Stock and Bond Markets Dethroned: Private Fundraising Is Now Dominant
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Re: Stock and Bond Markets Dethroned: Private Fundraising Is Now Dominant
#2Another step along the path to public markets becoming essentially a suckers' game to siphon money away from passive investors.
Those who possess actual money seem to understand that real investments come with terms and conditions. Not just "Here's 10% of my salary, see you again when I retire."
Re: Stock and Bond Markets Dethroned: Private Fundraising Is Now Dominant
#3Kind of a disvirtuous cycle isnt it? More income inequality means fewer people have more money. If you need to fundraise it would be preferable to raise from fewer than more - lower transaction costs and oversight. These private individuals then capture more and more of the growth becoming further enriched.
At some point though it seems like it would backfire. If wealth is sufficiently concentrated than those individuals could effectively dictate terms, possibly even colluding with others. Then the pendulum swings back the other way, it may be more cost effective to go to public markets as crazy as that sounds.
Or maybe we just need a few huge flame outs to cause private investors to retreat.
Re: Stock and Bond Markets Dethroned: Private Fundraising Is Now Dominant
#4It's a tough problem. In the late 1990's, there was a big wave of accounting scandals (Enron, Worldcom, etc.) Which led to heavy regulation (the Sarbanes-Oxley Act). The Act was a well-intentioned attempt to protect retail investors from crooks.
The problem's that compliance is so burdensome and expensive that firms don't want to enter the public markets until they're already large (or if they're forced to when their cap tables get too big).
So this regulation that's supposed to help protect retail investors ended up hurting them by putting growth opportunities out of their reach. If you keep the regulations in place, it makes it easier for the rich to get richer and the poor to stay poor, deepening the class divide. But if you roll back the regulations, maybe the crooks will immediately see that as another opportunity to line their pockets by creative accounting, and in another few years we'll see a bunch of big companies go bust, as the lies can't last forever if the money simply isn't there.
Damned if you do, damned if you don't.
Re: Stock and Bond Markets Dethroned: Private Fundraising Is Now Dominant
#5Another step along the path to public markets becoming essentially a suckers' game to siphon money away from passive investors. Those who possess actual money seem to understand that real investments come with terms and conditions. Not just "Here's 10% of my salary, see you again when I retire."
Could you explain how this would work in practice? If I'm allocating a percentage of my salary to, for example, Vanguard's total stock market index, how would that get siphoned?
Re: Stock and Bond Markets Dethroned: Private Fundraising Is Now Dominant
#6It's a tough problem. In the late 1990's, there was a big wave of accounting scandals (Enron, Worldcom, etc.) Which led to heavy regulation (the Sarbanes-Oxley Act). The Act was a well-intentioned attempt to protect retail investors from crooks. The problem's that compliance is so burdensome and expensive that firms don't want to enter the public markets until they're already large (or if they're forced to when their…
> compliance is so burdensome and expensive that firms don't want to enter the public markets
There's something bigger going on than SOX. That was the hypothesis the JOBS Act was predicated on [1]. Yet the trend continues uninterrupted.
My hypothesis: broadly held (i.e. by employees) companies taking long-term technology risks are fundamentally new. Moreso than reporting requirements, minute-by-minute pricing isn't helpful to a company challenging accepted wisdom over long time horizons. (Contrast: Tesla and SpaceX.) Being able to time large-scale valuation changes with technological milestones is a huge advantage no amount of public deregulation will compete with.
The trade-off between valuation control on one hand and liquidity on the other hand has multiple solutions. Deep private markets have an equilibrium between closely-held private businesses (e.g. Koch Industries) and widely-held public companies (e.g. Apple). (Multi-tier voting in public companies, as Snap and Facebook have, on the the other hand, seems untenable.)
Re: Stock and Bond Markets Dethroned: Private Fundraising Is Now Dominant
#7Another step along the path to public markets becoming essentially a suckers' game to siphon money away from passive investors. Those who possess actual money seem to understand that real investments come with terms and conditions. Not just "Here's 10% of my salary, see you again when I retire."
Could you explain how this would work in practice? If I'm allocating a percentage of my salary to, for example, Vanguard's total stock market index, how would that get siphoned?
If everyone is just doing passive investment, there's no real price discovery, it's just valuable companies getting more valuable just because they're already valuable. It also screws with management incentives for the companies when their 'owners' are completely checked out and uninterested in performance.
Re: Stock and Bond Markets Dethroned: Private Fundraising Is Now Dominant
#8Earlier quoted context omitted.
Could you explain how this would work in practice? If I'm allocating a percentage of my salary to, for example, Vanguard's total stock market index, how would that get siphoned?
If everyone is just doing passive investment, there's no real price discovery, it's just valuable companies getting more valuable just because they're already valuable. It also screws with management incentives for the companies when their 'owners' are completely checked out and uninterested in performance.
Vanguard is hardly a passive owner:
https://about.vanguard.com/investment-stewardship/policies-a...
Re: Stock and Bond Markets Dethroned: Private Fundraising Is Now Dominant
#9Thank goodness the government protects me, a non-accredited investor, from investing in any private companies! I'm too stupid to make investment decisions without going broke!
https://passiveincomemd.com/not-secret-society-accredited-in...
Re: Stock and Bond Markets Dethroned: Private Fundraising Is Now Dominant
#10It's a tough problem. In the late 1990's, there was a big wave of accounting scandals (Enron, Worldcom, etc.) Which led to heavy regulation (the Sarbanes-Oxley Act). The Act was a well-intentioned attempt to protect retail investors from crooks. The problem's that compliance is so burdensome and expensive that firms don't want to enter the public markets until they're already large (or if they're forced to when their…
This is a false dichotomy. Just because the regulations we imposed in the past made things burdensome, doesn't mean that regulations we impose in the future have to be burdensome.
I'd want to understand why they're burdensome. Give me some concrete examples. Everybody talks about how regulations are burdensome but nobody actually mentions the specific things that are a burden.