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SoftBank’s debt obsession

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Re: SoftBank’s debt obsession

#51

Post by toomuchtodo »

JumpCrisscross wrote: post #50
adrianN wrote: post #34

Earlier quoted context omitted.

How would an answer based on fundamentals even look like? Nobody can predict the future.

> How would an answer based on fundamentals even look like? Start with demographics. Layer on productivity growth and you have a first-order approximation of national productivity. Figure gross margins and from that net margins, as well as average corporate tax rates–boom, you have the economy's profitability. Estimate a pay-out rate and you get a high-level return estimate. It's very approximate, but it's theoretica…

How would you account for central bank actions?

Re: SoftBank’s debt obsession

#53

Post by smallgovt »

JumpCrisscross wrote: post #50
adrianN wrote: post #34

Earlier quoted context omitted.

How would an answer based on fundamentals even look like? Nobody can predict the future.

> How would an answer based on fundamentals even look like? Start with demographics. Layer on productivity growth and you have a first-order approximation of national productivity. Figure gross margins and from that net margins, as well as average corporate tax rates–boom, you have the economy's profitability. Estimate a pay-out rate and you get a high-level return estimate. It's very approximate, but it's theoretica…

Let's say you do this exercise and arrive at a discounted cash flow model that accurately predicts a 5-10% YoY appreciation in value for the S&P index.

How do you explain why this appreciation in value isn't arbitraged away, as suggested by GP? In his words, "if 9.7% long-term returns were guaranteed, wouldn't everyone just borrow 30-year loans on margin at 5% interest rate and invest it in S&P?" This would effectively drive up the current day price and eliminate any projected future growth in index price -- invalidating the hypothesis that the S&P price will continue growing in the future.

Re: SoftBank’s debt obsession

#54

Post by soVeryTired »

gammateam wrote: post #18

The article plays on the cultural anathema to the word debt in the following ways: It mentions specific interest rates only once, which are paid to a subset of investors in the vision fund. It briefly clarifies how none of this is an insane level of debt, just a large number. It then spends the rest of the article talking the existence of bonds and interest bearing securities, with no distinction of what they are exc…

> The general counterpoint would be that it is great that a fund structured this way is trying to back illiquid private equity.

Sorry, I don't understand your point at all. Why would the fund's structure affect its investment mandate?

Re: SoftBank’s debt obsession

#55

Post by soVeryTired »

User23 wrote: post #22
spelunker wrote: post #16

Earlier quoted context omitted.

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?

The Nikkei 225 is still down from 20 years ago. Its fate is a very plausible alternative history for the S&P.

Re: SoftBank’s debt obsession

#56

Post by gammateam »

soVeryTired wrote: post #54
gammateam wrote: post #18

The article plays on the cultural anathema to the word debt in the following ways: It mentions specific interest rates only once, which are paid to a subset of investors in the vision fund. It briefly clarifies how none of this is an insane level of debt, just a large number. It then spends the rest of the article talking the existence of bonds and interest bearing securities, with no distinction of what they are exc…

> The general counterpoint would be that it is great that a fund structured this way is trying to back illiquid private equity. Sorry, I don't understand your point at all. Why would the fund's structure affect its investment mandate?

They aren't mutually inclusive aside from the fact that nobody does it, for several good reasons.

The investment mandate is written on paper and has nothing to do with the fund's structure. Nobody makes investment mandates with funds that are structured that way, except Softbank. Shrug emoji.

Typically an investment into a fund is done with shares which bear no interest. This means that no money is being pulled away from the fund while it invests in things which cannot be liquidated.

Softbank is investing in things which cannot be liquidated, all while money is flowing out of the fund to a large portion of shareholders at 7% a year.

Re: SoftBank’s debt obsession

#57

Post by TomVDB »

Simon_says wrote: post #48
User23 wrote: post #22

Earlier quoted context omitted.

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?

The key is consistently. The S&P 500 returns are wildly variant, and the 9~ % only comes from averaging a century of growth. Whole decades might see a loss.

Based on numbers here: https://seekingalpha.com/article/2789035-s-and-p-500-index-r...

1940-1950: 9.3%/y

1950-1960: 20.0%/y

1960-1970: 7.7%/y

1970-1980: 5.9%/y

1980-1990: 17.2%/y

1990-2000: 18.2%/y

2000-2010: -1.0%/y

So only decade with negative growth.

Add in the depression and you'll probably see a bunch more...

Re: SoftBank’s debt obsession

#58

Post by omarchowdhury »

smallgovt wrote: post #53
JumpCrisscross wrote: post #50

Earlier quoted context omitted.

> How would an answer based on fundamentals even look like? Start with demographics. Layer on productivity growth and you have a first-order approximation of national productivity. Figure gross margins and from that net margins, as well as average corporate tax rates–boom, you have the economy's profitability. Estimate a pay-out rate and you get a high-level return estimate. It's very approximate, but it's theoretica…

Let's say you do this exercise and arrive at a discounted cash flow model that accurately predicts a 5-10% YoY appreciation in value for the S&P index. How do you explain why this appreciation in value isn't arbitraged away, as suggested by GP? In his words, "if 9.7% long-term returns were guaranteed, wouldn't everyone just borrow 30-year loans on margin at 5% interest rate and invest it in S&P?" This would effective…

It's not arbitraged away because it's not guaranteed.

Re: SoftBank’s debt obsession

#59

Post by staticautomatic »

gammateam wrote: post #56
soVeryTired wrote: post #54

Earlier quoted context omitted.

> The general counterpoint would be that it is great that a fund structured this way is trying to back illiquid private equity. Sorry, I don't understand your point at all. Why would the fund's structure affect its investment mandate?

They aren't mutually inclusive aside from the fact that nobody does it, for several good reasons. The investment mandate is written on paper and has nothing to do with the fund's structure. Nobody makes investment mandates with funds that are structured that way, except Softbank. Shrug emoji. Typically an investment into a fund is done with shares which bear no interest. This means that no money is being pulled away…

I sense there may be a clear point here somewhere but you've failed to state it.

Re: SoftBank’s debt obsession

#60

Post by lquist »

gammateam wrote: post #56
soVeryTired wrote: post #54

Earlier quoted context omitted.

> The general counterpoint would be that it is great that a fund structured this way is trying to back illiquid private equity. Sorry, I don't understand your point at all. Why would the fund's structure affect its investment mandate?

They aren't mutually inclusive aside from the fact that nobody does it, for several good reasons. The investment mandate is written on paper and has nothing to do with the fund's structure. Nobody makes investment mandates with funds that are structured that way, except Softbank. Shrug emoji. Typically an investment into a fund is done with shares which bear no interest. This means that no money is being pulled away…

It's a risky structure but Softbank continues to hit it out of the park with bets at a size that nobody else can match. Also the positions can be liquidated it just takes time
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