Marty and Jean are committed to working together and have completed a Partner Compatibility Analysis. Since they knew they needed to do this, they didn’t formalize their commitment to participate but simply verbalized their commitment to each other. As a next step, they used the Agreement Between Partners Checklist to create the following agreement:
1. We will coordinate the activities between Housekeeping and Maintenance to minimize extra work for both groups and yet attain our vision: Each guest will have a clean room in which everything works properly.We will review schedules.We will establish a process whereby maintenance work will take place before the rooms are cleaned.We will work on building a good relationship between the Maintenance and Housekeeping staff.
2. We will create a timeline for reviewing the scheduling of rooms for maintenance, reviewing the scheduling of rooms for housekeeping, developing a daily list of rooms needing maintenance, and coordinating the maintenance and housekeeping staff rounds.
3. We agree that our role is to coordinate the scheduling of the rooms that require maintenance and act as go-betweens for our staffs.
Investing involves small segments of society: businesses, individual farms, buildings, and entrepreneurs. Only recently, with the advent of index funds, has investing concerned the whole of a large market: the stock market. Index funds are mutual funds that buy shares in every stock in a given segment of the market. Buying index funds, you can buy a piece of the whole stock market. Still, the stock market is only one segment of society, though currently a large segment.
The investor trusts the investee. When this trust is broken, strong emotions are unleashed. Utility stockholders are furious when a utility cuts or
eliminates its dividend. When a tenant defaults on a lease and forces a property into foreclosure, the property owner has a wide range of emotions triggered by the breach of trust. Some vow never to own real estate again.
Sometimes the investment exceeds expectations. Wal-Mart investors saw their small regional chain become the largest retailer in the world. Berkshire Hathaway went from a shell company to one of the world’s largest corporations. Success triggers grandiosity in some, frivolity in others.
Many successful investors are disoriented and unhappy. However, faith is also a part of investing. The borrower, tenant, or business owner believes the application of science and technology to business practices will produce more than the sum of capital and labor, thus enabling him to pay the rent, interest, dividends, or capital appreciation plus enough for his own savings. Productivity, technology, and efficiency are the creed of investors.
CDOs typically experience three distinct life stages: ramp-up, reinvestment, and amortization/maturity. Ramp-up defines the time between the premarketing phase of an issue and the first cash flow distribution. For cash transactions, the ramp-up phase usually lasts one to nine months; for synthetic transactions, shorter ramp-ups are common. During the reinvestment period, the CDO manager adjusts the collateral portfolio by buying or selling securities, subject to a set of prescribed constraints. The reinvestment period can be as short as three years (for some middle-market CLOs) and as long as seven years.
Equity investors have the right to call the transaction following the noncall period subject to a 2/3 majority vote. This option is most likely exercised when funding costs have fallen and the collateral is trading at or above par. In many cases, equity investors can roll their investment into a new issue and save on underwriting fees. We have estimated this optional redemption clause was worth approximately 61 basis points over the period September 2003 through September 2006. Alternatively, if funding costs rise, this option falls out of the money and has little value.
During the final life stage, the amoritization/maturity stage, a CDO distributes the principal payments from the collateral to the notes, amortizing the latter according to a prescribed schedule. Nearly all older vintage transactions had five-year reinvestment and three-year noncall periods; recent vintage issues typically have longer noncall and reinvestment periods. The final life stage of a CDO can be shortened via a cleanup call (exercised when the collateral’s outstanding balance drops below 10% of its original par value).