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The Man Who Made Too Much

portfolio.com

41–50 of 51 posts

Re: The Man Who Made Too Much

#41

Earlier quoted context omitted.

When you make 15 Billion, you probably don't care too much about the price of the house you bought last year was. Especially since you most likely don't have a mortgage.

I would question his financial acumen if he doesn't have a mortgage. Houses (specially the expensive ones) are a bad place to have money parked. Although, it doesn't make any difference in his fortune, anyway.

You're still viewing the house as an investment and not a purchase.

You're not parking money, you're buying a house, the same way you don't worry about the resale value of your TV, you won't worry about the resale value of your home. If you manage to sell the TV at a gain, wonderful, if not, no worries.

Re: The Man Who Made Too Much

#42
post #40
post #32

Earlier quoted context omitted.

he created $15B of net worth for his investors, not value. It was a wealth transfer, no net creation.

It was a wealth transfer, no net creation. Not so much. He allocated resources correctly. That's what putting money in the stock market is fundamentally about. If you allocate resources correctly, you win. Allocate them incorrectly and you lose. He made $15 billion by pushing down prices of assets that were overvalued (that's what short selling does.) i.e. He made the crisis slightly less terrible by driving down pri…

I agree he allocated resources by buying/selling assets, but nowhere in the purchase/sale of those assets is value created. Prices move, but value isn't created, the underlying assets don't generate anymore than they would have had he not purchased or sold them. GOOG trading at 700 vs 200 doesn't create value, GOOG will still earn the same amount in the future whether it trades at 200 or 700. Please take some time to think about this.

Re: The Man Who Made Too Much

#43
post #42
post #40

Earlier quoted context omitted.

It was a wealth transfer, no net creation. Not so much. He allocated resources correctly. That's what putting money in the stock market is fundamentally about. If you allocate resources correctly, you win. Allocate them incorrectly and you lose. He made $15 billion by pushing down prices of assets that were overvalued (that's what short selling does.) i.e. He made the crisis slightly less terrible by driving down pri…

I agree he allocated resources by buying/selling assets, but nowhere in the purchase/sale of those assets is value created. Prices move, but value isn't created, the underlying assets don't generate anymore than they would have had he not purchased or sold them. GOOG trading at 700 vs 200 doesn't create value, GOOG will still earn the same amount in the future whether it trades at 200 or 700. Please take some time to…

Suppose there's an economy where everyone is spending 80% of their energy building refrigerators. All day that's what people are doing. Nobody actually needs these refrigerators, so they just keep building them and stacking them up in the corner.

Then one day an intrepid young entrepreneur decides "hey, this whole refrigerator building thing is kind of silly. It's kind of a waste of resources. I think I'll start betting against refrigerator companies." Then he takes a whole bunch of money (that's not currently tied up in building refrigerators of course) and short sells the stocks of companies that make refrigerators. This causes their stock price to go down a bit (or rather, to go up more slowly) which drives money out of refrigerator building and into other things, like making televisions or something.

A year or two pass and suddenly everyone has an epiphany. All these refrigerators everyone has been building and stacking neatly in the corner aren't actually worth $2000 apiece. In fact, since there's so damn many of them, they're only worth like $3.50! the economy crashes! all the refrigerator companies go out of business! all the investors in refrigerator companies lose their shirts! people are committing suicide left and right because their refrigerator stockpiles are suddenly worth nothing!

But our intrepid entrepreneur is doing quite well. You see, all that money he drove into making televisions was safe because the value of televisions was not inflated. TV's were actually worth $1000 apiece, and there was no oversupply of TVs so their price stayed at $1000.

So what was the value of the entrepreneur's work? well, he kept a whole bunch of energy from being expended on building stockpiles of refrigerators. He didn't himself go out and build televisions or anything. No, his labor was more abstract and more intellectual, but still quite valuable.

Resource allocation is everything.

Re: The Man Who Made Too Much

#44
post #42
post #40

Earlier quoted context omitted.

It was a wealth transfer, no net creation. Not so much. He allocated resources correctly. That's what putting money in the stock market is fundamentally about. If you allocate resources correctly, you win. Allocate them incorrectly and you lose. He made $15 billion by pushing down prices of assets that were overvalued (that's what short selling does.) i.e. He made the crisis slightly less terrible by driving down pri…

I agree he allocated resources by buying/selling assets, but nowhere in the purchase/sale of those assets is value created. Prices move, but value isn't created, the underlying assets don't generate anymore than they would have had he not purchased or sold them. GOOG trading at 700 vs 200 doesn't create value, GOOG will still earn the same amount in the future whether it trades at 200 or 700. Please take some time to…

You are deeply mistaken in thinking that share prices have no influence on value creation. Let me explain using your example.

Imagine that GOOG has a few projects in the pipeline. A few bad ones, and a few brilliant ones.

When GOOG share price is at 700, GOOG can issue 100 shares and raise 70000. Plenty of money to throw at good and bad projects.

If GOOG share price was at 200 they would raise less than 1/3 of the money, and be very picky at what projects to fund. Only the best project would get funded.

Think about how much resources are wasted in the society though misallocation of capital due to inflated asset prices. You may look at short sellers in a completely new light.

Re: The Man Who Made Too Much

#45
post #44
post #42

Earlier quoted context omitted.

I agree he allocated resources by buying/selling assets, but nowhere in the purchase/sale of those assets is value created. Prices move, but value isn't created, the underlying assets don't generate anymore than they would have had he not purchased or sold them. GOOG trading at 700 vs 200 doesn't create value, GOOG will still earn the same amount in the future whether it trades at 200 or 700. Please take some time to…

You are deeply mistaken in thinking that share prices have no influence on value creation. Let me explain using your example. Imagine that GOOG has a few projects in the pipeline. A few bad ones, and a few brilliant ones. When GOOG share price is at 700, GOOG can issue 100 shares and raise 70000. Plenty of money to throw at good and bad projects. If GOOG share price was at 200 they would raise less than 1/3 of the mo…

If GOOG could tell, with certainty, ahead of time what projects were brilliant and which ones were bad, they'd only fund the brilliant ones in the first place, right?

The notion that GOOG is knowingly chasing bad projects solely because their stock price is high seems absurd. I think it's more likely that they just don't, and can't, know ahead of times what's going to stick.

Re: The Man Who Made Too Much

#46
post #44
post #42

Earlier quoted context omitted.

I agree he allocated resources by buying/selling assets, but nowhere in the purchase/sale of those assets is value created. Prices move, but value isn't created, the underlying assets don't generate anymore than they would have had he not purchased or sold them. GOOG trading at 700 vs 200 doesn't create value, GOOG will still earn the same amount in the future whether it trades at 200 or 700. Please take some time to…

You are deeply mistaken in thinking that share prices have no influence on value creation. Let me explain using your example. Imagine that GOOG has a few projects in the pipeline. A few bad ones, and a few brilliant ones. When GOOG share price is at 700, GOOG can issue 100 shares and raise 70000. Plenty of money to throw at good and bad projects. If GOOG share price was at 200 they would raise less than 1/3 of the mo…

never said capital (or access to capital) doesn't influence value creation. it can negatively or positively affect value creation depending on how that capital is allocated. however the act of capital allocation does not create value. why is that so difficult to understand? im not saying capital allocation isn't important, however its one means to an end (value creation).

Re: The Man Who Made Too Much

#47
"Left unexamined is the uncomfortable moral dimension of Paulson’s achievement. If he saw all of this coming, was it right for him to keep his own counsel, quietly trading while the financial system melted down? Do traders who figure out a way to profit from our misery deserve our contempt or our admiration, however grudging?"

Please. There were thousands of people, and hundreds of very prominent bloggers shouting as loud as they could that this was going to happen, and no one listened. No one wanted to listen. So, now, instead of blaming the people that caused the problem, they demonize the sensical people, who should have been listened to all the time.

Seriously, how big of an explosion do we need before we start listening to the people that predict the explosions accurately. This world is starting to get surreal.....in the past (maybe a year or two ago), one could pass this off as ignorance, but what we are seeing lately just can't be ignorance. Is this writer for portfolio.com really this uninformed? Has the entire financial commentary industry been poisoned by deliberate hiring of clueless people? They seem to only read each other and watch CNBC rather than reading bloggers who have had this all figured out with very high levels of accuraqcy for literally years.

Re: The Man Who Made Too Much

#48
post #43
post #42

Earlier quoted context omitted.

I agree he allocated resources by buying/selling assets, but nowhere in the purchase/sale of those assets is value created. Prices move, but value isn't created, the underlying assets don't generate anymore than they would have had he not purchased or sold them. GOOG trading at 700 vs 200 doesn't create value, GOOG will still earn the same amount in the future whether it trades at 200 or 700. Please take some time to…

Suppose there's an economy where everyone is spending 80% of their energy building refrigerators. All day that's what people are doing. Nobody actually needs these refrigerators, so they just keep building them and stacking them up in the corner. Then one day an intrepid young entrepreneur decides "hey, this whole refrigerator building thing is kind of silly. It's kind of a waste of resources. I think I'll start bett…

Replace refrigerators with tractors and that's pretty much what happened in the USSR.

Re: The Man Who Made Too Much

#49
post #38

Earlier quoted context omitted.

He offered the service of buying financial assets from people who wanted to increase their gains by amplifying risk. Whenever you offer a service you expect a reward.

not disagreeing or saying he didn't 'earn' the money, i think he did. but he did it as an agent of efficiency vs. innovation/creation.

Operations can be innovated too.

E.g. Dell creates no new technology in their products, but they did a whole lot of value-creating innovation in their supply chain.

Re: The Man Who Made Too Much

#50

Earlier quoted context omitted.

Surely; but suppose Paulson didn't do what he did. The capital that didn't go into his fund would have gone into other instruments that produce effects elsewhere (ultimately ending up in some conversion to value somewhere in the chain, big or small). The money made from these other instruments will be used for X purpose. The money lost is simply lost. Paulson simply sped up the reaction. At the cost of the happiness…

"At the cost of the happiness of others" You cannot consider happiness as part of the equation. People were happy enough to sell financial instruments to Paulson at a profit. Now they are sad because they lost money in that transaction... Why all the complain? Everyone should just learn a lesson in investment from this situation.

If the wealth gain was less sudden, i.e. if it was less conspicuous, people wouldn't complain as much. So the speed is definitely related to the happiness of others, because it's a relative, societal judgment. Furthermore, the one complaining here (the article) was, I believe, a bystander. It's more a reflection on income disparity than quality of life.

But I agree with you.

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