[its_so_on]

1. ("risk-free" versus asymmetric wrt market rates of return)

i'm completely with the quoted response "Entrepreneur: It’s difficult to accurately describe the company, myself, and everything else in a single paragraph. To write something so small but somehow include every important aspect is near impossible, if not impossible. My company is too complex to be described in a single paragraph."

let's get formal.

there is a market theory of efficiency which says that it is impossible to make investments that have a higher rate of return than the "risk-free rate of return", without taking on commensurate risk. according to that theory, it is impossible for someone to find gold bullion stuck in some part of their property that requires extraction, and therefore to offer any investor (even semi-outside) a 200% rate of return on putting up some money to help them get it out, so you can sell it. If you offer a 200% return, that means you're asking them to take a huge risk on losing the money they put up, acccording to that theory. (Due to the sole fact that 200% is more than some arbitrarily-defined "risk-free" rate of return backed by the government or whatever else the theoretician chooses as the basis for the risk-reward trade-off. simplifying here slightly.)

that theory is wrong. the example above makes it obvious.

it also makes it clear that the "investor" is both stupid, and wrong, to ask you to describe "in a paragraph" what you need the money for. 1 paragraph would be: "I have some gold on my property and need to get it out". A real proposal includes an extensive history of you, your purchase of the property, its history, exact description of your discovery of the gold, the research you put into legalities, your detailed plan for extracting it and getting the investment back to the investor, market research into other people who have done this succesfully, even quotes from companies that have a proven history of doing this or being able to, and everything else, including why other investors aren't investing, why you aren't doing it with a bank loan, on your credit cards, or by working a job until you can afford the extraction, etc. Among other things, you should obviously give a very compelling reason why you can't just raise enough money on your own to extract even in an expensive way, a small piece of the bullion, and then sell it to get the money to get the rest. Extraordinary claims require extraordinary evidence. You are saying something extraordinary: so, prove it.

Anyone who can offer anyone else more than 7-10% return annually should not be writing a paragraph about it.

2. (truly successful investments)

the "investor" in this article might have some way to get a good return on his money. but never a spectacular one. let's get into this.

basically, this article is one in another in a around here which all repeat a mantra of not creating a pitch for a long-term, hugely succesful company, (giving extensive justification of how this is about to happen) but instead, in a quick little web site that can probably pay for itself and then make enough for a decent return on, at most, a few server's worth of investment.

This never works for identifying big, succesful companies.

How could any one paragraph, have explained why anyone should have invested in Google when it was some servers in stanford. a diamond in the rough.

This is their historic, contemporary paper on the answer to that question, to the basic question of what they were building: http://infolab.stanford.edu/~backrub/google.html

As you can see it's a bit more than a paragraph.

even though it was a bit more than a paragraph, reading it is the only way you could have gotten in on that company, or separate it from others with different long papers that aren't worth investing in.

reading it is what allows you to get a better than risk-free rate of return. you want one paragraph, here: "This FDIC-insured bank account comes with a 1.7% annual interest rate. we are one of the biggest retail banking instititions in america, you can trust us and the FDIC." bam, done.

anything more than that - as explained in the analysis above, requires commensurately more justification and information.

i'm with the entrepreneur on this one.

-

this post is tagged #rational