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PaperclipPerfector  10mo ago (text post)   25117 thread views

Culture War Roundup for the week of October 30, 2023

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Yes business owners do kill themselves when their business fails. Capitalism does have brutal aspects.

yeah this is why if you have a decent net-worth, just park it in tech stocks (like QQQ or maybe add some leverage to the mix) and get a nice 20-40% yoy return. Or maybe real estate. No need to take the extra risk with high rate of failure with small biz or start-ups. For every Facebook, there are many failures. Entrepreneurship so expensive, too much failure, and too much work.

Lol is this real? Don't do this.

I almost want to asks if your joking.

If you did any leverage on tech stocks especially the best performers this year then last year 2022 your bankrupt especially since you mention Facebook.

It traded $92 last November. Even unlevered your feeling poor. Any even modest leverage and your bankrupt on that move. Tech was absolutely trash in the markets a year ago.

I agree if you can get that job that something at one of the big techs offers a nice comfortable salary. But everyone else in capitalism always has a bit of failure risks which is my main point that the rich people have always faced a brutal failure at some point.

If your a high IQ guy taking risks the best advice is to find some doctor to marry with stability.

Hard to read this post re: grammar errors but the numbers don't back what you think is happening in the market.

https://finance.yahoo.com/quote/QQQ

The highest QQQ ever was is 392, it's currently at 362. It's impossible to go bankrupt on this stuff

Here's Meta specifically: https://finance.yahoo.com/quote/META

Where are you going bankrupt and not making a comfortable profit over a 15 year period like every other investor?

Your not going bankrupt on a move from 370 to 92 which happened in last 5 years if you have any leverage.

I don't mean to be antagonistic but I cannot understand the points you're trying to make.

best advice is to study cyclicality.

FB at 92 was a great buy.

oil stocks at negative oil price in 2020 was a great buy. uranium even now is a good buy. maybe even silver stocks?

i dont think you’d make as much, on a 5 year time horizon, if you out all into QQQ or google or something

Well he said levered. You blew out levered that shit last year at any leverage level.

Oil negative was fake. Chinese banks were long oil to a derivative contract on spot that day. We fucked them over. It only actually traded negative for a a few hours.

yeah leverage is risky. But even non-leveraged nasdaq lost 80% of its value from 2000s highs to 2002 lows. But still not nearly as risky as starting a biz with your own capital. only a quarter of small businesses make it to 10-15 years.

I agree if you can get that job that something at one of the big techs offers a nice comfortable salary. But everyone else in capitalism always has a bit of failure risks which is my main point that the rich people have always faced a brutal failure at some point.

VC is an alternative. The VC shoulders the financial risk, not the entrepreneur. But this is harder to get. Understandably, VCs are picky. Having the right connections helps greatly in this regard.

It traded $92 last November. Even unlevered your feeling poor. Any even modest leverage and your bankrupt on that move. Tech was absolutely trash in the markets a year ago.

much of the stuff has recovered all or most of the losses. QQQ closing in on new highs. Leverage adds new complications due to path dependency. The nice thing about 1.5x leveraged ETFs, which is what I am doing, is it mostly solves the path dependency problem of leveraged stock trading.

Many big techs trade in things that AI will destroy the moat for first. I’d be careful, but if you’ve made enough to retire then good for you. Just don’t get greedy.

A lot of people think buying a small business versus market exposure is far less risky. You control the cash flows.

if I had to guess, buying a business way more risky and work than diversified stock portfolio, even an all-tech portfolio. Also lots of asymmetric info: if a biz is on the up-and-up why would they sell to you? this means tons of due diligence , and having to hire auditor and attorney, which is more money and time. having control of cash flow assumes there is much margin to work with. lol I know that if I took the opposite point, you and others be telling me how the stock portfolio is way less risky than the biz

Simple answer is IQ arb. Look into search funds which have gotten popular with mba types.

A lot of small businesses have a moat in the sense that as you go down the IQ scale they are not managed well but provide useful services. But there are many that have a ton of cash flow but are sub scale for pe. So your not competing with your other Harvard mba for the next platform grad but some guy with a ged.

Today, whether its harvard business school or Cornell or Columbia, the biggest growth clubs are the small businese investment clubs.

everyone with MBAs, who dont wanna do big corps, seem to wanna buy a cashflowing mom and pop business. opportunities might have been arb’d away

The further down the scale the more the cost for diligence relative to acquisition goes up.

I do wonder if the next move though is for mid tier PE to go micro but do a lot of bolt ins to create a company of size that can then be flipped to a larger PE. Would require a longer hold compared to average. And to reduce costs you probably don’t finance your first few transactions and then when you go to purchase more add ons you fully finance those (since you can get the bank comfortable the existing portco can support the debt)

I do wonder if the next move though is for mid tier PE to go micro but do a lot of bolt ins to create a company of size that can then be flipped to a larger PE.

Already happening, but mid-tier PE is a disaster anyway, at least for now. Only reason megafunds are hanging on is self-dealing and selling to each other in a continuously growing scheme of propped up valuations that is liable to blow up at some point in the foreseeable future, as even they seem to be starting to admit.

PE is a cheap debt phenomenon, in an environment where money isn’t cheap it’s just building and operating a conglomerate / old school holding company with more steps, and you only have to go back to the 80s and early 90s to see that conglomerates are valued very differently to the kinds of multiples PE both works with, especially now.

The extreme micro isn’t happening.

And the PE success over the last ten years was cheap debt but PE has been successful for many years before cheap debt. KKR, BX, Warburg, etc have been around for a long time.

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Yeah but as you go down the IQ scale the comparative advantages for businesses become a bit more complicated than sticking Kanban boards in and doing a weekly standup.

this is what private equity tries to do. but the risk is mitigated by having a large portfolio of companies. an individual who buys a company is putting his or her eggs in a single basket

PE also benefits from leverage. The simple truth is that it is easier to leverage a business than portfolio stock since you control cash flow meaning that PE can get outsized returns due to leverage.

If everyone does that, and they do, power concentrates into finance and you slowly stop doing anything productive as a society.

Actual rent seeking has negative externalities. Even if it's the correct choice.

I actually think PE provides value. It provides an exit for entrepreneurs especially when they can’t go public. Let’s say you build a 100m business but are getting close to retirement and your kids aren’t all that interested in building it or you have business you want to start? PE provides an exit to those kind of business starters likely increasing business formation.

There were always exits available (selling to competitors or larger players who could access financing publicly or privately) and in countries like Germany the traditional solution was simply to have the family hire a professional manager but to keep the business in family hands. The US, UK and other prime PE markets saw their skilled manufacturing sectors suffer while Germany is a net exporter that sells China the machines they use to make goods for American and British consumers.

I do a lot of PE work and most targets aren’t manufacturing.

Of course, but it’s an example of how higher liquidity for SMEs that a large PE sector offers isn’t necessarily healthy for the wider economy. In the UK PE culture (which I’d argue is stronger even than in the US) is responsible for a rotten business culture in which even attempting to build a large new business is anathema to most entrepreneurs. This is often described as a result of growth capital being much harder to access in the UK than in the US, but this only explains a small part of it. The primary reason is that PE offers founders a lottery win that is often so tempting that they abandon their ambitions. In the US, billionaire hustle culture is ironically a partial protection against this, but European founders will cash out and retire to Cannes as soon as the first PE check is dangled before then, which I consider genuinely damaging because my impression of people in operating roles in PE is very poor.

Yeah it may be cultural different. In the US, there is still hustle culture.

Also PE now often offers 5-10% mgmt equity so still incentivizes mgmt.

Going solo is not the only way; it's the worst way, becase all the financial burden is planed on the entrepreneur. A better way is with VC, such as ycombinator program or something like a16z. The VC shoulders the financial risk by effectively investing in human capital, which is the key ingredient for a start-up anyway.

They are also sharks who will manage to get all the money if you aren't really careful. The golden days of when VCs would voluntarily share success with founders are over.

Thanks for noticing the society we live in.

I know it's stating the obvious.

But if society is to look like anything else than it does now people need to remind themselves of the pricetag on the path of least resistance.

You might be better off setting your money on fire starting a risky business than giving it to bankers to fuck everyone over. It's easy to forget you're part of everyone.

To put it another way, you aren't "stuck in traffic" you ARE the traffic.

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