81–90 of 105 posts
I bet this is about liquidity. ( reads article ) Yep, it's about liquidity. I bet the HN comments don't mention liquidity categories. ( reads comments ) Nope, not a single one. How did I know!!!!??!!11 He's right that sub 25M is dead. You're either the next Uber or you're not getting anything. And if that's the case, then money will be on the sidelines waiting for the next big thing, not the next incremental thing. T…
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What he seems to be implying is that there are investment funds that exist solely for private equity investments, i.e. investments in startups as "VC" money. If that's true, and it's true that stuff like pension funds are sinking money into these "Equity Crowd Funds," then we're in real big trouble.
It's not only pensions, it's insurers and worse underwriters, universities, local governments, non-profit organizations and more. The amount of actual "private equity" in most VC's is minimal to non-existent, people with those amounts of money have much better investments options and more importantly they know better.
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Yep, Cuban glosses over that obvious detail when it comes to median net worth individuals ($50k - $100k). Like when ordinary people invest into the stock market, and buy a company like Adept Technologies (ADEP) that goes from $21 to $6 in ten months (ADEP has been publicly traded for 20 years). Or buy into a company like Dendreon (DNDN) which goes from $40 / share and a ~$10 billion market cap, to literally worthless…
Someone in the public market could lose a lot, but they also have the option to sell at any time, preventing losses. Private markets with no liquidity will simply cause total loss, as selling is not even an option.
Investors often ride investments down, telling themselves in a delusional fashion that their investment will turn around if they just hold out. This occurred rampantly during the collapse of the Nasdaq in 2000/01.
Or companies like Bear Stearns or Lehman, that vaporized in a matter of weeks (Bear went from like $60 to $2 in two trading days), essentially completely wiping out public shareholders. Worldcom and Enron are other similar examples.
It's also quite easy for investors to play with options in the public market and rapidly lose everything. All it takes is filling out one form.
I bet this is about liquidity. ( reads article ) Yep, it's about liquidity. I bet the HN comments don't mention liquidity categories. ( reads comments ) Nope, not a single one. How did I know!!!!??!!11 He's right that sub 25M is dead. You're either the next Uber or you're not getting anything. And if that's the case, then money will be on the sidelines waiting for the next big thing, not the next incremental thing. T…
do you have any timely book recommendations?
That book made me realize that scientific revolutions and financial revolutions go on at the same time. This is because when a new mathematical framework is discovered, scientists use it to reveal nature (which improves labor), and finance uses it to reveal human nature. (which improves influence) Therefore, TWO bubbles exist in parallel:
- The assumption that future labor will be better organized (through science)
- The assumption that better organization will yield greater influence (through finance)
Those bubbles eventually drift, but they can re-synchronize, and right now, finance has outpaced science. Considerably. Smart money is keeping liquidity on the sidelines and awaiting a resynching event: Either finance tones it down or science invents new math.
Here's a gem from the book:
"After the war, the same crisis of confidence came as after the last one, the same blame game started, the same things happened. As usual, we relabeled our own past. Once again we found ways to blame it on someone, and therefore disown it as an event. It was ‘long ago.’ We’re different today though, aren’t we? Such things could never happen again, or so we tell ourselves. On the other hand, the above forecast of 2040 can’t possibly be right. No public forecast can be. Even were it to have proved accurate, had it been kept secret, once published its existence would change our future. Most of us would ignore it, as we ignore most things. But if it strikes a nerve, some of us might work hard to bring it about. Others of us might work equally hard to stop it from happening. Whoever wins, the resulting future won’t be the same as the forecast had stated it would be. No forecast can predict its own effect. It can’t predict how many of us will either fight it or push it, nor how many of us will try to predict how many of us will fight or push and try to profit from that, nor how many of us will try to predict how many of us will try to profit, and thus profit from that. Pattern recognition leads to pattern exploitation. Thus, a public forecast can come true only if none of us cares about it. In other words, our only useful predictions are our predictably useless ones. Call it Gödel’s Inanity Theorem."
2014 was the second biggest year in the history of the US stock market. More than 275 companies went public to raise more than $85B. In 2000, 406 companies raised about $96 billion. So sure, last year, there were fewer IPOs and they were on average larger than 2014. But this is not a sign of over-regulation.
Heavy SEC regulations did not crush IPOs for SMBs. That's a knee-jerk blame government reaction that conveniently ignores the real reason why IPO-able companies don't go public much any more. They don't need to.
Uber is a good example. Their Series E is coming in at over a billion. Historically, they would have had to turn to public markets for that money.
But the JOBS Act actually made it possible for private companies to stay private a lot longer, because they are no longer penalized for granting stock to their employees, for example.
Personally, I would overjoyed if it was impossible to sell crappy private companies' shares. That would limit the damage to the rest of the economy, but sadly that's actually not the case. SecondMarket, Exhilway private capital market, Campbell Lutyens, Cogent Partners, Probitas Ps and Triago all serve the secondary market for shares of private companies.
If Cuban can't find a greater fool to snap up his shares, he's doing something wrong. There are plenty of venues to offload that stuff.
Cuban also seems to misunderstand liquidity in public markets. Just because a company is listed on a public exchange doesn't mean its shares are liquid. There are many listed companies that see very little trading in their shares on any given day. And if their valuation tanked, for whatever reason, that limited liquidity would evaporate altogether.
During the 2008 crisis, it was impossible to unload many companies' shares without making the price tumble. You just couldn't move a large block.
If the definition of a bubble is when people are knowingly making bad investments and counting on a greater fool, then if there is zero liquidity then that pretty much means that we can't be in a bubble.
Though he doesn't help his argument by suggesting that well-networked angels are in the same category as equity crowdfunders pumping money into an idea and a 2 minute pitch video.
Heaven forbid you read the comments section before the actual article. His point: >The bubble today comes from private investors who are investing in apps and small tech companies. ... >Why ? Because there is ZERO liquidity for any of those investments. None. Zero. Zip. Is he wrong?
Yes he is wrong. This is a non-sequitur. He is offering a conclusion that does not follow from his argument. Why should the lack of liquidity cause a bubble? Usually lack of liquidity acts in the opposite direction. It causes prices to go down not up. Furthermore, the bubble dynamic usually requires liquidity. The bubble dynamic happens when prices are going up so much that participants do not care about an underlyin…
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Mark Cuban is the lottery winner who thinks he's Jim Clark.
There were a lot of lottery winners who lost everything in the first tech bubble. Mark sold his company for billions then locked in his fortune using put and call options. Pretty smart if you ask me. Though, I do not agree with this article
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do you have any timely book recommendations?
I study philosophy and history primarily. Human Swarm by Gregory Rawlins is a huge inspiration. (The book was never released, but you can read it here: https://web.archive.org/web/20080414161145/http://www.roxie.... ) That book made me realize that scientific revolutions and financial revolutions go on at the same time. This is because when a new mathematical framework is discovered, scientists use it to reveal natur…
> The human race, to which so many of my readers belong, has been playing at children's games from the beginning ... The players listen very carefully and respectfully to all that the clever men have to say about what is to happen in the next generation. The players then wait until all the clever men are dead, and bury them nicely. They then go and do something else. That is all. For a race of simple tastes, however, it is great fun.
[1]: http://www.cse.dmu.ac.uk/~mward/gkc/books/Napoleon_of_Nottin...
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Broadcast.com is only sort of comparable to WhatsApp (in terms of roles in a bubble). And WhatsApp was all set to be the primary social network for a billion people, not yet another video site.
That's not the point though. The point Mark Cuban was making is that now people pitching VC firms compare their company to Uber or whatever, versus previously they were comparing it to AOL or Broadcast.com
I respect your point, but I don't think I left anything meaningful from my quote.