We should try to exceed—rather than merely meet—the requirements of our promises. “Exceeding expectations” sounds like you expend full effort and enthusiastically complete the task, whereas “meeting requirements” sounds like you grudgingly perform the minimum. A law of physics states that for every action there is an equal and opposite reaction. Exceeding performance expectations triggers a reciprocal reaction.How do you feel about doing your part when your partner has already given 110 percent?

A partnership based on trust and mutual benefit must have open communication between partners. Openness allows people to say what is in their heart. This type of communication, while difficult for some, must be incorporated at every stage—especially at the Storm stage. Progress comes from working through conflicts. And in order to resolve conflicts, people need to work collaboratively. The purpose of using a consensus style of decision making is to create win-win scenarios.

By using some basic guidelines for consensus decision making, people embrace the technique because it ultimately enlists the enthusiasm of the whole team.

• Free cash flow generation
• Refinancing calendar
• Access to capital markets (bank lending standards)
• Reported earnings and earnings outlook
• Equity performance
• Growth prospects
• CAPEX needs
• Leverage trend
• Coverage trend.

Leverage and coverage ratios are particularly important for the analysis of high-yield issuers. We find significant correlations between the spread levels of selected high-yield issuers and their coverage ratios and their leverage ratios.

Long-term mutual fund holders often drift into indifference. After a few years, they have no sense of connection with their money. All fund statements and mailings are glanced at and filed or thrown out. In the back of their minds, they know there is something they ought to be doing but having put it off for many years, they simply leave it be. Mutual funds in IRAs and 401(k)s are often abandoned for decades. On retirement, the holders are shocked at how little money has accumulated.

Active investors become resentful of fund managers. Fund managers’ salaries are insulated from fund results. Salaries rise in bad years as well as good. With no stake in the outcome of their investment decisions, fund managers’ interest and yours are opposed. Fund managers make more Money than doctors, lawyers, and all but the CEOs of the largest corporations. Yet their results are no better than random picks from the stock tables.

Investing produces a wide range of emotion. The highs can be as disorienting as the lows. The most common emotional traps are described here. For each, consider if you would be comfortable owning investments that produce these feelings.

Just like with retirement, there are things you should be doing today, even in the midst of getting out debt, to help prepare for future college costs:

Move to a different state. Just kidding. But there are some states that offer their residents a matching contribution for putting money into a Section 529 plan. For example, the Arkansas Aspiring Scholars program will match a $250 contribution to their state savings plan with up to $500 (depending on income).

Check with your state treasurer’s office to see if such a plan exists. Contribute toward college for holiday and birthday gifts. Consider opening college accounts for your kids at your local brokerage house and asking the grandparents to divert some of their holiday spending there. Trust me, your kids will appreciate it way more than a pair of socks.

Use UPromise and BabyMint. Both of these services are free to sign up for, and set aside money into a college account for your child every time you shop. It doesn’t actually increase the cost of your purchases, but instead is a way for stores to reward you for your loyalty. You can also have your friends and family register their cards to contribute to your child as well.

Failure to plan for college expenses has two major effects in my experience. First, many people who have not planned and saved adequately usually stop saving for their other goals while scraping to pay for tuition. Even a small delay in getting started on saving can have a huge impact on what you’ll have to save later to play catch-up. Second, the failure to plan for college usually results in the accumulation of more debt in the form of student loans. While these are often a necessary evil, they can be one more financial weight around your already exhausted neck. (See Chapter 15 for more on student loans.)

Aperpetuity is defined as an investment offering a level stream of cash flows forever. What is the value of a perpetuity paying $100 per year forever? Using a cost of capital of 12 percent, it would be the present value of the first payment, plus the second payment, plus the third payment, . . . , plus the fiftieth payment, and so on; that is, $89.29 + $79.72 + $71.18 . . . . The value of the payments gets progressively smaller. The value of the fiftieth payment is only 3 cents!

It turns out that the present value of this stream, no matter how far one goes out in time, cannot exceed $833.33. That number is the free cash flow of $100 divided by the cost of capital, 12 percent, or 0.12—a very simple relationship that we introduced earlier.

Mathematicians say simply that this series converges to a finite limit. This one converges fairly quickly—it reaches 90 percent of the limit in 20 years, and 95 percent in 26 years. So in a practical sense, realizing the value of a perpetuity does not take forever, just a period of time that is consistent with the lifetime of a durable business.

Today, investors seem very willing to accept high risks. The level of financing is virtually unprecedented, with the prospect of more than $50 billion being invested per year by venture capitalists alone, a 10-fold increase over the previous decade. Whether this pace of investment will be sustained is another issue. Too much capital chasing too few good ideas is a sure way to drive down returns. But if we believe Daniel Bernoulli’s ideas about utility, the fact that investors have a greater stock of capital than ever before virtually ensures that they will, over time, be more tolerant of high risks.

What about the continued existence of opportunity? At the end of the nineteenth century, the commissioner of the U.S. Patent Office famously recommended that the office be shut down because everything that could be invented already had been. His colossal misjudgment is as widely quoted by speakers at innovation conferences as is Malthus in economics textbooks—but the number of issued patents continues to grow exponentially.