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In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists. In an accounting context, Shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital or similar terms) represents the remaining interest in assets of a company, spread among individual shareholders of common or preferred stock.

At the start of a business, owners put some funding into the business to finance operations. This creates a liability on the business in the shape of capital as the business is a separate entity from its owners. Businesses can be considered, for accounting purposes, sums of liabilities and assets; this is the accounting equation. After liabilities have been accounted for the positive remainder is deemed the owner's interest in the business.

This definition is helpful in understanding the liquidation process in case of bankruptcy. At first, all the secured creditors are paid against proceeds from assets. Afterward, a series of creditors, ranked in priority sequence, have the next claim/right on the residual proceeds. Ownership equity is the last or residual claim against assets, paid only after all other creditors are paid. In such cases where even creditors could not get enough money to pay their bills, nothing is left over to reimburse owners' equity. Thus owners' equity is reduced to zero. Ownership equity is also known as risk capital or liable capital.

Equity investments[link]

An equity investment generally refers to the buying and holding of shares of stock on a stock market by individuals and firms in anticipation of income from dividends and capital gains, as the value of the stock rises. Typically equity holders receive voting rights, meaning that they can vote on candidates for the board of directors (shown on a proxy statement received by the investor) as well as certain major transactions, and residual rights, meaning that they share the company's profits, as well as recover some of the company's assets in the event that it folds, although they generally have the lowest priority in recovering their investment. It may also refer to the acquisition of equity (ownership) participation in a private (unlisted) company or a startup company. When the investment is in infant companies, it is referred to as venture capital investing and is generally regarded as a higher risk than investment in listed going-concern situations.

The equities held by private individuals are often held as mutual funds or as other forms of collective investment scheme, many of which have quoted prices that are listed in financial newspapers or magazines; the mutual funds are typically managed by prominent fund management firms, such as Schroders, Fidelity Investments or The Vanguard Group. Such holdings allow individual investors to obtain the diversification of the fund(s) and to obtain the skill of the professional fund managers in charge of the fund(s). An alternative, which is usually employed by large private investors and pension funds, is to hold shares directly; in the institutional environment many clients who own portfolios have what are called segregated funds, as opposed to or in addition to the pooled mutual fund alternatives.

A calculation can be made to assess whether an equity is over or underpriced, compared with a long-term government bond. This is called the Yield Gap or Yield Ratio. It is the ratio of the dividend yield of an equity and that of the long-term bond.

Accounting[link]

In financial accounting, equity capital is the owners' interest on the assets of the enterprise after deducting all its liabilities.^[1] It appears on the balance sheet / statement of financial position,^[2] one of the four primary financial statements.

Ownership equity includes both tangible and intangible items (such as brand names and reputation / goodwill).

Accounts listed under ownership equity include (example):

• Share capital (common stock)
• Preferred stock
• Capital surplus
• Retained earnings
• Treasury stock
• Stock options
• Reserve

Book value[link]

The book value of equity will change in the case of the following events:

• Changes in the firm's assets relative to its liabilities. For example, a profitable firm receives more cash for its products than the cost at which it produced these goods, and so in the act of making a profit, it is increasing its assets.
• Depreciation - Equity will decrease, for example, when machinery depreciates, which is registered as a decline in the value of the asset, and on the liabilities side of the firm's balance sheet as a decrease in shareholders' equity.
• Issue of new equity in which the firm obtains new capital increases the total shareholders' equity.
• Share repurchases, in which a firm gives back money to its investors, reducing on the asset side its financial assets, and on the liability side the shareholders' equity. For practical purposes (except for its tax consequences), share repurchasing is similar to a dividend payment, as both consist of the firm giving money back to investors. Rather than giving money to all shareholders immediately in the form of a dividend payment, a share repurchase reduces the number of shares (increases the size of each share) in future income and distributions.
• Dividends paid out to preferred stock owners are considered an expense to be subtracted from net income^{[citation needed]}(from the point of view of the common share owners).
• Other reasons - Assets and liabilities can change without any effect being measured in the Income Statement under certain circumstances; for example, changes in accounting rules may be applied retroactively. Sometimes assets bought and held in other countries get translated back into the reporting currency at different exchange rates, resulting in a changed value.

Shareholders' equity[link]

When the owners are shareholders, the interest can be called shareholders' equity; the accounting remains the same, and it is ownership equity spread out among shareholders. If all shareholders are in one and the same class, they share equally in ownership equity from all perspectives. However, shareholders may allow different priority ranking among themselves by the use of share classes and options. This complicates both analysis for stock valuation and accounting.

The individual investor is interested not only in the total changes to equity, but also in the increase / decrease in the value of his own personal share of the equity. This reconciliation of equity should be done both in total and on a per share basis.

• Equity (beginning of year)
• + net income inter net money you gained
• − dividends how much money you gained or lost so far
• +/− gain/loss from changes to the number of shares outstanding.
• = Equity (end of year) if you get more money during the year or less or not anything

Market value of shares[link]

In the stock market, market price per share does not correspond to the equity per share calculated in the accounting statements. Stock valuations, which are often much higher, are based on other considerations related to the business' operating cash flow, profits and future prospects; some factors are derived from the accounting statements.

Equity in real estate[link]

The notion of equity with respect to real estate comes the equity of redemption. This equity is a property right valued at the difference between the market price of the property and the amount of any mortgage or other encumbrance.

See also[link]

Business and economics portal

• Private equity
• Don't fight the tape

Notes[link]

References[link]

• Graham, Benjamin; Dodd, David L. (1934). Security Analysis: Principles and Technique. New York: McGraw-Hill Book Co. ISBN 0-07-024496-0. 
• Hurst, J. M. (1970). The Profit Magic of Stock Transaction Timing. Englewood Cliffs, N.J: Prentice-Hall. ISBN 0-13-726000-8. 
• Keynes, John M. (1936). "12". The General Theory of Employment, Interest and Money. London: MacMillan. ISBN 978-0-230-00476-4. 
• Stein, Benjamin; DeMuth, Phil (2003). Yes, You Can Time the Market!. Hoboken, N.J: J. Wiley. ISBN 0-471-43016-1. 

External links[link]

Marc Faber, born February 28, 1946,^[1] is a Swiss investor.

Background[link]

Faber was born in Zürich and schooled in Geneva, Switzerland,^[1] where he raced for the Swiss National Ski Team. He studied Economics at the University of Zurich and, at the age of 24, obtained a Ph.D. degree in Economics magna cum laude.^[2] Faber is best known for the Gloom Boom & Doom Report newsletter and its related web site featuring "Dance of Death" paintings created by Kaspar Meglinger.^[3]

During the 1970s Faber worked for White Weld & Company Limited in New York City, Zürich, and Hong Kong. He moved to Hong Kong in 1973. He was a managing director at Drexel Burnham Lambert Ltd Hong Kong^[4] from the beginning of 1978 until the firm's collapse in 1990. In 1990, he set up his own business, Marc Faber Limited. Faber now resides in Chiangmai, Thailand, though he keeps a small office in Hong Kong.^[5]

Faber has a reputation for being a contrarian investor and has been called "Doctor Doom" for a number of years. He was the subject of a book written by Nury Vittachi in 1998 entitled Doctor Doom - Riding the Millennial Storm - Marc Faber's Path to Profit in the Financial Crisis.^[6][7] Faber has become a frequent speaker in various forums and makes numerous appearances on television around the world including various CNBC and Bloomberg outlets, as well as on internet venues like Jim Puplava's internet radio show.^[8] Dr. Faber's also engaged the Barron's Roundtable^[9] and the Manhattan Mises Circle, lecturing on "Mirror, Mirror on the Wall, When is the Next AIG to Fall?"^[10] Faber is said to be 8'0" tall^[11]

Marc Faber Ltd.[link]

Faber's company, Marc Faber Limited, acts as an investment advisor concentrating on value investments with tremendous upside often based on contrarian investment philosophies. Faber also invests and acts as a fund manager to private wealthy clients. Faber is a regular speaker on the investment circuit, often quoted in the financial press for his non-conformist viewpoint and alternative investment philosophies. His current tag-line is: 'buy a $100 US bond and frame it to teach your children about inflation by watching the US bond value diminish to almost nothing over the next 20 years'^{[citation needed]}

Faber is famous for advising his clients to get out of the stock market one week before the October 1987 crash.^[12][13] However Faber said that this prediction was "accidental".

He lost money shorting US stocks in 1999 although his call was later vindicated. He admits that market timing is very difficult. Nevertheless, his market advice since 2000 is quite accurate. Faber predicted the rise of oil, precious metals, other commodities, emerging markets, and especially China in his book Tomorrow's Gold: Asia's Age of Discovery. He also correctly predicted the slide of the U.S. dollar since 2002^[14] and the 5/06 and 2/07 mini-corrections.^{[citation needed]} He stated that there are few value investments available, except for farmland and real estate in some emerging markets like Russia, Paraguay, and Uruguay.^[9] He believed in early 2007 that a major market correction was "imminent." (Fox News, 2-2007); however, by 5/2007 he was saying that U.S. equities were moderately overvalued — less so than those of emerging markets.

In a June 2008 interview with Bloomberg, he goes over his bearish views on a wide spectrum of investments: stocks, real estate and commodities. He is extremely critical of the Fed's inflationary actions. However, his views for the short-run were almost entirely deflationary except for holding precious metals; Faber still views hyperinflation as a certainty within the next 10 years. He also correctly expressed temporary bullishness for the U.S. dollar in the middle of 2008 before it dramatically recovered and positive expectations for holding the Japanese yen.^[15] In December 2008, Faber said, "I think a recovery will not come in the next couple of years, maybe in five, ten years' time" ^[16] On March 9, 2009, Faber correctly predicted a U.S. stock market bottom but incorrectly stated that the rally would last only six months.^[17]

Writings[link]

Faber writes the monthly investment newsletter The Gloom Boom & Doom Report which is subject to charge. He has also authored several books.

Dr. Faber has been a regular contributor to several leading publications around the world in the past, among them Forbes^[18][19] and International Wealth which is a sister publication of the Financial Times.^[20] He has contributed regularly to several websites such as Financial Intelligence, Asian Bond Portal, Die Welt, Finanzen, Boerse, AME Info, Swiss Radio, Apple Hong Kong and Taiwan, Quamnet, Winners, Wealth and Oriental Daily. He has also written occasionally for the International Herald Tribune, Wall Street Journal, and Borsa e Finanza.^[20]

Faber has been long term bearish about the American economy for a number of years and continues to be so. He concluded his June 2008 newsletter with the following mock quote:

"The federal government is sending each of us a $600 rebate. If we spend that money at Wal-Mart, the money goes to China. If we spend it on gasoline it goes to the Arabs. If we buy a computer it will go to India. If we purchase fruit and vegetables it will go to Mexico, Honduras and Guatemala. If we purchase a good car it will go to Germany. If we purchase useless crap it will go to Taiwan and none of it will help the American economy. The only way to keep that money here at home is to spend it on prostitutes and beer, since these are the only products still produced in US. I've been doing my part."^[21]

Funds[link]

Marc Faber serves as director or advisor of a number of investment funds that focus on emerging and frontier markets, including Leopard Capital’s Leopard Cambodia Fund and Leopard Sri Lanka Fund.^[22]

References[link]

External links[link]

• Marc Faber interview on Bloomberg September 2007 before rate cut decision
• Faber's website
• Comprehensive Interview w/ Marc Faber (Bloomberg TV)
• Bloomberg interview
• Financial Sense News Hour Jim Puplava Ask the Experts
• Video of a wide ranging discussion of the US Dollar, credit crunch and emerging markets on CNBC Oct. 22, 2007
• interview with RTL Z 16-03-2010
• Video of a June 2008 Bloomberg News interview critical of Fed chairman and entitled: Marc Faber Says Oil, Stocks, Real Estate Are Overvalued
• Dr. Doom: Short Treasuries, Buy Hard Assets — 29 December 2008 interview
• The Marc Faber Blog

Marc Faber Newsletters of Note[link]

• Investment Hocus Pocus
• A Modern History of Investment Booms
• Marc Faber blog

Robert R. Prechter, Jr. (b. 1949) is an American author and stock market analyst, known for his financial forecasts using the Elliott Wave Principle. Prechter is an author and co-author of 14 books, and editor of 2 books ^[1], his book Conquer the Crash is a New York Times bestseller.^[2] He also has published monthly financial commentary in the newsletter The Elliott Wave Theorist since 1979, and is the founder of Elliott Wave International and New Classics Library.^[3][4] Prechter served on the board of the Market Technicians Association for nine years, and as the Association's President in 1990-1991. In recent years Prechter has supported the study of socionomics, a theory about human social behavior.^[5][6]

Biography[link]

Prechter attended Yale University and graduated with a B.A. degree in psychology in 1971. His career as an analyst began when he joined Merrill Lynch as a market technician in 1975, where he learned much about the trade from Merrill's Chief Market Strategist, Robert Farrell (June 1982).^[4][7] There Prechter also learned of Ralph Nelson Elliott and the Elliott wave principle and was deeply intrigued:

So I tracked down R.N. Elliott's original books. They weren't even in the Library of Congress. But I finally dug around in the New York Public Library and found a catalog card listing a copy of them on microfilm and had photocopies made. I was amazed to find that there was a wealth of information that had been lost to Wall Street.^[8]

Prechter has also said, "after I decided to make markets a career, I realized that mass psychology is what they're all about." ^[8]

Prominence[link]

In 1979 Prechter left Merrill Lynch and published the first subscription issue of the Elliott Wave Theorist. The 1970s had been very bullish years in the gold market but mostly bearish for stocks, yet his Elliott wave analysis called for a long-term reversal lower in gold (February 1980)^[4][9] and a long-term "super bull market underway" in stocks (October 1982).^[4][10] Because these forecasts proved mostly correct—especially for the stock indexes—Prechter's following grew.

His visibility increased further after he won the U.S. Trading Championship in 1984, with a then-record 444% return in a monitored options trading account.^[11] He was profiled in many financial and business publications and named "Guru of the Decade" by the Financial News Network (now CNBC) for the 1980s.^[12]

Prechter has been forecasting a large-scale bear market, as explained in his book Conquer the Crash.^[13]

Re-introduces Elliott[link]

Much of Prechter's career as a publisher includes his efforts to re-introduce R.N. Elliott's wave principle to investors.^[7] He compiled and republished all of Elliott's available writings, including the 1938 "Wave Principle," and the "Interpretive" and "Forecast" letters (1938–1946). Prechter also published a brief biography of Elliott and the collected Elliott wave writings of the few technicians who practiced wave analysis in the 1950s and 1960s (Charles Collins, Hamilton Bolton, A.J. Frost, Richard Russell).

Still, not all the popular exposure to Elliott wave analysis was the result of Prechter's deliberate efforts. In the few years before and after 1987, media coverage inflated Prechter's "guru" status to extremes, including the assertion that his forecasts could single-handedly "cause" the stock market to rise or fall^[14] (a proponent of technical analysis, Prechter considered this absurd). In the months after Black Monday in October 1987, subscriptions to Prechter's Elliott Wave Theorist surged to some 20,000. That number declined in the early 1990s (as did the subscription levels of most other financial publishers), though "Prechter has done more to popularize and spread Elliott's philosophy than anyone else."^[15]

Socionomics[link]

In 1979, Prechter postulated that social mood drives financial, macroeconomic and political behavior, in contrast to the conventional notion that such events drive social mood.^[16] His description of social mood as the driver of cultural trends reached a national audience in a 1985 cover article in Barron's.^[17] Prechter coined the term "socionomics" and in 1999 published an exposition of socionomic theory, The Wave Principle of Human Social Behavior.^[5] In 2003, he published an anthology of empirical work in the field, Pioneering Studies in Socionomics.

Since then, the counter-intuitive premise of the socionomic hypothesis—that social mood drives the character of social events—has gained attention in academic journals,^[18][19][20] books,^[21][22] the popular press,^[23][24][25] universities,^[26] academic conferences^[27][28] and in research funded by the National Science Foundation.^[29][30]

Criticism[link]

While Prechter has his admirers, he has been criticized by media and pundits for his long term record. For example, The Wall Street Journal ran a page one article in August 1993 with the headline, "Robert Prechter sees his 3600 on the Dow – But 6 years late," in reference to Prechter's 1987 forecast for the Dow Jones Industrial Average.^[31] Technical analyst David Aronson wrote:

The Elliott Wave Principle, as popularly practiced, is not a legitimate theory, but a story, and a compelling one that is eloquently told by Robert Prechter. The account is especially persuasive because EWP has the seemingly remarkable ability to fit any segment of market history down to its most minute fluctuations. I contend this is made possible by the method's loosely defined rules and the ability to postulate a large number of nested waves of varying magnitude. This gives the Elliott analyst the same freedom and flexibility that allowed pre-Copernican astronomers to explain all observed planet movements even though their underlying theory of an Earth-centered universe was wrong.^[32]

Notes[link]

References[link]

• Essentials of Technical Analysis for Financial Markets by James Chen. Published by John Wiley and Sons. ISBN 978-0-470-53729-9.
• Socionomics: The Science of History and Social Prediction by Robert Prechter. Published by New Classics Library. ISBN 0-932750-57-5.
• Prechter's Perspective by Robert Prechter. Published by New Classics Library. ISBN 978-0-932750-61-7.
• Evidence-Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading Signals by David R. Aronson. Published by John Wiley and Sons. ISBN 978-0-470-00874-4
• Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression (2 ed.) by Robert Prechter. Published by John Wiley and Sons. ISBN 978-0-470-56797-5.
• Behavioral Trading: Methods for Measuring Investor Confidence and Expectations by Woody Dorsey. Published by Texere. ISBN 1-58799-164-0.

External links[link]

• Robert Prechter.com
• Socionomics Institute