yazdzikPremium,MVM
join:2000-07-26
Honesdale, PA
kudos:1 | Dear Friends,
Fascinating discussion.
The theories behind fixed-cost capitalisation, and growth based forward depreciation bases are being compared in a practical setting, which, if the costs were predicted accurately for the fixed cost model, would allow for a relatively high margin.
Who among you wonders how a "trading firm" survives, when there a often monthly losses, which would appear unsustainable?
Leaving aside covered fixeds, there is always revenue from the co-commissions on trades.
Thus, trader joe loses $20k, while costing himself commissions, whereby the firm supplying his desk may take have of those commissions going to the clearing firm. Thus, if Joe were to have lost his money on trading 400k shares, at around 1.5c per, total commissions before rebates= $60k, thus the firm, garnering 50% of the commissions, before fixeds has a profit before rebates. After rebates, costs, &c, although the individual is in deep shit, the firm is about even on its capital, on a cost basis. Given even marginal risk control, most trading firms do well for the limited partners. Analagous to the EU's fifty dollars per mensam.
Although no one, myself included, would recommend deacon's business model for the fainthearted, there are many theoretical reasons why it would succeed. The cost variable seems to be the fact in dispute here. My own experience is that the costs would probably be higher than deacon's estimates, thus protracting the profitability window. Therein lies the problem. SAP would not view the monthly costs as having been investment, but recurring. Nor can I foresee the ability to depreciate the original cost of buying the prequals, since, if deacon's analysis is correct, the value thereof would remain for accounting purposes, constant. Thus, the purely EBIDTA model which he employs as his basis for asserting profitability.
Should an unindemnified expense occur, the cost is immediately apparent against the current income, and thence, reduces operating capital.
The trading firm system works, because the firms, as does Deacon's model, rely upon outsourcing, such as AT financial. When AT's servers are down, the trader is out of luck. Given the miniscule amount of down time for such a service, losses are infinitesimal. Now, look realistically at DSL. Can anyone name one mail-server, or internet based mail service where one would willing put mission critical communications?
Thus, Deacon's model has one important hole, which lies in the bandwidth philosophy expressed. While true that I, as a home user, use very little bandwidth, I, as do many, rely upon my connexion for my scheduling, etc. The argument may be made that this is foolish, but I would wager that more of us do this than not, to say nothing of how angry I would be if my children could not access their homework, also 'net based. Thus, the "pure" residential user is apocryphal, and multiple redundancy or indemnification becomes necessary.
Then the final CLEC issue, which also affects SAP remains, can one base future profits upon the fixed costs, having reduced initial capital expenditure based upon buying assets at pennies on the dollar? My guess is, with decent luck, probably. But as easily as Deac says. Not likely. The run-out date for profitability would have to be clearly aligned with the cash burn rate.
In short, a very good idea for an entrepeneur seeking reasonable income, who is not betting the rent money for this year, or his bairns' meals. A dirt-cheap chance to drive a Porsche by 2002? Circumscript "maybe." A business with minute personnel costs, low initial capital requirements, and a source of sustainable income, where income and no growth is wanted, may indeed work.
Could one sleep while running it? Not likely.
All good wishes,
yazdzik
|
·