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Northvolt raises $1.2B convertible note from BlackRock

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Re: Northvolt raises $1.2B convertible note from BlackRock

#91

Post by post-it »

mattnewton wrote: post #64
post-it wrote: post #62

Earlier quoted context omitted.

I think that's an overly semantic argument. I can be as certain as I am of anything that the number in my RBC chequing account corresponds exactly to the amount of money I can withdraw or spend, and if that ever stops being the case I'll likely have bigger concerns than money.

Might be an American thing, we only have FDIC insurance up to a certain limit and the the difference of what happens in a bankruptcy is mechanically very different between a broker and a bank. Historically this has also been different for the stakeholders too, which is why people were not certain the number would actually result in them being able to withdraw funds from Silicon Valley Bank. Though recently they’ve de…

I think it is an American vs Canadian thing. The list of ten largest banks in North America is nearly evenly split between American and Canadian banks[0], so the five main Canadian banks are 10x as large as their American counterparts, proportional to the population.

The only conceivable scenario where a major Canadian bank fails and any depositors are not made whole is one where the government has lost the ability to maintain the currency and the Canadian dollar is worthless anyway.

[0] https://en.wikipedia.org/wiki/List_of_largest_banks_in_North...

Re: Northvolt raises $1.2B convertible note from BlackRock

#92

Post by FredPret »

anthomtb wrote: post #85
FredPret wrote: post #70

Earlier quoted context omitted.

My choice was to pick stocks. This is hard so I built a stock analysis platform for myself. But there are much better ways to get a diversified basket of solid stocks than blindly sending your money to the same 500 companies everyone else is sending their money to. There isn’t a simple formulaic answer to the question of how society should most optimally invest it’s excess capital.

> There isn’t a simple formulaic answer to the question of how society should most optimally invest it’s excess capital. So then investing in an index fund should be a fine choice for some, even many, correct?

Yes but optimally there would be at least some proliferation in index funds, and they would index differently.

There are 2 top funds that invest in the same 500 companies. Many in the US who earns well is sending x% of their income to these funds without forethought. It's far too much mindless capital concentration.

Even without the index funds, the S&P 500 is used as a base reference in many investment contexts.

When everyone blindly accepts a truth in investing, it's worth keeping an careful eye on it to make sure it stays true.

Re: Northvolt raises $1.2B convertible note from BlackRock

#93

Post by swedishturnip »

post-it wrote: post #62
swedishturnip wrote: post #51

Earlier quoted context omitted.

Agree on all points except the comparison with banks. The banks do technically own the money you put in it - and what you get in return is an IOU. So a bank is a very different sort of thing.

I think that's an overly semantic argument. I can be as certain as I am of anything that the number in my RBC chequing account corresponds exactly to the amount of money I can withdraw or spend, and if that ever stops being the case I'll likely have bigger concerns than money.

But this matters in the context of parent comment because different things happen to money that you deposit in a bank compared money you have invested in, say, a mutual fund/ETF (which most of Blackrocks funds are) after they reinvest (even if both invest in the same loan!).

The mutual fund would use the cash to buy stocks or loans and you would be entitled to a share of that profit or loss (both upside and downside), but the mutual fund manager would typically only be paid an annual fee (1).

Money deposited in a bank gives you no upside, and, as you say, a tiny downside risk. (even before deposit insurance) Those taking the downside risk (as well as the upside) is mainly bank equity investors.

(1) As another commenter correctly pointed out there are also other sort of funds that look a bit more like banks for various reasons, but that also doesn't necessarily mean the fund manager is the one taking the upside/downside risk.

Re: Northvolt raises $1.2B convertible note from BlackRock

#94

Post by gruez »

FredPret wrote: post #92
anthomtb wrote: post #85

Earlier quoted context omitted.

> There isn’t a simple formulaic answer to the question of how society should most optimally invest it’s excess capital. So then investing in an index fund should be a fine choice for some, even many, correct?

Yes but optimally there would be at least some proliferation in index funds, and they would index differently. There are 2 top funds that invest in the same 500 companies. Many in the US who earns well is sending x% of their income to these funds without forethought. It's far too much mindless capital concentration. Even without the index funds, the S&P 500 is used as a base reference in many investment contexts. Whe…

> Yes but optimally there would be at least some proliferation in index funds, and they would index differently.

Great, now investors have to choose between which index fund to pick. What makes you think the average investor is qualified to make that choice? By definition one of them will make above average returns, and the other below average returns, so half of investors will make below average returns and the other half will make above average returns. You can't have everyone making above average returns. Why not split the difference and invest in both of them (ie. buy the market), and get average returns without having to worry about which one to choose? That's basically what buying broad market index funds (eg. VTI or ITOT) does.

Re: Northvolt raises $1.2B convertible note from BlackRock

#95

Post by ttymck »

slashdev wrote: post #63
onlyrealcuzzo wrote: post #49

Earlier quoted context omitted.

If you buy equity in a highly risky company, there's a very large chance that equity ends up worth nothing before you can sell it to someone else. If you do a convertible note, you have liquidation preferences and will get most of your money back in the high probability event that the company fails.

It’s more complex than just that, there’s also tax implications for both investor and company. The liquidation preferences also apply in case of successful exit. If you have 2x preferences on this 1.2B note, if the company is acquired for less than 2.4B, the investor takes everything and the founder gets a gift basket, if the investor has a thoughtful secretary. If the investor has a board seat, they may even be able…

If I understand correctly, a convertible note is much more favorable for the investor. If that is correct, is it safe to say Northvolt raised a convertible note instead of equity because their equity is not sufficiently attractive/valuable?

Re: Northvolt raises $1.2B convertible note from BlackRock

#96

Post by anthomtb »

FredPret wrote: post #92
anthomtb wrote: post #85

Earlier quoted context omitted.

> There isn’t a simple formulaic answer to the question of how society should most optimally invest it’s excess capital. So then investing in an index fund should be a fine choice for some, even many, correct?

Yes but optimally there would be at least some proliferation in index funds, and they would index differently. There are 2 top funds that invest in the same 500 companies. Many in the US who earns well is sending x% of their income to these funds without forethought. It's far too much mindless capital concentration. Even without the index funds, the S&P 500 is used as a base reference in many investment contexts. Whe…

>Yes but optimally there would be at least some proliferation in index funds, and they would index differently. Is there not? I rolled over a 401k a few weeks ago and had several indexes to choose from, each represented by multiple funds. The S&P 500 was included in some of those indexes. But there were plenty of options that did not touch the S&P at all.

> It's far too much mindless capital concentration.

Maybe it is. Maybe there is a systemic risk there. I have long thought this myself but cannot articulate the risk beyond "big money in small place". And I cannot rule out that there isn't a systemic risk and that the top 500 US companies are near-optimal allocators of capital. Therefore being the best place to send your money.

About the "mindless" bit. Index funds are mindless. That's their job. You put money in, it grows (or shrinks) with the market, all while keeping your guaranteed losses, aka management fees to an absolute minimum (I'm sure you know all this). Is that really a mindless choice? I do not to think so. I think of it like choosing Python over C when I just need to bang out a few calculations.

> When everyone blindly accepts a truth in investing, it's worth keeping an careful eye on it to make sure it stays true. I think what you see as everyone accepting a blind truth is really a large number of people making rational individual decisions. If its truly mindless dogma everyone is following, and you are not, then congratulations - you are well positioned to "win" the investing game.

Re: Northvolt raises $1.2B convertible note from BlackRock

#98

Post by slashdev »

ttymck wrote: post #95
slashdev wrote: post #63

Earlier quoted context omitted.

It’s more complex than just that, there’s also tax implications for both investor and company. The liquidation preferences also apply in case of successful exit. If you have 2x preferences on this 1.2B note, if the company is acquired for less than 2.4B, the investor takes everything and the founder gets a gift basket, if the investor has a thoughtful secretary. If the investor has a board seat, they may even be able…

If I understand correctly, a convertible note is much more favorable for the investor. If that is correct, is it safe to say Northvolt raised a convertible note instead of equity because their equity is not sufficiently attractive/valuable?

I think it’s actually beneficial to both parties, which is why it’s become the standard. It doesn’t tell you anything about the company.

Re: Northvolt raises $1.2B convertible note from BlackRock

#99

Post by FredPret »

anthomtb wrote: post #96
FredPret wrote: post #92

Earlier quoted context omitted.

Yes but optimally there would be at least some proliferation in index funds, and they would index differently. There are 2 top funds that invest in the same 500 companies. Many in the US who earns well is sending x% of their income to these funds without forethought. It's far too much mindless capital concentration. Even without the index funds, the S&P 500 is used as a base reference in many investment contexts. Whe…

>Yes but optimally there would be at least some proliferation in index funds, and they would index differently. Is there not? I rolled over a 401k a few weeks ago and had several indexes to choose from, each represented by multiple funds. The S&P 500 was included in some of those indexes. But there were plenty of options that did not touch the S&P at all. > It's far too much mindless capital concentration. Maybe it i…

You make good points. I meant mindless as a bad thing on the part of the investors. Index funds indeed beat most investors by being mindless! (At least while everyone sends cheques their way every month).

Re: Northvolt raises $1.2B convertible note from BlackRock

#100

Post by FredPret »

gruez wrote: post #94
FredPret wrote: post #92

Earlier quoted context omitted.

Yes but optimally there would be at least some proliferation in index funds, and they would index differently. There are 2 top funds that invest in the same 500 companies. Many in the US who earns well is sending x% of their income to these funds without forethought. It's far too much mindless capital concentration. Even without the index funds, the S&P 500 is used as a base reference in many investment contexts. Whe…

> Yes but optimally there would be at least some proliferation in index funds, and they would index differently. Great, now investors have to choose between which index fund to pick. What makes you think the average investor is qualified to make that choice? By definition one of them will make above average returns, and the other below average returns, so half of investors will make below average returns and the othe…

I'm not saying average investors are qualified to pick index funds or stocks. I'm saying they really ought to be.

Money is a form of power, and blindly applying it in a spot just because everyone else is doing the same strikes me as not optimal.

Our saving grace is probably that the S&P500 is extraordinarily well-chosen. It's diversified across place, industry, and to some extent size. And it helps that America is an economic machine for the ages.

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