the roaring stock market, post the 2024 presidential election. Fundamental analysis or FOMO?

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CURSE: Knowledge and Hindsight Bias

Posted on December 8, 2024 by Dr. David Edward Marcinko MBA MEd CMP™

By Staff Reporters

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Similar to the availability heuristic (Tversky & Kahneman, 1974) and to some extent, the false consensus effect, once you really understand a new piece of information, that piece of information is now available to you and often becomes seemingly obvious. It might be easy to forget that there was ever a time you didn’t know this information and so, you assume that others, like yourself, also know this information: ie., the curse of knowledge.

However, it is often an unfair assumption that others share the same knowledge.

And so, the hindsight bias is similar to the curse of knowledge in that once we have information about an event, it then seems obvious that it was going to happen all along.

IOW: I should have seen it coming!

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STOCK MARKET: Capitalization, Depth, Maker, Neutral and Order

Posted on December 8, 2024 by Dr. David Edward Marcinko MBA MEd CMP™

By Staff Reporters

SPONSOR: http://www.MarcinkoAssociates.com

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Market Capitalization: Market capitalization is the market value of all the equity of a company’s common and preferred shares. It is usually estimated by multiplying the stock price by the number of shares for each share class and summing the results.

Market Depth: The degree to which a market can execute large market orders without impacting the price of a security. For example, a “deep” market for a stock will have a sufficient number of both bid and ask orders to keep a big order from significantly moving the security’s price.

Market Maker: A market maker exists to “create a market” for specific company securities by being willing to buy and sell those securities at a specified displayed price and quantity to broker-dealer firms that are members of the exchange. These firms help keep financial markets liquid by making it easier for investors to buy and sell securities–they ensure that there is always someone to buy and sell to at the time of trade.

Market Neutral: Equity market neutral strategies seek to eliminate the risks of the equity market by holding up to 100% of net assets in long equity positions and up to 100% of net assets in short equity positions. These strategies attempt to exploit differences in stock prices by being long and short in stocks within the same sector, industry, market capitalization, etc. If successful, these strategies should generate returns independent of the equity market. Equity market neutral portfolios have two key sources of return:

  • the Treasury Bill return (the interest on proceeds from short sales held in cash as collateral)
  • the difference (the “spread”) between the return on the long positions and the return on the short positions. Stock picking, rather than broad market moves, should drive most of a market-neutral strategy’s total return (save for any return from the 100% cash position).

It’s important to point out that here is the risk of theoretical unlimited amount of loss with short selling, (i.e. the price of the short-sold stocks increases; the long position can only go down to $0).

Market Order: An order placed with a bank or brokerage firm to immediately buy or sell a security at the best available current price. May also be referred to as an “unrestricted order.”

CITE: https://www.r2library.com/Resource/Title/0826102549

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