June 28, 2011
I'll admit I don't know all that much about baseball. Now math, that's a different story, basic math at least. Yesterday there was an excellent piece in the NY Times that dealt with the basic math about personal finance. The most basic equation, the unbreakable truth of any financial situation, is simply this:
Expenses < Income
Our clients live by this simple formula, and usually learned it early from parents or grandparents. It is a basic law of economics, and it is the only way to be an investor, since spending more than you have coming in leaves nothing to invest for your future. Even debt has its place; there is no reason you shouldn't borrow to make major purchases. Most of us could never afford our first car or house without the ability to make monthly payments. But borrowing must always be done with a sensible plan to pay off the debt over time, which gets back to that simple formula.
How does this involve the Dodgers? Owners of big-league sports teams are generally pretty wealthy people. But wealthy people are just people, and people sometimes do foolish things. Like assuming that basic math doesn't apply to them. They would be wrong. You can no more suspend the laws of economics than you can suspend the laws of gravity. According to Forbes, the Dodgers are worth over $700 million. Despite this robust valuation, the team yesterday filed for bankruptcy. An expensive lifestyle accompanied by an expensive divorce, if marked by the failure to live by that basic math, will always lead to the same place.
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).