Whenever a highly lucrative business is offered for sale to the general public, you can be pretty sure there’s a gargantuan catch and the whole thing is likely to crap out, or at least become a whole lot less lucrative in the near future.
More often than not, it’s a game of pass-the-ticking-bomb with clueless peasants.
I advise the highest caution when, say:
- Saudi Arabia moves towards partial privatisation of state-owned oil behemoth Aramco (the only foundation of the country’s whole „economy“) just as oil prices tumble, likely to never recover as world shifts to electric cars and renewable energy.
- Vietnam puts up part of its stake in a dairy giant up for sale because they apparently need the money for something else. What’s not to like about joint ownership of business with communist dictatorships? It’s not like you’re risking arbitary expropriation by entrusting your capital to people viciously opposed to the very concept of private ownershi….shit.
- A telecom giant famous for mismanagement and being owned by super shady organized criminals even by the standards of telecom giants moving to be offered on the stock exchange just as traditional telecoms are getting annihilated by internet startups.
- As London office space is likely to face diminished demand due to 1) Brexit and 2) the general tendency of 21st century people to work from anywhere else than a soul-crushing office block, suddenly stakes in commercial real estate are “being democratised” and “taken mainstream” by a bold new venture of notorious old incumbents.
Starting to pick up on the pattern?
If the expectation was that the thing will continue to be good, they wouldn’t be selling.
Lucrative assets are kept private and guarded jealously. When they start to dry out, you “take them mainstream” and sell to mom and pop investors – who are then on the hook to lose their retirement savings in exchange for something like 2% above inflation.
It’s a scam, of course.
You sell the golden goose to naive idiots for that last gigantic bag of money when it starts to crap out less gold than it costs to take care of it, and hope to be over the hills before they notice.
Any old company or established institution that suddenly lists on the stock exchange can be reliably assumed to be fucked and looking for dupes.
It’s like used cars that you try to take maximum advantage of and then sell exactly 15 miles before they conk out. Or a cow that shows signs of imminently planning to stop producing milk, so you quickly sell it.
Why is SpaceX private and Snapchat scrambles to IPO?
Because SpaceX is one of the most important ventures in the history of humanity, and will remain central to our nascent space infrastructure, with the potential to be the real-life Weyland-Yutani corporation of the space age. It also has the potential to be not just the most important, but also the most profitable thing anyone has ever done.
So you keep that private – for the control as much as for the future revenue.
In contrast, Snapchat is a pointless social media startup whose sole value is showing advertisements to sexting teenagers. Its IPO is harking back to the dotcom bubble with astronomical valuations for fundamentally worthless projects, and it‘s likely to follow Twitter on an „Oh god we need to dump this on somebody before it implodes“ course.
Nobody sells a goose that lays golden eggs. But when the goose is getting a bit old and the eggs farther inbetween, and really rather less golden, but it still looks plausibly lucrative to a careless, credulous or inexperienced observer, that’s when you dump the thing on mom and pop investors to enjoy the 3% p.a. returns.
In the words of a poet: “Do not tread upon ice with the lords, for often a lord slips and it’s the peasant’s leg that gets broken“
So where are the lucrative investments for normal people?
- Along the margins and in P2P lending.
- In starting your own thing.
- There are a couple of established companies in stable jurisdictions that pay substantial dividends.
Not many other options, not until the financial industry becomes a bit less cartelish and rent-extractive. Don’t worry, it’s coming.
Investing in wisdomination.com is a fairly straightforward deal: you buy me a drink and I write more of these eminently shareable things.