annuities is a program offered by insurance companies for people who do not have a retirement plan .this program does not factor in inflation . so a retired person who signed up for this scam would receive the same salary from age 65 until 85 while prices keep increasing .for example in the united states prices in 2017 were 43.25% higher than they were in the year 2000 . in addition to very high fees and the possibility of leaving nothing to their families from the remaining money in their contract if they die before paying the full “investment”.
Coal. It is terrible for the environment. New green technology is cheaper and more efficient. It will continue to be phased out while green tech energy is more widely adopted.
With my previous knowledge from the time when it happened combined with the little research I have done now I think this possible “malinvestment” fits the time of the huge stimulus packages that got into the economy after the financial crisis in 2008/2009.
Its a iron ore mine up in the northern part of Sweden and was a listed company on the stock exchange and its name was Northland resources. (Its up and running again I think under new owners but the matter of fact is that during its bankruptcy a lot of people lost huge amount of money).
The iron ore price in the year 2008 was around 60$, after around 2 years later in the middle of the stimulus packages the price in the end of 2010 it had skyrocketed to 170$. At this inflated price point where interest rates was really low and the price for iron ore really high, the planning to build a iron ore mine in the name of northland resources was planned. I connect this to the market not being efficient in showing the real risks here. In October of 2012 the price had dropped to 114$ and the mining started at this point. In February of 2013 only a couple of month after the mining had started and the price had gone up to 155$, Northland Resources search for a reconstruction of the company.
To make the long story short so this post doesn’t get too long, Northland get to raise some money in 2013 to continue their operations a while longer just to file for bankruptcy in late 2014. It showed in the end that the company had around 1,6B$ in liabilities.
I connect this story to what I have learnt in the course about why misallocation of capital is likely to happen during a artificial raising of the money supply that often takes place in the time of crisis in the likes of 2008/2009. I haven’t done as much research that would be needed to know exactly what happened and why but this is my best guess based on my current knowledge.
With a more free market without artificial stimulus then the iron ore price most likely wouldn’t have surge so that the mining companies get the false market feedback that the free market is demanding a lot of iron ore.
An example would be one of the many ghost-town infrastructure projects that the Chinese government approved and executed in the aftermath of the GFC back in 2008. On the one hand, massive infrastructure projects like these helped save the Chinese and the global economy from complete failure, but on the other hand, these ghost-towns contribute no further productivity after their completion.
For those familiar with the New York metro area, probably have heard of the development debacle in the Meadowlands (New Jersey) now called, poetically, the “American Dream.” The real estate development consisting of malls, indoor ski slopes, movie theatres, restaurants, etc. has bankrupted multiple times over the decades with multiple companies for numerous reasons. Everything from the mafia to complete changes in industry trends where the factors. All this was afforded to continue, since around 2000, as easy and huge lines of credit were always secured and the bankruptcy cycle was an easy wash and repeat of terrible business decisions. Needless to say, corruption offered a supporting role. To this day, the project is still under construction.
Unfinished Skyscrapers could be an example of a malinvestment. Because a lot of those buildings made grandiose proposals, such as becoming the tallest building in the world. That proposal alone influenced investors to invest money. It’s grandiose thinking in my opinion. the physics of the construction alone could be a cause of that not happening. An example of this would be the Nakheel Tower (Dubai). The funds should have been invested in researching the reliability of the fake islands that it was going to be the focal point of in my opinion.
Talking about my country , Parmalat scandal is a good example of malinvestment
Parmalat’s fraud was as an attempt to cover up losses. In 1990, the company’s South American subsidiary began generating losses, which CEO Calisto Tanzi chose to disguise in the company’s financial results.
Parmalat’s choice to commit fraud made the company path dependent, leading to ever more unethical accounting conventions and self-dealing. The fraud was eventually discovered in 2003, when Parmalat defaulted on a €150 million bond issue despite reporting more than €4 billion in cash and equivalents on its balance sheet.
Investors who rely on the veracity of reported information always risk such a failure.
There is still risk involved even in trustless enviroment, but at least with blockchain technology you can achieve full transparency , immutability, so fraud above could be avoided , as if the info for investors were public and in the blockchain would be more safer for them. (well , it was totally another era, but the point is to compare what we can achieve with blockchain technology in the future)
During the 1600s in the Dutch Golden Age, there was a period called Tulip Mania. The first tulip seeds were sent to Holland and the tulip bulbs were becoming fashionable and at the same time expensive.
Tulip bulbs at the time were so rare and in demand they were worth as much as an entire estate. Big investors were rushing to buy these bulbs selling land and estates left and right. But what they didn’t know was that anyone could grow these tulips. So the people of Holland start growing tulips left and right and the prices for them dwindling dramatically. The investors were panicking to sell these tulips but it didn’t really work out.
Not an ideal situation 
Examples of malinvestment primarily exist in the tech sector. For example, The taxi service Uber, is not worth anything like its “private market” valuation of $68 billion. Due to the industries low regulation and high regulation skeleton, it is highly unlikely that Uber’s valuation is anywhere near realistic. In fact, due to the low barriers of entry Uber is always under threat, such as by companies like Lyft. Further, to this Uber has been blocked in certain cities like it was in London and customers often use their local alternatives. So its valuation is outrageously over priced leading to an obvious misallocation of resources.
A malinvestment would be investing in US government bonds. The stability/price of these instruments are propped up by the Fed creating money out of thin air by buying them. Creating a false value. When this bubble bursts it will be the unknowing John Q Public that will be left holding the bag.
2008 U.S. housing bubble:
Like the 2000 “dotcom bubble”, the housing bubble was caused by the Fed pumping lots of currency into the market through artificially low interest rates and the government backing risky loans to ineligible home buyers.
The Fed is currently buying up junk bonds from zombie companies trying to keep them afloat. This prolongs the agony of a company slowly dying while new entrepreneurs can not enter the market because of lack of capital. The entrepreneur might have a more efficient way of running the business if the zombie company could be bought for pennies on a dollar which is its true worth. It results in extremes. For example, take the example of money being given to an airline at almost zero cost under the condition that the airline will continue to employ people. After a short while, a reduction in force occurs. There is not punishment for this malinvestment. In fact the Fed may forgive the loan. Meanwhile taxpayers are on the hook for the debt the Fed took on, even though there was no vote or approval. And many lost their jobs. The money is often funneled in part into purchasing of stock or the pockets of executives for a job well done: fleecing the public.
Masters Home Improvements
Couriermail “Headline” 2nd of September 2016
"Hardware group Masters aspiried to be jack of all trades, but mastered none!"
2009-16 an Australian retail history now recounts this fiasco as one of the largest calamities of the past were a joint venture lead to a catastrophic defeat for Woolworths Ltd.
Malinvestment Definition
"Malinvestment" is a mistaken investment in wrong lines of production, which inevitably lead to wasted capital and economic losses, subsequently requiring the reallocation of resources to more productive uses."
Points of Malinvestment
Woolworths partnered with Lowes (Masters Home Improvement) to take on rival Wesfarmers (Bunnings Warehouse) in the home hardware retail sector of AU in 2009.
They underestimated customer loyalties to Bunnings and its branding, they overcapitalized on differentiation with excessive power consumption installing aircon & bright lighting. Not stopping there, they blitzed up the stores with larger than life bright signs and polished painted floors, even adding McDonald’s Restaurants. They were primarily targeting female shoppers.
The market was right at 36 billion dollars, but the marketing was wrong, with overkill on shopper experience expense beyond the means of effective marketing campaign delivery. 2010-11, Masters is still getting off the ground with 14 sites being developed and 10 sites awaiting approval whilst Bunnings, a well-established veteran from 1994 has 187 warehouse stores, 58 small-format stores, 29 trade centers, and 7 frame truss plants, with plans announced Sept. '10 to expand by building another 18 stores in NSW AU.
In 2014, the harsh reality hits home for Masters, now losses beginning to appear and halving their goals for building expansion. Two more years and 3.2 billion dollars in losses, the Jan. '16 announcements of sell-offs, fire sales, and store closures, signaled an 8mth review where it was decided to close all trade indefinitely on the 11th Dec.'16.
Finally, the low-interest rate market and the growing home hardware and outdoor living sector enticed Woolworths to take on Wesfarmers for a piece of the market-share which ended badly and the rest is history. This is an epic example of malinvestment in action.
any governbond of a european country is an malinvestment, a bond in euro with an interest so low is not worth it…
Easiest one I thought of is that don’t keep you money in cash or don’t hold it in FIAT. Use cash only when you need it, as long as FED and other banks keep printing we all lose, yeah oil/gasoline is cheaper today than 2 months ago but price of bread is still high.
Used cars would be a malinvestment. I mean buying them to resale is well pretty much any automobile.
With the bankruptcy of Hertz and the result of millions of cars being potentially placed on the market. Not only is the used car market affected but even the manufacturers pushing new stock onto dealers even with the models from 3 years prior. It is not uncommon to see a field full of wild Mustangs, Rams, or Impalas’ tucked away from busy sections of town.
I believe that a savings account in the country you live in is usually a bad investment.
In most cases, the actual inflation is greater than the interest rate you will get. So, if today you put the money of four tires in a savings account, in 10 years you may be able to buy only three.
To me, savings accounts are only good for keeping money there for the short-term, like an emergency reserve, or money that you haven’t properly invested yet.
Investing in a government CD or bond with a very low interest of return would be a malinvestment because when factoring in the “standard” 2% inflation it eats away at your gains that you could have used that money to invest in crypto or other valuable investments.
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Construction group Carillion in the UK. IT collapsed in early 2018 and appears to have been in financial difficulty for several years before that bu had “limped on” taking on contracts that other more financially stable companies could have taken. The government was criticised for not spotting the irregularities in such a key supplier.
In June 2018, it was reported that KPMG and Carillion bosses had maintained a £329m valuation of goodwill relating to the former Eaga business (later Carillion Energy Services), despite huge losses. Ignoring the impairment meant they could continue to pay dividends and directors’ bonuses, including £1.8m each to two directors. One of the multiple parliamentary reports singled outKPMG for its “complicity” in signing off Carillion’s “increasingly fantastical figures” and internal auditor Deloitte accused of failing to identify, or ignoring, “terminal failings”.
Best way to sum it up is by using the following quote:
"The final report of the Parliamentary inquiry by the Business and the Work and Pensions Select Committees into the collapse of Carillion was published on 16 May 2018. Its opening paragraph summarised the committees’ views:
Carillion’s rise and spectacular fall was a story of recklessness, hubris and greed. Its business model was a relentless dash for cash, driven by acquisitions, rising debt, expansion into new markets and exploitation of suppliers. It presented accounts that misrepresented the reality of the business, and increased its dividend every year, come what may. Long term obligations, such as adequately funding its pension schemes, were treated with contempt. Even as the company very publicly began to unravel, the board was concerned with increasing and protecting generous executive bonuses. Carillion was unsustainable. The mystery is not that it collapsed, but that it lasted so long.
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Generally looking at the current fiscal and monetary policies of the federal reserve banks all over the world by printing massive amounts of fiat currencies and pumping it into their economies to artificially keep the markets from collapsing is going to lead to misallocation of capital