The Pitfalls of Private Investing in the Obama Era
Investing in public companies or public debt is reasonably apparent. You talk to your broker, and off you go. The investment is highly liquid: a phone call gets you in or out.
Private investing is different. There is no certainty that the investment will ever become liquid again: the only ways to liquefy an investment in a private company are to sell the investment itself to a third party, to sell the entire company, or to take the company public in an IPO. It’s a lot easier to sell an entire company; that is the usual way liquidity events occur. The public markets are fickle — particularly in the wake of the disastrous Facebook IPO — and most private investors are not very interested in buying only a piece of a company as it is very difficult to get that next liquidity event, especially when the investment is not a control position.
Because of this, the holding period for a private investment is usually measured in years, not days, weeks, or even months. A lot can happen in a “years” time frame, particularly as we will see below.
The basis of any investment is ultimately a “go/no go” decision. This investment decision is an actual “yes or no” decision, based on the assessment of risks that are to be taken by the investor. This is particularly important in a private investing decision when a liquidity event takes place in an uncertain time frame.
Which is where I think so many on the left are bereft of common sense.
The refrain from many liberals I know these days: “Where are the jobs? Why aren’t businesses investing?” There are no mandates that an investor is required to make investments that he or she might not otherwise make. If I don’t like the risk I perceive, I am not going to make the investment and will choose to wait for a better time.
There are all sorts of risks that are taken when one considers any investment decision. Some that all investors engage in: environmental risk (not what it sounds like — see below), industry risk, enterprise risk, management risk, time horizon risk, and liquidity risk. I’m only going to discuss environmental risk, as it impacts decision-making; the rest of these should be self-evident.
Stocks have become horribly and blatantly rigged. The banksters are running the show.
http://uselections2012blog.blogspot.ca/
Ok, the whole “bankster” thing exposes your nonsense. How are stocks rigged? Are some getting rich on IPO’s maybe, can anyone get rich or just make a good profit on stocks . . . yes. Plus, this article has nothing to do with stocks.
Wake up and smell the coffee. The stock market is a game of poker with a much better chance of making the right decision. If investors can bet on an outcome in any direction it is impossible to rig the game. The market manipulators do not have to rig anything, people who work within the confines of the market make their small cut of a huge beast and they do it day after day.
You have the choice to bet for or against any position or stock. If you want to have a better chance study the stocks and bet on ones that you know.
Obama believes that investments are what the government does with tax revenues. Given the SCOTUS decision on Obamacare, the revenues behind these ‘investments’ can be mandated (e.g., the individual mandate).
I don’t recall being asked if part of my paycheck could be mandated to purchase GM stock. (Estimated to be $85.00 per person in USA. How much per taxpayer?)
Juan, you did better than me.
I had GM preferred bonds (in my 40lK) and lost 90% of my investment after the White House lawyers sorted GM’s bankruptcy behind closed doors. No US bankruptcy law here, secret deliberations, no cameras, move on folks.
The GM assets in a US bankruptcy court would have cut my loss to 20%, but creditors with better politically connections moved ahead of me in line.
Guess who that was? The UAW, of course, which now owns 40% of GM.
I took a 90% haircut in money I SAVED for retirement and didn’t even get a $10 coupon off an oil change.
It was worse. I think as a preferred bond holder you would be considered a secured creditor, i.e. your groups of creditors get paid first out of company assets in a bankruptcy, and the UAW were in the group of unsecured creditors who get paid after the secured creditors get paid off. The stockholders get whatever is left when all is done.
So the uncertainty is greatly increased because that now you can’t judge your risk (about getting your money back) which would affect both your willingness to buy the bond (i.e. loan the company money) and what interest rate the bond would have to have to entice someone to buy it.
OK,
One more thing. You forgot your share of the huge $45 billion in GM post-bankruptcy IRS tax losses against post-bankruptcy profits.
This is from an article by Juan Levy entitled” “What The GM bailout Really Cost American Taxpayers”
“Because companies like GM that file for fast-track bankruptcy without affording due process protections to creditors don’t normally get to preserve NOLs, Treasury’s unprecedented Notices allowed GM “to retain the cake while eating it,” notes Duke Law Professor Jeffrey Coyne.
also:
“GM’s sweetheart tax deal has largely slipped under the radar screen, allowing Obama to both rail against tax loopholes and claim the auto bailout cost taxpayers far less than it actually has.– If GM’s tax gift were counted, the official cost of the bailout would double from $22 billion to $40 billion. ”
So there it is, Juan, $40,000,000,000 divided by 308,000,000 Americans and your REAL share is $129.87. Of course, only half of Americans pay taxes, so you must pay your share and one other person’s share, so that is $259.74.
And the campaigner wants more bailouts in his second term! Hide your wallet.
Against individualism, the Obama conception is for the State; and it is for the individual only in so far as he coincides with the State. Obama conceives of the State as an absolute, in comparison with which all individuals or groups are relative, only to be conceived in their relation to the State. The Obama conception of the State is all-embracing; outside of it no human or spiritual values can exist, much less have value.
This Administration especially but in reality the Big Business/Higher Ed/Govt Triumvirate that has been told they should be in charge of an economy that is centered on Sustainability. That the purpose of business is to provide jobs. Not the purpose of business is to provide products and services individuals freely choose to buy with their own money. If you do a good job at it, you grow and need more employees. Jobs are created and people get what they want.
There really is an international template that says the govt should be in charge of Full Employment and each person’s wellbeing as if govt bureaucrats were Star Trek Captain Jean-Luc Picard telling Number One to “make it so.”
The bureaucrats want to power to dictate and control the private sector and people and they want the revenue produced to give to friends. They have no idea how an economy works. They also seem to think the only problem with the USSR’s economy was starting from an agricultural base instead of an Industrial one, insufficiently large computers for data crunching to run a planned economy, and the fact that the citizens knew they were being coerced.
Unfortunately, when you really delve into what Sustainability and systems thinking mean to this Administration, you find they think they have fixed all of the above problems that supposedly impeded the Kremlin’s basically good idea.
The Return of the nomenklatura is no way to run a free country. At least and have it remain free for long.
I was just thinking that very thing. Obama sees Cpt. Picard as an ideal. Fully in charge, equitable, fair, but . . . fully in charge. The problem government is not Cpt. Picard . . . it’s Q!
Capt. Picard trusted his crew to know what they were doing and let them do it. That’s not even in the same galaxy as Obama.
There is enough private capital being held close right now to drive a recovery like we’ve never seen in history. Investors are scared to death of what the left will do if they retain power.
Back to capitalism and rugged individualism in November!!
“Back to capitalism and rugged individualism in November!!”
Are you aware that the thought that you have expressed is a likely indication that you are a “knuckle-dragger”? How do I know that? Because our feckless Speaker John Boehner just told Greta that Paul Ryan is a conservative but he is not a “knuckle-dragger”. Isn’t it great to know that the Speaker divides conservatives into two entities? Moderates and knuckle-draggers. So Michele Bachmann, for example, is likely a knuckle-dragger. John Boehner is not. He’s a liability and simply a jackass. He has to go or we will never get the capitalism and individualism you (and I) wish for.
Probably true. When you attempt Keynesian stimulus in an environment of high uncertainty, the excess liquidity ends up pooling up. When the uncertainty factor is mitigated, there will be a rush to invest and hire reminiscent of the early 1980s.
Problem is, all this pooled up liquidity, once injected into the economy, will cause inflation. The good news: jobs. The bad news: inflation a la Carter.
Interesting comment, Keynesian failure in the Depression as well of course. But ultimately, shifting money is purely artificial anyway. But of course you could say that large military expenditures are Keyensian. WWII of course lowered unemployment by simply removing millions from the workforce and at the same time creating a huge demand that was “certain” for investors to invest in. You could perhaps argue the same with Reagan’s military build up as well.
That is why, IMHO, artificial stimuli of whatever variety do more harm than good. For example, the economy boomed in the leadup to the Carter recession because of the health of the manufacturing sector AND the demand on the market caused by the Vietnam War. One could also argue LBJ intentionally drug the war out to finance his War on Poverty, Medicare, and Medicaid. We certainly didn’t fight like we wanted to win.
But that’s an argument for another day. I firmly believe the best social welfare program we could have is an economy where the demand for workers outstrips the supply. You will always have 3% or 4% who are just too damn lazy to make a living, but most human beings have enough self respect to make their own way if the gubmint will get out of the way.
An interesting comment, one I want to think about as I’m not entirely sure it would come to pass, although I see where you’re coming from. Certainly, velocity will increase which will push things up, particularly as there’s nearly none now in the money supply. On the other hand, the way the Fed has eased gives it room to “unease” and draw liquidity out. Not that I’d invest a lot of heart in its capabilities, but it is a way out when velocity increases…
You said it all! Reason enough to vote for Romney without holding my nose.If everyone saw as clearly as you we could TAKE THE SENATE TOO!
Good article. I’m a small business owner and it is harder just to conduct normal business. Banking matters that used to take little time are now loaded with red tape. Contractors I depend on are steadily dropping out of business because of rising costs and regulations and not being replaced. Firms I sell to are stagnant because of piles of new and conflicting regulations from different agencies, Obamacare and just general uncertainty. People are leaving the area because other businesses fail, don’t expand as planned or simply choose not to get started because of the current anti-business environment in DC and what we all fear is coming next.
So yes, uncertainty is a real killer. Just cut taxes and regulation back to 2008 levels and freeze them for at least 10 years. The economy would take off and when the 10 years was up, if government went crazy again, people would clearly see the economy slam on the brakes.
Some time back Obama and others were touting a tax credit scheme that would reward businesses that hired new employees. I don’t recall the details because I didn’t bother with them. The whole concept is so stupid on the face of it that it warranted no further consideration. Anyone who has employed others, as Obama has not, knows that you don’t hire people to get a tax break. You hire because the activity of your business requires you to do so. When you hire someone you make a huge commitment to that individual and the business. Your decision to do so impacts the personal life of the hired person greatly and only a dope would not recognize this. With new regulations the employer assumes financial responsibility that may go well beyond the employee’s term of actual employment. The fact that those in congress fail to recognize these simple facts means that they are either ignorant and/or simply grandstanding for a public that they consider to be mostly a bunch of dolts. Or maybe they suffer from the Joe Biden syndrome.
If I remember correctly that was some scam designed to allay fears of the costs of Obamacare. I don’t remember the details either except that the breaks were temporary, like a year or two. Business owners aren’t stupid and knew that sure they could hire people for a tiny break in the short run but in the long run they’d have the employee plus all the new costs and so they’d be deeper in the hole than before. So instead employers are working the people they have harder and are even firing some.
The current economic landscape is the logical result of such things as Ideology replacing Common Sense, Regulation instead of an amenable business climate, tax policies that are punitive.
The laughable thing – a sick laugh, certainly – is that Liberals utterly refuse to see it. Even as the house is burning down around them, they sit in the blazing playroom, laughing and giving each other circle-jerks and high-fives over their “success.”
This is a nice article but it cannot convince the left. They think that the purpose of business is to create jobs. So they shrug off and say :”just figure out a way to create the jobs, don’t be greedy and want to make money.”
Once my clients who owned GM,GMAC and Ford bonds experienced OBama’s arbitrary hit list, it became clear that there was no rules book for this imperial king. I have not heard any follow up on the grotesque shakedown experienced by BP following O’bama’s unwillingness to solve the real problem when it happened. His intransigence probably caused a delay in the solution and his executive order has shut down millions of barrels of oil that might have been drilled since that time. With the point of attack changing daily, and usually related to ideology, how could anyone evaluate an honest risk/reward relationship. No, investors are sitting on their money,and as an adviser, I have many of them sitting on their cash. The fork in the road we face in the upcoming election is really not a fork. It’s a dead end where we can turn right, or turn left. What we do with our investment funds will have a dramatic outcome depending upon which way we go. No wonder there is so much cash sloshing around in the system!!
or in simpler terms….these fascists scare the hell out of business people.
If you aren’t the designated crony, the odds of success diminish to zero in a flash.
Moreover, it’s clear that they hate small businesses even more than big businesses. The fewer necks to put the boots on the better; and small busineses create way too many necks.
they aren’t investing because of all the uncertainty and I don’t blame them.
They don’t know what their taxes will be, they don’t know how the health care will impact their business. Nothing is for sure with Obama except to destroy this once-great country.
EVERYONE IS MISSING IT, THE THING IS UPSTREAM
Everyone should be asking:
-Why is the Rate of Taxable Events not enough?
-How can we raise the Rate of Taxable events.
If it is not named accurately, it makes thinking about it accurately somewhat of a chore.
AYN RAND MISSED IT BIG TIME
There was what the folks were doing in “Atlas Shrugged.” Fat chance. That is like all the fisherman stopping fishing because the catch tonnage lowers self to the alarming level.
When certainty melts and goes wobbly like a brain on serious hallucinogens because of Nomenklatura having fun with changing rules and regulations, it is obvious what will happen next. The con-joined twins of investing and jobs, or JOBS + INVESTING shrivels because of:
THE ATLAS SHRUGGED SYNDROME.
To my way of thinking the problem is with the propaganda spewing forth from the New York Times and its lackey lemmings, such as the Seattle Times and the alphabet networks NBCBSABCMSNBC and the Democratic-government Broadcasting System (PBS). What many have in common is the BS in their names.
Relentless anti-business, anti-capitalism, anti-freedom lies and distortions in what is loosely called “news”. The media quotes “critics” which are themselves criticizing Republicans, conservatives and Tea Parties. Then it quotes Democrats patting themselves on the back for something.
The Liberal Media is shrinking, but not fast enough for me. It drove Bush into the ground and will try with Romney. You ain’t seen nothin’ yet.
I was a stockbroker, an investment banker, and a venture capitalis (like MItt Romney, but nowhere as successful). We helped create: innovation, prosperity, jobs. What’s not to like? President Obama at his core does not understand capitalism, and therefore rejects its huge contribution to eliminating poverty for millions and millions of human beings. Capitalism has been the greatest social system and has developed truly on its own over vast time periods by people free to do what they want. Is it perfect? It is as perfect as humanity in general. Can it bet better? Yes, of course. But by encouraging freedom of humans to do what they want; free enterprise it is called. But of course within boundaries of laws formulated and passed by humans. In order to be successful these laws must be overarching definitions of what’s right (legal) and what’s wrong (illegal. Then most people will live up to those laws. The ones who don’t must be prosecuted quickly and thoroughly.
Liberals want to define little behaviors, not over arching rights and wrongs, so people tend to devote large bundles of time to beating the rules, and the more micromanaged they are the more they want to bypass them. Liberals believe micromaning human behavior will stop wrongdoing. But they are so wrong. Some people will do things that hurt others, for their own gains. Always will happen, always. Nothing can stop some people. Human nature.
Accept that. And believe that most people are honest and will deal honestly. Keep the Rule(s) of Law simple and understandable. Life will once again start being prosperous.
(If only)
Ted, put another way, liberals like control. I’m drafting up a piece about their need for control, but the inherent tenet of it is a favorite saying: Never confuse intelligence with common sense.
They understand capitalism well enough.
But capitalism has freed hundreds of millions of people from tyranny. That’s the part they hate.
Some people wonder why they would kill the golden goose, but think about it. If you are in the .01% elite that owns and controls everything, even if “everything” is only a fraction of what it would be under capitalism, you are much better off than being one of millions with only a chance at success.
The court of Louis IV shit in the stairwells because nobody in feudal societies took the initiative to re-invent indoor plumbing. But the serfs had to clean the stairwells, and the court was still the court. From their perspective, it was fantastic!!!
The Political Compass™ In the introduction, we explained the inadequacies of the traditional left-right line.
http://www.politicalcompass.org/analysis2
GAO Report: $400 Billion Wasted Annually On 1,500 Duplicative, Fragmented, Inefficient Government Programs
http://budget.senate.gov/republican/public/index.cfm/files/serve?File_id=5b942c34-d1e5-49de-be92-a85dad8aa191&SK=42ED5BBA6767481D74B2057AC359ACD4
They do not understand Capitalism; they believe it is all greed, random luck and the momentum of histroy. They think economic growth happens automatically, minus a fue rough patches that the government will smooth over with consumer stimulus. That is why the don’t understand why the economy has not rebounded “like it always does”. It must be some sort of plot to make Obama a failure. They didn’t do this to Bush!