Ever wonder why markets make sudden moves from one extreme to the other, or why markets may decline in the face of good news and rise on bad? Seems crazy, right? Well, many times stock market movements are based on more than new information such as earnings reports or corporate downgrades... markets are quite often moved by investor sentiment. Psychological factors affect not only the average investor, but also professional money managers who tend to be driven by greed, euphoria and fear! Behavioral Finance Believe it or not, there is a legitimate field of study which seeks to quantify the impact of emotions, psychology and behavior on investing and financial decisions - it's called Behavioral Finance. Behavioral Finance teaches us that just as the stock market operates in up and down cycles, markets also operate on their own "cycle of market emotions". Interestingly these two cycles tend to move in tandem. For example, when the market is at its peak, most investors are in a state of emotional euphoria. Then as the market trends downward toward a bottom, investors' emotions become darker and more fearful, shifting from slight anxiety to despondency or depression. This is the shift which can have the greatest impact on your decisions and investment results. A Little Fun.... Take a short quiz to gauge your investor temperament. A wager is offered where you must pick one of the following choices: Wager (Investment) A: Gives you a 50% chance of gaining $1,000, and a 50% chance of gaining $0. Or Wager (Investment ) B: Gives you a 100% chance of gaining $500. Which do you chose? If you chose B then you are like most investors who are careful to avoid losses and concentrate on gains. If you chose A, you are concentrating on the chance of winning $1,000. Interestingly, both bets are statistically the same. Wager A has the same statistical outcome as wager B because the average gain is the same. And yet the overwhelming majority chooses Wager B. Behavioral Finance refers to this as Loss Aversion which refers to people's tendency to strongly prefer avoiding losses to acquiring gains. Some studies even suggest that this aversion is twice as powerful as the desire for gains.

Mezzanine financing ("Mezz") is a little known strategy available for privately held businesses and publicly traded companies that allows a strong performing company to increase its financial leverage in certain transactions. Generally speaking, mezz financing offers the features of both debt (regular interest and principal payments) and equity (options or warrants). Mezz debt will rank behind senior debt but ahead of equity holders in terms of security.
Mezzanine financing is available for companies with strong cash flows. Although there are some limited exceptions in Canada, the majority of mezzanine lenders require historical cash flows to be at a minimum of $2M when looking at historical performance over a three year term.
Companies should consider using mezz financing when traditional senior debt has been maximized but there are additional leverage opportunities available as a result of strong cash flows prior to raising dilutive equity. Mezz financing is generally used for acquisitions (including leveraged buyouts), expansion, recapitalizations, and management buyouts and is prevalent in both operating company situations as well as certain real estate development scenarios.
While Mezzanine financing can be structured in any number of different ways, the common elements of mezzanine financing are as follows:
1. Cash interest - Regular interest paid on a periodic basis similar to paying term debt;
2. PIK (Payment in Kind) Interest - A stated amount of periodic interest that is actually added to the principal amount of a loan which is usually paid back as a bullet payment at the end of the term