Caution (or not) on Investments
True or False? Please to be completed on your own or with your finance advisors, partners or friends.
- Asset classes performance (Private Equity, Venture Capital, private Real Estate etc.) performance is almost akin with market timing
- Only 25% of Private Equity funds have outperformed the market, and have done so by a smaller amount.
- In 2012, Mr. Zuckerberg announced that he had purchased Instagram for $1 billion in cash and stock. It was a shocking move, a lot of money for a software app with little more than a handful of employees and about 30 million users. Today, some analysts estimate Instagram would be worth $100 billion if it were to be an independent company.
- Funds that still provided high returns equal with the risk were generally smaller ones that acted more like the owners of the companies they bought and didn’t just add debt to increase returns.
- Venture Capital has underperformed the Standard & Poor’s 500-Stock Index, the Russel 2000 Index and the Nasdaq over the last 15 years.
- Venture Capital firms that built big names often did so with a few spectacular investments that overshadowed more mediocre ones.
- Venture Capital Fund function in fact as “a rich man’s lottery”
- The Venture Capital Firm Benchmark invested $6.6million in eBay in 1997. That Investment grew to $5billion in two years.
- In Real Estate Investments, difference in returns comes down to fees.
- Since Private Investments are inherently risky, they should be undertaken only by the most experienced investors.
- High allocations to risky private assets are oft a product of how Investors made their fortunes: building business and taking risk.
Happy to hear about your assessments. Goal in my opinion, is not so much to get it “right or wrong” but to start a thoughtfully discussion about investment strategy, expected performance, timing, know-how and even luck.
NOTE: most of the statements here based on Paul Sullivan’s Article “A contrarian urges caution on investments - Wealth Matters”, published on The New York Times International Edition on September 17, 2018