Activity Lesson 4

A good example of malinvestment for me would be the investment into Myspace just before the rise of other social networks like Facebook, Twitter and Instagram.

People say President Obama in his 4 years. I can’t totally find out if it is true but yeah, I think these kind of leaders are the elephant in the room if we discuss malinvestment.

An example of malinvestment would be purchasing a large gas-guzzling SUV that only travels a few miles per gallon. These used to be common place in the US of A. Gas prices then shot up and nobody wanted them anymore and many were eventually turned to scrap metal. I believe General Motors was also one of the companies that received a bail out a few years ago.

Blockbuster stock, an example of a company that refused to evolve with technology and decentralize itself/services similar to the power of decentralized currencies. This is opposed to companies like amazon who continuously evolve to stay ahead of the curve. It would be a misallocation of capital if one invested without researching the companies a strategy or plan for aligning with upcoming trends in consumer behavior.

ESKOM only electricity supplier in South Africa bailout. during the changes in South Africa, strategy was to employed “disadvantaged” people in all the sectors of economy. With time they replaced knowledgeable employees with experienced. This created situation that state owned companies started to deteriorate together with massive corruption. Billions were disappearing from SOEs. Instead of rectify the situation by employing the best person for the job, there is preference of empowerment of historically “disadvantage” people. All SOE are going down with billions to be pump into those companies to keep them a life.

I think governments should not interfere in the market and save big companies that are too big to fail. If a big company fails, others that are more profitable will succeed.

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A malinvestment would be me putting my savings in the bank. It is valid for all times.

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Simple example are the bailouts of the airline companies now in 2020. It’s not like most of them are going to be in business anytime soon or survive making it all a waste of tax-payer money in the long run since they are going to pay for them in the end.

Trump factor

In this area, as in many others, the unexpected election of President Donald Trump has revolutionized the Fed’s thinking. Suddenly an economy that had been thought too fragile to bear the burden of interest rate rises is thought strong enough to bear them at a rapid clip. Nothing has changed, other than a stock market boom that to Obama-followers is totally irrational and unexplained. Malinvestment I believe is here as with a new President in 2016 you would not be certain of the future. Even today with the ‘virus’ making an investment could be malinvestment as no one knows what the future holds for the entire globe.

Buying stocks from company’s is an interesting solution. Only in these days the government is also buying the same stocks (with printed money what causes price increase) so there is no relation anymore between real value of the company and the stock price. What causes zombi company’s.

I think of an American company Solyndra. It received a $535 Million USD loan from the government to produce new high tech and efficient solar panels. When the market dropped out due to lower prices from China, they went bust. There were a number of reports of misspending. The tax payer was on the hook in the end.

One investment that come to mind would be the Lehman minibonds back in 2008.
Lehman basically bundled rubbish assets which were not actually bonds, but called them minibonds anyway. They then sold these to unsuspecting customers who thought they were buying a decent bond with higher yields than any other fixed deposits in the market.
Of course that did not work well, Lehman collapsed and holders got burnt.

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An example of malinvestment is Volswagen carbon scandal ! The company decided to invest in a disfunctional product and promote it as if it respects the ecological standarts . Eventually the scandal was reveiled to the public and the company is now entitled to reverse massive collosal amounts for the damages caused. :laughing:

I would argue UBER. This company has been around for years by now, consuming billions per year in losses and they still don’t even know how their business model is going to turn profitable within the next few years. All the while they are competing with other traditional businesses under market prices, which under normal monetary economic principles wouldn’t be able to last so long.

My GF makes more on unemployment than she did when she was working(prior to covid 19). In fact this is the case with many people who are out of work at the moment due to the lockdown. The state we live in, “California, may lose $20 billion to $50 billion in tax revenues, and this will come from its $200 billion annual budget” I feel things will get worse before they get better

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All CEO salaries because they’re only worth a fraction of the currency they earn. This is robbing from the labor of the other employees.

I attached my trading view post from last week. Many public companies right now are seeing the average Joe think it’s a great discount time to buy. Historically that’s not a good thing. Amazon though logically is doing well. Is seen as a safe bet by most people in my opinion everyone thinking something is safe makes it highly probable that it’s over valued.

Anyone have more thought’s and ideas what is likely to be bailed in first when these proceedings happen?

The best example of malinvestment is UK’s HS2 PROJECT.
The official price tag for HS2 was set out in the 2015 Budget and came in at just under £56bn.
However, the government estimate for the project has since almost doubled, with the latest figure rising to £106bn.
THIS NEW LINE WILL NOT BE OPERATIONAL 2040=PREDICTION.
Government invest so much money in it, to costly and too long and any future profit will be taken by privet railway companies.

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 financial crisis starting in 2007 and exploding in 2008. It has been Cheap mortgage loans, up to 10 times more that the annual salary was given.

An example of malinvestment would the inducement given to private individuals in the US to invest in housing through tax deduction of mortgage interest. This encourages people to overinvest and take on too much debt.