Good for you! It’s fun when you realize it’s a constructed language that also tends towards precision. While accounting is not my favorite, financial models as a whole are incredibly powerful reasoning tools. On par, for me, with engineering or physics based first-principles reasoning.
Which financial models best describe reality in your opinion?
I'd always wanted to view affairs from a different lens, though I often feel the people who think everything revolves around bond rates or inflation numbers can miss the social picture of why things happen.
> Which financial models best describe reality in your opinion?
That’s a subject that fills many volumes on accounting, finance and economics. I don’t think you should be looking for one best theory, because there are valid differences of opinion in all these fields.
> I'd always wanted to view affairs from a different lens, though I often feel the people who think everything revolves around bond rates or inflation numbers can miss the social picture of why things happen.
The ‘social picture’ is what’s called welfare economics, which is a whole field in itself. I wouldn’t jump straight into welfare economics though, you’ll probably need to start with introductory economics to understand the basic terminology.
> Which financial models best describe reality in your opinion?
The most-powerful ones for individuals are the micreconomic mechanisms. Understanding how leverage, tranching and moving risk (and reward) across stakeholders and time, work, for instance. The necessary mechanisms and tradeoffs one must make, as well as the ones one should.
If you're looking for a formal model, it's the balance sheet. But not the accountant's. The financier's. Sources and uses, and uses and sources. Payments in, payments out. How do they balance over time; how do they change exposures to different layers of economic and legal control.
The primitives of these models are transactions and people. When you look through them, they're defining human wants and ambitions, faults and fears, patience and mortality.
That’s such an overly complicated answer. I’ve noticed people from a financial background often do this. Why? Does it make you feel special? Lmao.
It’s all basic stuff, often wrapped in jargon to throw people off.
If the fella wants to be properly informed, he needs a very strong understanding of fundamental microeconomic principles, along with macroeconomics. On top of that an understanding of financial accounting.
And… on top of that an understanding of corporate finance and valuation. Aswath Damodaran (look him
Up on YouTube) is the go-to person for this.
Only then you will form a complete picture of what’s going on and make well informed statements about the future.
