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Fast Cash vs. Slow Equity

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Re: Fast Cash vs. Slow Equity

#11

Post by graemep »

The usual value of equity is the cash it can generate. This is a wordy way of saying:

1) that some businesses will be profitable short term, and some in the long term and it can be worth sacrificing one for the other as you end up with a more valuable business, and, 2) sometimes you sell a business for a lot more than its value as a standalone business, for various reasons - for example it lets a big business fill in a gap in their product line, or remove a potential future competitor, or remove a low cost alternative to their existing services/products, or help them sell more of something related, or gather more data..... or are just irrational at times.

The phenomenon in two is common in technology businesses, but is not common elsewhere. its most common during bubbles.

Re: Fast Cash vs. Slow Equity

#12

Post by DrScientist »

jcalx wrote: post #9

Not exactly the same but this reminds me of Joel's Strategy Letter I [0] regarding knowing what kind of business you operate, and consequently how you should grow it. [0] https://www.joelonsoftware.com/2000/05/12/strategy-letter-i-...

He references Amazon as a land grab play - sure - but it was also a cash generation machine - I don't think Amazon raised a huge amount of capital - didn't it mostly funded growth via revenue?

Re: Fast Cash vs. Slow Equity

#13

Post by codelion »

graemep wrote: post #11

The usual value of equity is the cash it can generate. This is a wordy way of saying: 1) that some businesses will be profitable short term, and some in the long term and it can be worth sacrificing one for the other as you end up with a more valuable business, and, 2) sometimes you sell a business for a lot more than its value as a standalone business, for various reasons - for example it lets a big business fill in…

that's a good point about the strategic value exceeding the standalone business value... i think a lot of acquisitions are driven by that, especially in tech. it's interesting how much "potential" gets priced in, even if it's not immediately obvious how that potential will be realized.

Re: Fast Cash vs. Slow Equity

#14

Post by anovikov »

apex_sloth wrote: post #7
anovikov wrote: post #3

Equity business is thoroughly inaccessible to the vast majority of people, especially the IT people. It requires being an insider at least to a degree, and it requires apart from knowledge and skills, at least some luck. I've seen a lot of extremely bright, talented and hardworking people trying to play that game - all failed, some ruined their entire lives simply for refusing to give up for too long. While those who…

Could you elaborate on that? How come it requires being an insider? What constitutes an insider?

Someone who does things not because he read about them on the Internet, but because they were invented or co-invented, or owned by people he went to school with, or family connections. When "system" is not something you fight with, but it's YOU and people who are your family or treat you as a family. Elizabeth Holmes is a prime example but only because she was caught.

Re: Fast Cash vs. Slow Equity

#15

Post by anovikov »

croon wrote: post #10
anovikov wrote: post #3

Equity business is thoroughly inaccessible to the vast majority of people, especially the IT people. It requires being an insider at least to a degree, and it requires apart from knowledge and skills, at least some luck. I've seen a lot of extremely bright, talented and hardworking people trying to play that game - all failed, some ruined their entire lives simply for refusing to give up for too long. While those who…

It also requires you already have enough money to not need any returns for a few years.

That is a much smaller problem, most people in IT have it.

Re: Fast Cash vs. Slow Equity

#17

Post by 0wis »

DrScientist wrote: post #12
jcalx wrote: post #9

Not exactly the same but this reminds me of Joel's Strategy Letter I [0] regarding knowing what kind of business you operate, and consequently how you should grow it. [0] https://www.joelonsoftware.com/2000/05/12/strategy-letter-i-...

He references Amazon as a land grab play - sure - but it was also a cash generation machine - I don't think Amazon raised a huge amount of capital - didn't it mostly funded growth via revenue?

At first, Amazon was exactly the kind of Equity business OP is writing about. And it was hugely criticized about it [1, for example]

[1]:https://www.computerworld.com/article/1377261/bezos-says-ama...

Re: Fast Cash vs. Slow Equity

#18

Post by relaxatorium »

It never fails. If someone mentions “selling courses” as one of the best examples of a business they can think of, their line of business is “self-help guru/grifter”.

He even has the “how to have better sex” book out there for you to buy.

Re: Fast Cash vs. Slow Equity

#20

Post by arthurofbabylon »

What are some indicators of the type of business one is running? Consider that in a short period’s assessment both styles (cash and equity) might generate cash, both might grow over the interval… But what matters is what happens 5 years or 10 years or 20 years later. What indicates, in the first few months, whether or not you are planting a tree or planting perennials?
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