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SoftBank’s debt obsession

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Re: SoftBank’s debt obsession

#21

Post by User23 »

r2d2-c3po wrote: post #17
soared wrote: post #7

// Oversimplified napkin math for fun, stop taking this seriously // > Around 60% of the money promised to the Vision Fund by investors other than SoftBank takes the form of debtlike securities that earn a 7% fixed return annually. They get $70B and have to pay 7% fixed annually. S&P rate of return on average is 9.7%. Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index. With $70B you coul…

'very little risk' - I think standard deviation of return on S&P is something like 15%-20%...I wouldn't define a strategy with a buffer of 2.7% very little risk when the standard deviation is that high...

Variance is not risk. https://www.ncbi.nlm.nih.gov/pubmed/18554271

Re: SoftBank’s debt obsession

#22

Post by User23 »

spelunker wrote: post #16
soared wrote: post #7

// Oversimplified napkin math for fun, stop taking this seriously // > Around 60% of the money promised to the Vision Fund by investors other than SoftBank takes the form of debtlike securities that earn a 7% fixed return annually. They get $70B and have to pay 7% fixed annually. S&P rate of return on average is 9.7%. Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index. With $70B you coul…

If you think the S&P consistently returns ~9.7% per year every year, you are mistaken.

Pretty close actually. https://www.nerdwallet.com/blog/investing/average-stock-mark...

Edit: Anyone want to clue me in on what the downvotes are for here?

Re: SoftBank’s debt obsession

#23

Post by jldugger »

flyinglizard wrote: post #20
loeber wrote: post #11

Earlier quoted context omitted.

> Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index. This is totally untrue. Volatility in the short term -- one serious year down -- can sink you. No sane actor treats S&P's average rate of return as the risk-free rate.

I was under the impression fund money is typically locked for around 10 years or so.

Even the 10 year rate of return has variance. The risk-free rate of return for 10 years should pretty much be 10 year TIPS bonds.

Re: SoftBank’s debt obsession

#24

Post by soared »

loeber wrote: post #11
soared wrote: post #7

// Oversimplified napkin math for fun, stop taking this seriously // > Around 60% of the money promised to the Vision Fund by investors other than SoftBank takes the form of debtlike securities that earn a 7% fixed return annually. They get $70B and have to pay 7% fixed annually. S&P rate of return on average is 9.7%. Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index. With $70B you coul…

> Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index. This is totally untrue. Volatility in the short term -- one serious year down -- can sink you. No sane actor treats S&P's average rate of return as the risk-free rate.

I don't know more than the basics, my thought was if you pocket $2b/year and invest it, you have $13B+ in 10 years (plus your own $28b you've invested that I didn't include). So $40B to whether a storm every 10 years seems reasonable.

Re: SoftBank’s debt obsession

#25

Post by soared »

ericjang wrote: post #12
soared wrote: post #7

// Oversimplified napkin math for fun, stop taking this seriously // > Around 60% of the money promised to the Vision Fund by investors other than SoftBank takes the form of debtlike securities that earn a 7% fixed return annually. They get $70B and have to pay 7% fixed annually. S&P rate of return on average is 9.7%. Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index. With $70B you coul…

Is there a strong reason as to why a 9.7% annualized return on the S&P is a correct assumption we should make about the future? I feel like in the 21st century, a lot of folks have come to put a lot of faith in the "stocks in the long run" mantra. But any stationary effect in the markets can be arbitraged away. If 9.7% long-term returns were guaranteed, wouldn't everyone just borrow 30-year loans on margin at 5% inte…

9.7% (or maybe 0.8%) is the average over the last 90 years and I don't think there is any other data points you could reasonably use to say it won't continue like that over a long enough time frame.

Re: SoftBank’s debt obsession

#26

Post by soared »

r2d2-c3po wrote: post #17
soared wrote: post #7

// Oversimplified napkin math for fun, stop taking this seriously // > Around 60% of the money promised to the Vision Fund by investors other than SoftBank takes the form of debtlike securities that earn a 7% fixed return annually. They get $70B and have to pay 7% fixed annually. S&P rate of return on average is 9.7%. Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index. With $70B you coul…

'very little risk' - I think standard deviation of return on S&P is something like 15%-20%...I wouldn't define a strategy with a buffer of 2.7% very little risk when the standard deviation is that high...

Pasted from another comment:

I don't know more than the basics, my thought was if you pocket $2b/year and invest it, you have $13B+ in 10 years (plus your own $28b you've invested that I didn't include). So $40B to whether a storm every 10 years seems reasonable.

Re: SoftBank’s debt obsession

#27

Post by _jal »

andrestan wrote: post #5
polskibus wrote: post #4

Earlier quoted context omitted.

That would depend on the term sheet, wouldn't it? 7% guaranteed yearly return may require unusual conditions on the investment side.

Sure, that's possible but then you're just dealing with relatively blind speculation. I would assume there's no issues on the investment side unless there's strong reason to believe there is.

The article offers one reason to wonder:

> [...] its term sheets — from what I hear — are heavily laden with economic terms that give SoftBank huge downside protection.

How much weight you want to give that, well.

Re: SoftBank’s debt obsession

#28

Post by baybal2 »

Plainly and simple: Vision Fund is a giant LBO scheme for Saudi money. Any other interpretation does not make any sense financially.

Vision fund is knee deep in SHORT TERM debt – thus, they have to make money fast. They look for stuff they can flip quickly, and "Pets.com style" companies are ideal targets for that.

Re: SoftBank’s debt obsession

#29

Post by tempestn »

soared wrote: post #25
ericjang wrote: post #12

Earlier quoted context omitted.

Is there a strong reason as to why a 9.7% annualized return on the S&P is a correct assumption we should make about the future? I feel like in the 21st century, a lot of folks have come to put a lot of faith in the "stocks in the long run" mantra. But any stationary effect in the markets can be arbitraged away. If 9.7% long-term returns were guaranteed, wouldn't everyone just borrow 30-year loans on margin at 5% inte…

9.7% (or maybe 0.8%) is the average over the last 90 years and I don't think there is any other data points you could reasonably use to say it won't continue like that over a long enough time frame.

Sure there are; valuations are considerably inflated now compared to the average (or starting point) of the last 90 years. Percentage earnings and dividend rate are both considerably lower. The long term expected return for the market is therefore also lower.

Re: SoftBank’s debt obsession

#30

Post by DSingularity »

soared wrote: post #24
loeber wrote: post #11

Earlier quoted context omitted.

> Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index. This is totally untrue. Volatility in the short term -- one serious year down -- can sink you. No sane actor treats S&P's average rate of return as the risk-free rate.

I don't know more than the basics, my thought was if you pocket $2b/year and invest it, you have $13B+ in 10 years (plus your own $28b you've invested that I didn't include). So $40B to whether a storm every 10 years seems reasonable.

I think you are ignoring a lot of factors that come into play when you are managing assets on the scale of 70B$. It is easy to sink 1000$ in a minute into an index fund using Robinhood. It is not as easy when you are talking numbers on this scale.
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