Activity Lesson 4

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.

1 Like

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.

Blockquote

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

Blockbuster, in 2001 it was booming, if I was trading back then I’m sure I would have bought come. Then after it peaked in 2002 it was just game over. They couldn’t keep up with the changing times and they payed for it.

Zombie company Hertz rental is part of a contracting industry curtesy of ride share companies. It files for bankruptcy then gets propped up by a delusional market. And selling part of its fleet is only delaying the inevitable.

I think Biofuel is a malinvestment. The sold it as environment friendly and sustainable. But never made clear that we had to cut down compleet forrests to get it. As with a lot of “green” topics. In stead we could have better use the money for planting forrest.

1 Like

Brazilian government has offered annually loads of good examples of malinvestments. A well known example are the stadiums made for the 2014 FIFA World Cup. The whole event cost around $8bi USD for the brazilian tax payers, aprox. 40% of this value was put into building and reforming stadiums. Some of this stadiums don’t even host games anymore.

I think back in early 2002 the Enron corporation would fit perfectly in this scenario where the accounting books where cooked, buying stock using money from the investors to prop out their own statements, this causes a circle where investors don’t know how bad the company economics really are, perfect definition for malinvestment of capital.

buying an apartment nowadays is a malinvestment , while considered an asset by people aged 30-70 years (it can generate income if rented) the value of such property decreases over time as more buildings are constructed (this doesn’t apply to houses as the price includes land ) and in majority of cases you are buying a leasehold which means you are buying the right to ocuppy the property , not the actual property.

Investing time and resources in the traditional education system in today’s world in hope of getting a better future. Nowadays the world is moving at a super fast pace. Going with the traditional approach to education does not do anyone good. Demand based education, using innovative platforms would be a better alternative.

1 Like

Research an investment (could be a public company, private company, government agency, infrastructure project, etc) that you believe meets the definition of a malinvestment (past or present) and argue why you think it’s a misallocation of capital (3-5 sentences).

The government stimulus packages over the last 12 years or so have not resulted in the intended effect. The idea was to get money circulating in the economy and raise everyone’s boat. Money was lavished upon the banking elites with the intention of them making productive loans that would lead to economic recovery. Instead, this money was used to boost their own bonus packages and resulted in assets they owned rise in value making them richer, albeit with diluted dollars. Real economic growth did not occur and money circulation did not spiral down to main street populations. Trillions wasted really.

Research an investment (could be a public company, private company, government agency, infrastructure project, etc) that you believe meets the definition of a malinvestment (past or present) and argue why you think it’s a misallocation of capital (3-5 sentences).

From what I have researched and witness in the past few months, quantitative easing in the U.S. is a true example of malinvestment. The Federal Reserve is keep the interst low in hopes that it would stimulate some economic growth while also purchasing Treasury bonds. Trillions of dollars are being printed out to support the struggling economy during the covid-19 pandemic.What i am starting to see is that the trillions of dollars isn’t making it into the hands of the everyday people. It is going more to small businesses and big fortune 500 companies, some to which even with the money allocated to them, would not make it. Sometimes, it hard to conceptualize what a trillion dollars is.Somewhere along the lines, we have created an artificial market that we hoped would show a recovering economy but instead, unemployment is up, gdp is down and there is still no true stimulus, despite the efforts of the Federal Reserve.

Many university establishments have ageing professors wandering aimlessly with coffee being paid good coin for nothing, give way to next generation and retire years after of being paid handsome salary !! The future is in a much younger generation step aside. This trend continues lack of investment in future talent.

I think the the Canadian oil sands projects are a major malinvestment. The natural gas used on these tar sands projects is a total waste of resources. Complete misallocation of funds, labour and human brain power.

The Dot Com bubble of the '90s is a classic example of malinvestment. Due to low interest rates and a lowered top marginal capital gains tax in the mid 90’s, in addition to excitement about the potential of this new technology, there was a huge rush to invest in any and every tech company. Practically all someone had to do to get capital was pick a name and put .com at the end. Companies overextended themselves and were more concerned with image than making profitable business models. Overexcitement in the perception of the future potential of the sector led people to ignore traditional metrics they would follow when investing in a company. Predictably, the bubble burst and many of the companies went out of business or had to restructure.

1 Like

WIND SOLAR FARMS
Benefit…Giving power at a cost of 1.1- 2 cents per KWh…Great!
What is the cost?
Pricing…We subsidize the production, installation and transmission without taxes.
We pay government to pay corporations to get it at a cheaper cost???
Communities … they get:

  1. less agriculture output cause the pollinators are killed off so less crop yields, therefore less income
  2. land values go down, who wants one of these in their yard?
  3. the incidence of cancer and other illnesses jumps giving more business to the medical establishments and pharmaceuticals.
  4. the roads and towers must be maintained so roads and debris will change the environment as they will spray the gravel roads and tower areas with pesticides , they will leach into the drinking water and streams surrounding the area and kill more wildlife and food production.
  5. production, repair, dismantling, and destroying the used parts will add to the CO2 footprint.

And the cherry on top???almost IMPOSSIBLE to get real credible information on the costs and any benefits studies …
Yes a real MALINVESTMENT I think.

1 Like

In Romania, during this pandemic and near financial crisis, the government is borrowing money to rise the pensions and children allowence. In my opinion is the most stupid thing a government can do at this time. We are a poor and corrupt country, but this isn’t the time for bigger pensions especially by borrowing money. The elections are this year and by this they are trying to win them, basically by buying the votes.

1 Like

The Canadian oil pipe lines billions went in and then the government bought it back from the private investors. years in the making but no pipeline and billions in losses and the oil and gas industry in Alberta destroyed. Instead of a east west pipeline we now pipe oil to bc where it is transferred by ship to eastern Canada. a complete fraud and farce

Malinvestment

To me, the clearest example of malinvestment is USA military spending. The US spends more on ‘defense’ than the next top ten countries combined including China, India, Russia, Saudi Arabia, UK and Germany.

If this is the true cost of defending a world’s primary reserve FIAT currency, they may have wasted their money. The USD already appears to have entered the downward spiral to extinction – the same fate that became all the other historical global trade currencies.

Portugal 1450 – 1530 (80 years)

Spain 1530 – 1641 (111 Years)

Netherlands 1642 – 1720 (78 years)

France 1720 – 1815 (95 years)

UK Pound 1815 – 1920 (105 years)

US Dollar 1920 – 2021 ? (100 years would be about average!)