Definition of a Bubble
The pursuit of "freedom" in equity investment far outweighs the desire for profit. In the choice between profit maximization and liquidity premium, equity investors prefer liquidity, while capitalists prefer profit maximization. Therefore, the game of "Landlord Fighting" is not always a winner-takes-all situation. After a company goes public, capitalists have the highest book asset premium. However, due to the lack of freedom, their book asset premium fluctuates with the stock price. Capitalists not only bear the operational risks of the enterprise but also the trading risks of stocks. After equity investors exit, stock investors will come and go like a carousel. Entrepreneurs can also choose to cash out perfectly after the realization of equity incentives, except that capitalists do not have this freedom. In this round of "Landlord Fighting," it's the capitalists who end up as losers because the enterprise's pursuit of profit maximization is both an incentive and a shackle.
If this is the first round of the game, the winners are ranked accordingly: the one with the highest book premium is the capitalist, followed by the equity investor, then the entrepreneur, and lastly, the stock investor who bears the trading risk. However, from the perspective of liquidity, equity investors exit at a premium and no longer bear the operational risks of the enterprise.
Saying No to Winner-Takes-All
Exiting from equity investment involves making choices. After painstakingly nurturing a company for years, choosing to exit at its most glorious stage means not taking away the company's profits nor sharing in its growth anymore. This mindset can be interpreted through rewriting a famous poem: Profit is precious indeed, growth is more valuable, if for the sake of freedom, both can be discarded. Here, "freedom" refers to the liquidity of capital, and the price paid for obtaining "freedom" is neither past profits nor future growth. What is it then? It's the liquidity premium obtained by the company after going public.
Definition of a Bubble
Equity investment's pursuit of "freedom" far exceeds its desire for profit. In the choice between profit maximization and liquidity premium, equity investors prefer liquidity, while capitalists prefer profit maximization. Therefore, the game of "Landlord Fighting" is not always a winner-takes-all situation. After a company goes public, capitalists have the highest book asset premium. However, due to the lack of freedom, their book asset premium fluctuates with the stock price. Capitalists not only bear the operational risks of the enterprise but also the trading risks of stocks. After equity investors exit, stock investors will come and go like a carousel. Entrepreneurs can also choose to cash out perfectly after the realization of equity incentives, except that capitalists do not have this freedom. In this round of "Landlord Fighting," it's the capitalists who end up as losers because the enterprise's pursuit of profit maximization is both an incentive and a shackle. In modern enterprises' games, it's not always winner-takes-all; capitalists without "freedom" may easily be shackled.
After returning home, I learned about the game of "Landlord Fighting," where two players team up against one. From the perspective of fairness, it's very asymmetrical. This is very similar to the way modern enterprises operate. Capitalists, entrepreneurs, and equity investors act as hosts, issuing part of the shares to stock investors at a high premium. A year later, equity investment fades out, completing the entire investment process, and the internal peace between the owners and managers is restored within the company.
If this is the first round of the game, the winners are ranked accordingly: the one with the highest book premium is the capitalist, followed by the equity investor, then the entrepreneur, and lastly, the stock investor who bears the trading risk. However, from the perspective of liquidity, equity investors exit at a premium and no longer bear the operational risks of the enterprise.
The liquidity premium of modern enterprises comes from the capital market. This premium is related to the company's profit but does not have a linear relationship. The fact that the Growth Enterprise Market (GEM) experienced a sharp increase in opening prices indicates that the premium obtained by companies after going public mainly comes from the irrational frenzy of investors, as the growth premium represented by corporate profits has already been reflected in the issue price-to-earnings ratio. In fact, neither stock investment nor equity investment has the profit motive of capitalists and entrepreneurs. Although their gains are premised on the sustainable growth of the company, stock investors pay more attention to the transaction premium of the company, while equity investors focus more on the liquidity premium. I once mentioned that transaction value is the mainstream value of modern financial markets. So, what is liquidity premium? It's a form of transaction value, which is commonly known as an asset bubble. If I were to define an asset bubble, it would be: the liquidity premium generated based on expectations and transactions.
Exiting from equity investment involves making choices. After painstakingly nurturing a company for years, choosing to exit at its most glorious stage means not taking away the company's profits nor sharing in its growth anymore. This mindset can be interpreted through rewriting a famous poem: Profit is precious indeed, growth is more valuable, if for the sake of freedom, both can be discarded. Here, "freedom" refers to the liquidity of capital, and the price paid for obtaining "freedom" is neither past profits nor future growth. What is it then? It's the liquidity premium obtained by the company after going public.
Saying No to Winner-Takes-All
The development of a company 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, giving up the pursuit of profit in exchange for liquidity premium. This behavior pattern sometimes also influences capitalists, turning them, or even entrepreneurs, into equity investors. In such cases, in the modern enterprise game, it's not always winner-takes-all; capitalists without "freedom" may easily be shackled.
The liquidity premium of modern enterprises comes from the capital market. This premium is related to the company's profit but does not have a linear relationship. The fact that the Growth Enterprise Market (GEM) experienced a sharp increase in opening prices indicates that the premium obtained by companies after going public mainly comes from the irrational frenzy of investors, as the growth premium represented by corporate profits has already been reflected in the issue price-to-earnings ratio. In fact, neither stock investment nor equity investment has the profit motive of capitalists and entrepreneurs. Although their gains are premised on the sustainable growth of the company, stock investors pay more attention to the transaction premium of the company, while equity investors focus more on the liquidity premium. I once mentioned that transaction value is the mainstream value of modern financial markets. So, what is liquidity premium? It's a form of transaction value, which is commonly known as an asset bubble. If I were to define an asset bubble, it would be: the liquidity premium generated based on expectations and transactions.
After returning home, I learned about the game of "Real Money Landlord Fighting," where two players team up against one. From the perspective of fairness, it's very asymmetrical. This is very similar to the way modern enterprises operate. Capitalists, entrepreneurs, and equity investors act as hosts, issuing part of the shares to stock investors at a high premium. A year later, equity investment fades out, completing the entire investment process, and the internal peace between the owners and managers is restored within the company.
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