MR. MARKET, AT YOUR SERVICE
Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his. Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market’s quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions he will name a very low price, since he is terrified that you will unload your interest on him.
Mr. Market has another endearing characteristic: He doesn’t mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you. But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren’t certain that you understand and can value your business far better than Mr. Market, you don’t belong in the game. As they say in poker, “If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.”
… [A]n investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace. In my own efforts to stay insulated, I have found it highly useful to keep Ben’s Mr. Market concept firmly in mind.
Warren Buffett’s Letter to Shareholders, 1987 Berkshire Hathaway Annual Report (via Raymond James’ Jeffrey Saut)
The Fuzzy, Insane Math That’s Creating So Many Billion-Dollar Tech Companies Startups achieve astronomical valuations in exchange for protecting new investors
(…) Here’s the secret to how Silicon Valley calculates the value of its hottest companies: The numbers are sort of made-up. For the most mature startups, investors agree to grant higher valuations, which help the companies with recruitment and building credibility, in exchange for guarantees that they’ll get their money back first if the company goes public or sells. They can also negotiate to receive additional free shares if a subsequent round’s valuation is less favorable. Interviews with more than a dozen founders, venture capitalists, and the attorneys who draw up investment contracts reveal the most common financial provisions used in private-market technology deals today.
The backroom agreements are becoming more common as tech companies stay private longer, according to the interviews and financial documents obtained by Bloomberg Business. The practice obfuscates the meaning of a valuation, which can become dangerous down the road because private investors aren’t taking the same risks a public-market shareholder would. (…)
“These big numbers almost don’t matter,” says Randy Komisar, a partner at venture firm Kleiner Perkins Caufield & Byers. “Those numbers are just a middling shot at a valuation, and then it’s adjusted later” through various legal techniques, if an earlier valuation was too high, he says. (…)
Buried in their corporate filings, startups tuck away all sorts of provisions that reward investors for accepting these mega-valuations. The practice is more regular and egregious in financing rounds for mature companies. Their capital requirements tend to be much larger, so they must turn to more sophisticated investment firms that demand these kinds of terms. Startups that are generous with these guarantees can garner much higher valuations.
Each provision covers different ways to make sure new investors get paid back, even if disaster strikes, if an initial public offering gives the company a market cap far less than its private number, or, more commonly, if the startup has to raise money again at a lower valuation. One stipulation, called senior liquidation preference, ensures that a certain group gets its money back before anyone else, including employees. Another class, called downside protection or ratchets, automatically grants additional shares in the event of a declining valuation, removing a great deal of risk that the stake will ever lose value. (…)
Can capital be just? As a firm believer in capitalism and the free market, Paul Tudor Jones II believes that it can be. Jones is the founder of the Tudor Investment Corporation and the Tudor Group, which trade in the fixed-income, equity, currency and commodity markets. He thinks it is time to expand the “narrow definitions of capitalism” that threaten the underpinnings of our society and develop a new model for corporate profit that includes justness and responsibility.
I suppose Tudor Jones dedicated his presentation to the over-greedy bankers, investment bankers and money managers of this world…How about adding Professional, Moral, Ethical and Responsible behaviour to his speech and hope these guys understand?
Among too many:
(…) The most recent example comes to us from the “Evolution” Darknet, which according to a report from Crytpo Coins News shut down their web server and ran off with $12 million in user bitcoins. (…)
The operators of Evolution did leave a note for their users letting them know what happened to the money. As you might expect, the $12 million in bitcoins that have been disappeared will be shared among the former admins of Evolution, with the operator of the site claiming he’s headed to the Caribbean to enjoy his profits:
Due to unforseen events I decided to close down Evolution Marketplace. We want to thank you guys for you effort and help making this the most profitable and popular marketplace. This wasn’t an easy decision but due to other marketplaces getting shut down and the forum going downhill I decided to cut my ties and exit with an eight figure profit. The millions from evo will be divided up amongst the mods a few admin and members. Since this is such an abundance of money I may consider buy ins from former evo members in exchange for 1k bitcoinis. I’ll be around around for a short period of time before permanently moving to the caribbeans, I hope you guys understand.
“Evolution Marketplace”! Evolution is not always progress…
The bank fired Carl Bonde after discovering that he had been exaggerating his trading performance, according to the person. Mr. Bonde, who declined to comment, traded inflation derivatives at the bank’s New York office. The bank also fired Mr. Bonde’s boss, Keith Price, for failure to supervise.
Somebody must have made this up. Bonde inflated his numbers trading inflation derivatives. Eventually, his boss paid the price.