After returning to China, I learned about the game "Fight the Landlord," a three-player card game where two players team up against one. From a fairness perspective, this setup is highly asymmetrical. It closely resembles the modern corporate play: capitalists, entrepreneurs, and equity investors form the trio, issuing part of the company's shares at a high premium to stock investors. A year later, the equity investors exit, completing their investment cycle, and the internal balance between the owners and managers of the enterprise is restored.
The liquidity premium in modern enterprises comes from the capital market. This premium has some connection with the company’s profits but lacks a linear relationship. The fact that the Growth Enterprise Market (GEM) surged significantly upon opening indicates that the premium companies receive after going public mainly stems from investor irrationality and frenzy. The growth premium represented by the company's profit is already reflected in the issue price-to-earnings ratio. Neither stock investment nor equity investment aligns with the profit motives of capitalists or entrepreneurs. While their gains are premised on the sustainable growth of the enterprise, stock investors focus more on transactional premiums, while equity investors pay more attention to liquidity premiums. I have mentioned before that transaction value is the dominant value in modern financial markets. So, what exactly is liquidity premium? It is a form of transaction value, also known as the asset bubble. If I were to define an asset bubble, it would be: liquidity premium generated based on expectations and transactions.
After returning to China, I learned about the game "Real Money Fight the Landlord," a three-player card game where two players team up against one. From a fairness perspective, this setup is highly asymmetrical. It closely resembles the modern corporate play: capitalists, entrepreneurs, and equity investors form the trio, issuing part of the company's shares at a high premium to stock investors. A year later, the equity investors exit, completing their investment cycle, and the internal balance between the owners and managers of the enterprise is restored.
If this is the first round of the game, the winners can be ranked sequentially. The highest account premium belongs to the capitalist, followed by the equity investor, then the entrepreneur, leaving the stock investor to bear the transaction risk. However, from a liquidity perspective, the equity investor exits with a premium and no longer bears the operational risks of the enterprise.
Saying No to Winner-Takes-All
Definition of Bubble
Equity investment involves trade-offs. After years of hard work nurturing the company, choosing to exit during its most glorious phase means not taking away the company's profits and no longer sharing in its growth. This mindset can be interpreted through a famous poem rewritten: "Profit is precious indeed, but growth is more valuable still; for the sake of freedom, both can be cast aside." Here, "freedom" refers to the liquidity of capital, and the cost of gaining "freedom" is neither past profits nor future growth. What is it then? It is the liquidity premium the company receives after going public.
Equity investors' pursuit of "freedom" far outweighs their desire for profit. In the choice between profit maximization and liquidity premium, equity investors prefer liquidity, while capitalists prefer profit maximization. Therefore, the "Fight the Landlord" game does not always result in winner-takes-all. After the company goes public, the capitalist holds the highest account asset premium, but without freedom, their asset premium fluctuates with stock prices. Capitalists must bear both the operational risks of the enterprise and the transaction risks of stocks. After the equity investors exit, stock investors will come and go like revolving lanterns, and entrepreneurs can choose to step back perfectly after realizing their equity incentives. Only the capitalist lacks this freedom. In this round of "Fight the Landlord," the loser becomes the capitalist because the company's pursuit of profit maximization serves as both motivation and shackles.
Equity investment involves trade-offs. After years of hard work nurturing the company, choosing to exit during its most glorious phase means not taking away the company's profits and no longer sharing in its growth. This mindset can be interpreted through a famous poem rewritten: "Profit is precious indeed, but growth is more valuable still; for the sake of freedom, both can be cast aside." Here, "freedom" refers to the liquidity of capital, and the cost of gaining "freedom" is neither past profits nor future growth. What is it then? It is the liquidity premium the company receives after going public.
If this is the first round of the game, the winners can be ranked sequentially. The highest account premium belongs to the capitalist, followed by the equity investor, then the entrepreneur, leaving the stock investor to bear the transaction risk. However, from a liquidity perspective, the equity investor exits with a premium and no longer bears the operational risks of the enterprise.
Saying No to Winner-Takes-All
Enterprise development has three stages: start-up, growth, and maturity. Equity investors can choose to enter during the start-up phase and exit during the growth phase, abandoning the pursuit of profit for liquidity premium. This behavior pattern sometimes spreads to capitalists, turning them and even entrepreneurs into equity investors. In such cases, the modern corporate game does not always result in winner-takes-all. Without "freedom," capitalists may be trapped in "shackles."
In modern enterprises, liquidity premium originates from the capital market. This premium is related to the company’s profits but lacks a linear relationship. The fact that the GEM surged significantly upon opening indicates that the premium companies receive after going public mainly stems from investor irrationality and frenzy. The growth premium represented by the company's profit is already reflected in the issue price-to-earnings ratio. Neither stock investment nor equity investment aligns with the profit motives of capitalists or entrepreneurs. While their gains are premised on the sustainable growth of the enterprise, stock investors focus more on transactional premiums, while equity investors pay more attention to liquidity premiums. I have mentioned before that transaction value is the dominant value in modern financial markets. So, what exactly is liquidity premium? It is a form of transaction value, also known as the asset bubble. If I were to define an asset bubble, it would be: liquidity premium generated based on expectations and transactions.
Forum Signature: Tian Gong Wu Yu - Ximen Chuixue's nemesis in another world - Fight the Landlord
Shenzhen Ultrasonic