Activity Lesson 4

The 2008 Housing Bubble is the first example of a malinvestment that comes to mind. When the banks created artificially low interest rates on mortgages people bought up the bad mortgages and weren’t able to pay them back. The banks then bought them up and sold them to other banks and left the people in the dust of the bust.

Biiiiiiiiiiiiitttttttttttttcccccccccooooooonnnnnnnneeeeeeeccccccctttttt and Mt. Gox are good virtual currency company examples. Bitconnect users locked in BTC and the interest was diverted to a trading bot that would return a high percentage in gains. Well when the bot made some bad trades and people started pulling their money out the ponzi scheme was revealed.

Mt. Gox used peoples BTC to trade and reported false data. When people went to collect the real data showed peoples accounts had been liquidated. This is one of the concerns I have with USDT not being audited. I would love to create some USDT out of thin air and go buy 100 million worth of BTC with it.

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Hertz has filed for bankruptcy which caused its stock to drop. But as a result of the dip, many inexperienced investors ended up buying Hertz stocks and caused the price to sky rocket. It is a bad investment in my opinion.

USA housing bubble is widely known example. And then housing market crash in Europe. But I was lucky and bought our apartment in 2009 right on bottom, 40% discount.
There is very good movie about US housing bubble: Big Short

Though Uber is not directly funded by the government, it received billions of dollars in funding by various investors through out the years since it’s inception. The problem being that Uber does not make profits. Uber is currently 2 Billion dollars under so it is over valued. Apparently, Uber does not charge enough for it’s services and thus, it’s too costly to operate. Still, it seems to keep growing as investors keep pouring in.

College Tuition in USA is wayyy overpriced. Many students have to borrow a huge debt without a guarantee for a job that can pay their rents and debts. Most students get their degrees but ended up working at something that has nothing to do with their profession. It is an unfair trade of paying for a skill set. Online education is a more prevalent choice especially for a post-COVID world.

A bad long term investment in my opinion is the oil industry.
After the crash due to Covid-19, many oil companies will struggle to recuperate, and the ones that took on too much dept during the good times may go bankrupt.
We may see a sligt rise of oil prices again in short term, but i believe the hard times for the oil industry and the reminder of how volatile this market can be, will push more and more to invest in renewable energy which has shown to be a good investment the last couple of years. More investments to renewable energy will boost this sector and give the technology a makeover that could make the oil alternative look very unlucrative.

I would have to say any government bailout that does not reflect the needs of the greater set of citizens. I can think of 3 in particular in Canada where we had government bailouts of Air Canada (CEO had an outrageous bonus the following year), Bombardier (2X) to name a few examples.

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The Burj Al Alam building in Dubai. The project was dogged by delays in payments from investors due to the global financial crisis. Construction of the tower was put on hold just after piling work on the foundations was completed in 2009. The main contractor for construction had not yet been selected when a report stated the structure was expected to be completed in 2012. There was little sign of activity at the site after 2009, and no further statements regarding progress.

As everyone knows, China’s economy has grown spectacularly in recent decades. Some government spending appears to have been wise - investments in infrastructure such as the high speed rail network. Other spending is questionable at best e.g. many real estate projects and apartment complexes throughout China stand silent and empty with nobody having ever purchased and / or taken up residence.

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Macy’s makes 40 percent of their profits from their credit cards. If they invested in the retail experience and made their stores an enjoyable place to visit, they would help push retail forward. Instead, their stores are stale and look like every other depressing department store, driving people to Amazon. If customers can no longer make their minimum payments, this could lead to defaults, personal bankrupcies and Macy’s losing their cash cow.

right now i’d say that most investments into leisure and travel companies are bad investments (including taxpayer bailouts of certain airlines) as many have unsustainable business models and were losing money pre-covid; the demise of such companies are only postponed by such investments, and usually at out expense!

Buying Dogecoin after it has already pumped…I am sure there are better examples than this, but it just came to mind.

Owning USD as they continue to print more and more while making it easy to borrow with low rates

ABSOLUTLY RIGHT1
Why has no one in canada woken up to this???

Right now, I would say airlines are not a good investment. I believe that regulations and fears over the recent pandemic will result in fewer people wanting to be closely packed together in a confined space for long periods of time. Job losses will possibly result in fewer people having the disposable income to take flights for travelling. Border regulations and mandatory quarantine requirements will make travel to many places no longer feasible for many people. Disruptions in the fuel supply chain could result in a spike in prices for jet fuel, which could contribute to reduces profitability. I think that the airlines will likely shrink in the short term.

For me it was what happened leading up to 2008. Banks selling high risk investments to high risk individuals, in my opinion, a clear example of malinvestment.

Most of the Football fans dream of having a Fifa world cup organized in their home country. Governments usually see it as a great opportunity to catch the world’s attention, stimulate tourism and boost the country’s economy through heavy investments in infrastructure improvements such as roads, airports, hotels, transportation and… stadiums.

While the Fifa World Cup 2010 in South Africa was certainly a great marketing event for the country, the jury is still out for the Return On Investment on the $1.1 Billion (out of a total of $3 Billion) that the country’s government spent alone on building and upgrading their 11 football stadiums in contracts plagued with corruption, collusion and bid rigging. 10 years laters, most of these stadiums are still underused and have cost millions to maintain.

For most of the developing world countries, organizing the Fifa World Cup is a malinvestment, a money losing business that is paid for by tax payer’s money but does not bring any significant improvement to the people’s lives.

I took a look at GameStop and I believe this company fits the criteria for malinvestment. Right now, there are well over a dozen locations in NYC where the real estate is especially expensive. It’s not a franchise model either, each store is leased by the company itself. GameStop only sells discs (particularly used discs) which I don’t believe is more beneficial to gamers that can get whatever/whenever they want online. The amount of money they offer a seller of a game is significantly lower than what that seller could get if they sold it elsewhere online. In 2015, GameStop bought ThinkGeek which takes up a lot of space in their stores and those products are unrelated sales items. If GameStop had invested less in opening a ton of congested store locations and maybe focused on offering some kind of digital service, perhaps their stock wouldn’t have fallen 90% in the last 5 years.

I think the Target retail stores in Canada is one example.
Less than two years after entering Canada, Target shocked the retail world by pulling out. After accumulating $2.5 billion in losses, the Minneapolis-based company will shut down all of its 133 Canadian locations and lay off 17,600 employees.

Source: https://www.visioncritical.com/blog/target-canada