If you have been keeping up with the financial press, you have undoubtedly heard about the yield curve inversion. This somewhat technical sounding phenomenon is actually a very simple concept with profound implications for markets, which is why a solid understanding of what we’re talking about is essential for developing a view of future asset performance.
An important feature of many types of financial analysis is the yield. This term can have multiple specific meanings, but generally it means the income received on a principal. For instance, a fund that pays investors $3 every year per every $100 invested has a yield of 3%.
Liquidity is one of the most common metaphors used in finance, because it’s also the most important. To understand it, think about liquid: liquid flows easily from one place to another, and so if there is a channel for the liquid to go through (a pipe, a stream, a hose), it will go from Point A to Point B naturally and, well, fluidly.
Many new entrants to the finance industry will find themselves ending up either on the credit or the equity side by chance. Few will actively choose one or the other and get placed based on that choice, in large part because of the way finance careers typically evolve.
Financial math is very easy; relying on algebra in most situations, and relying on more complex statistics for very specific and unusual situations, financiers find that the majority of the calculations they make on a day-to-day basis are really middle school level, at best. What is much more important than the mathematical acumen is knowing when to use which mathematical principles and why.
There are three major aspects to finance. The first is looking at data and analyzing it to assess the probability of an outcome in the future: GDP growth, a stock price going up or down, a portfolio of properties losing value, a credit card debt being defaulted on.