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Transcript of Financial terms
Definition of 'Plutocracy'
A government controlled exclusively by the wealthy either directly or indirectly. A plutocracy
allows, either openly or by circumstance, only the wealthy to rule. This can then result in policies
exclusively designed to assist the wealthy, which is reflected in its name (comes from the Greek
words "ploutos" or wealthy, and "kratos" - power, ruling)
Investopedia explains 'Plutocracy'
A plutocracy doesn't have to be a purposeful, overt format for government. Instead, it can be
created through the allowance of access to certain programs and educational resources only to
the wealthy and making it so that the wealthy hold more sway. The concern of inadvertently
creating a plutocracy is that the regulatory focus will be narrow and concentrated on the goals of
the wealthy, creating even more income and asset-based inequality.
Definition of 'Plutocracy'
A government controlled exclusively by the wealthy either directly or indirectly. A plutocracy
allows, either openly or by circumstance, only the wealthy to rule. This can then result in policies
exclusively designed to assist the wealthy, which is reflected in its name (comes from the Greek
words "ploutos" or wealthy, and "kratos" - power, ruling).
Investopedia explains 'Plutocracy'
A plutocracy doesn't have to be a purposeful, overt format for government. Instead, it can be
created through the allowance of access to certain programs and educational resources only to
the wealthy and making it so that the wealthy hold more sway. The concern of inadvertently
creating a plutocracy is that the regulatory focus will be narrow and concentrated on the goals of
the wealthy, creating even more income and asset-based inequality.
Read more: http://www.investopedia.com/terms/p/plutocracy.asp#ixzz2JLO2aAed
Cult Brand
A product or service that has an energetic and loyal customer base. A cult brand, unlike others,
has customers who can be described as near-fanatical, true believers in the brand and may feel a
sense of ownership or vested interest in the brand's popularity and success. Cult brands have
achieved a unique connection with customers, and are able to create a consumer culture that
people want to be a part of. Examples of modern cult brands include the Mini Cooper, Harley-
Davidson, Vespa, Zappos and Apple.
Investopedia Says:
A brand, by definition, is a distinguishing logo, mark, sentence, symbol or word that identifies a
particular product. Companies use various strategies to improve brand recognition and build
brand equity. Very recognizable brands include Nike, Coca-Cola and Microsoft.
Cult brands are different from fads. A fad is a short-lived "craze" where a particular product
suddenly gains a lot of attention among a large population, marked by a temporary and excessive
enthusiasm and then just as quickly fizzles out of style. Where fads are unsustainable and last
only a short period of time, cult brands typically begin small and gradually build a steady
following
Definition of 'Risk Parity'
A portfolio allocation strategy based on targeting risk levels across the various components of an
investment portfolio. The risk parity approach to asset allocation allows investors to target
specific levels of risk and to divide that risk equally across the entire investment portfolio in
order to achieve optimal portfolio diversification for each individual investor. Risk parity
strategies are in contrast to traditional allocation methods that are based on holding a certain
percentage of investment classes, such as 60% stocks and 40% bonds, within one's investment
portfolio.
Investopedia explains 'Risk Parity'
The risk parity approach to portfolio asset allocation focuses on the amount of risk in each
component rather than the specific dollar amounts invested in each component. In other words,
risk parity focuses not on the allocation of capital (like traditional allocation models), but on the
allocation of risk. Risk parity considers four different components: equities, credit, interest rates
and commodities, and attempts to spread risk evenly across the asset classes. The goal of risk
parity investing is to earn the same level of return with less volatility and risk, or to realize better
returns with an equal amount of risk and volatility (versus traditional asset allocation strategies).
A traditional 60/40 portfolio can attribute 80 to 90% of its risk allocation to equities. As a result,
the portfolio's returns will be dependent upon the returns of the equity markets. Proponents of the
risk parity strategy state that while the 60/40 approach performs well during bull markets and
periods of economic growth, it tends to fail during bear markets and economic slumps. The risk
parity approach attempts to balance the portfolio to perform well under a variety of economic
and market conditions.
Several risk parity-specific products, including mutual funds, are available, and investors can
also build their own risk parity portfolios through careful research or by working with a qualified
financial professional. The first risk parity fund, the All Weather hedge fund, was introduced by
Bridgewater Associates in 1996.
Read more: http://www.investopedia.com/terms/r/risk-parity.asp#ixzz2JLRSzjlu
Definition of 'Robin Hood Effect'A phenomenon where the less well-off gain at the expense of the better-off. The Robin Hood
effect gets its name from the folkloric outlaw Robin Hood, who, according to legend, stole from
the rich to give to the poor. A reverse Robin Hood effect occurs when the better-off gain at the
expense of the less well-off.
Investopedia explains 'Robin Hood Effect'The term "Robin Hood effect" is most commonly used in discussions of income inequality and
educational inequality. For example, a government that collects higher taxes from the rich and
lower or no taxes from the poor, and then uses that tax revenue to provide services for the poor,
creates a Robin Hood effect.
Frame Dependence
The human tendency to view a scenario differently depending on how it is presented. Frame
dependence is based on emotion, not logic, and can explain why people sometimes make
irrational choices. For example, when presented with a scenario in which a sweater is being
offered at its full price of $50 and a scenario in which the same sweater is regularly priced at $75
but on sale for $50, many consumers would perceive the latter as a better value even though in
both situations they are being asked to pay the same price for the same sweater. Thus a real-life
application of frame dependence is the use of strategic pricing by retail stores to influence
consumers' purchasing behavior.
Investopedia Says:
Frame dependence is one component of psychologist Daniel Kahneman's Nobel Prize-winning
prospect theory, a major contribution to behavioral economics. Along with co-researcher Amos
Tversky, Kahneman showed several cognitive biases that cause people to make irrational
decisions, including the anchoring effect, loss aversion, mental accounting, the planning fallacy
and the illusion of control.