Exiting equity investment involves trade-offs. After painstakingly nurturing a company for many years, one chooses to exit during its most glorious phase, neither taking away the company's profits nor continuing to share in its growth. This mindset can be interpreted by rewriting a famous poem: "Profit is indeed precious, growth even more valuable; but for the sake of freedom, both can be forsaken." Here, "freedom" refers to the liquidity of capital, and the price paid for obtaining "freedom" is neither past profits nor future growth. So what is it? It is the liquidity premium that the company gains after going public.
The liquidity premium of modern enterprises comes from the capital market. This premium is related to the company's profits, but not linearly so. The fact that the Growth Enterprise Market (GEM) experienced a huge surge on its opening day indicates that the premium companies gain after listing mainly stems from investors' irrational frenzy. The growth premium represented by corporate profits has already been reflected in the issue price-earnings ratio. In reality, neither stock investment nor equity investment are driven by capitalists' or entrepreneurs' profit motives. Although their returns 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 mainstream value of modern financial markets. So what is liquidity premium? It is a form of transaction value, which is commonly known as an asset bubble. If I were to define an asset bubble, it would be: liquidity premium generated based on expectations and transactions.
Defining a bubble:
The development of enterprises has three stages: start-up, growth, and maturity. Equity investors can choose to enter during the start-up stage and exit during the growth stage, giving up the pursuit of profit in exchange for liquidity premium. This behavior pattern sometimes also influences capitalists, turning them, and even entrepreneurs, into equity investors. In this case, in the game of modern enterprises, it's not always the winner takes all; capitalists without "freedom" may very well be shackled.
Exiting equity investment involves trade-offs. After painstakingly cultivating a company for many years, one chooses to exit during its most glorious phase, neither taking away the company's profits nor continuing to share in its growth. This mindset can be interpreted by rewriting a famous poem: "Profit is indeed precious, growth even more valuable; but for the sake of freedom, both can be forsaken." Here, "freedom" refers to the liquidity of capital, and the price paid for obtaining "freedom" is neither past profits nor future growth. So what is it? It is the liquidity premium that the company gains after going public.
After returning home, I learned about the game of "Real Money Dou Dizhu". In a three-person card game where two players team up against one, from the perspective of fairness, it is extremely asymmetrical. This is very similar to the way modern enterprises operate, with capitalists, entrepreneurs, and equity investors sitting at the table, issuing part of the shares to stock investors at high premiums. A year later, equity investments gradually fade out, completing the entire investment process, restoring peace between the owners and managers within the company.
Equity investors' pursuit of "freedom" far exceeds their desire for profit. In choosing between profit maximization and liquidity premium, equity investors prefer liquidity, while capitalists prefer profit maximization. Therefore, the game of "Dou Dizhu" is not always a case of the winner taking all. After a company goes public, the capitalist enjoys the highest account asset premium, but due to lack of freedom, this premium fluctuates with the rise and fall of stock prices. Capitalists not only bear the operational risks of the enterprise but also the trading risks of stocks. After equity investors exit, stock investors come and go like a revolving door, and entrepreneurs can choose to step back perfectly after realizing equity incentives, except that capitalists do not have this freedom. In this round of "Dou Dizhu", the loser becomes the capitalist because the enterprise's pursuit of profit maximization is both an incentive and a shackle.
The development of enterprises has three stages: start-up, growth, and maturity. Equity investors can choose to enter during the start-up stage and exit during the growth stage, giving up the pursuit of profit in exchange for liquidity premium. This behavior pattern sometimes also influences capitalists, turning them, and even entrepreneurs, into equity investors. In this situation,
Equity investors' pursuit of "freedom" far exceeds their desire for profit. In choosing between profit maximization and liquidity premium, equity investors prefer liquidity, while capitalists prefer profit maximization. Therefore, the game of "Dou Dizhu" is not always a case of the winner taking all. After a company goes public, the capitalist enjoys the highest account asset premium, but due to lack of freedom, this premium fluctuates with the rise and fall of stock prices. Capitalists not only bear the operational risks of the enterprise but also the trading risks of stocks. After equity investors exit, stock investors come and go like a revolving door, and entrepreneurs can choose to step back perfectly after realizing equity incentives, except that capitalists do not have this freedom. In this round of "Dou Dizhu", the loser becomes the capitalist because the enterprise's pursuit of profit maximization is both an incentive and a shackle.
The liquidity premium of modern enterprises comes from the capital market. This premium is related to the company's profits, but not linearly so. The fact that the Growth Enterprise Market (GEM) experienced a huge surge on its opening day indicates that the premium companies gain after listing mainly stems from investors' irrational frenzy. The growth premium represented by corporate profits has already been reflected in the issue price-earnings ratio. In reality, neither stock investment nor equity investment are driven by capitalists' or entrepreneurs' profit motives. Although their returns 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 mainstream value of modern financial markets. So what is liquidity premium? It is a form of transaction value, which is commonly known as an asset bubble. If I were to define an asset bubble, it would be: liquidity premium generated based on expectations and transactions.
If this is the first round of the game, the winners are ranked accordingly, with the capitalist enjoying the highest account premium, followed by the equity investor, then the entrepreneur, and finally the stock investor bearing the trading risk. However, from the perspective of liquidity, the equity investor exits with a premium and no longer bears the operational risks of the enterprise.
After returning home, I learned about the game of "Dou Dizhu". In a three-person card game where two players team up against one, from the perspective of fairness, it is extremely asymmetrical. This is very similar to the way modern enterprises operate, with capitalists, entrepreneurs, and equity investors sitting at the table, issuing part of the shares to stock investors at high premiums. A year later, equity investments gradually fade out, completing the entire investment process, restoring peace between the owners and managers within the company. In the game of modern enterprises, it's not always the winner takes all; capitalists without "freedom" may very well be shackled.
If this is the first round of the game, the winners are ranked accordingly, with the capitalist enjoying the highest account premium, followed by the equity investor, then the entrepreneur, and finally the stock investor bearing the trading risk. However, from the perspective of liquidity, the equity investor exits with a premium and no longer bears the operational risks of the enterprise.
Saying no to the winner taking all
Forum signature: Cheng Ming: Modern Enterprises "Dou Dizhu"? Three Cities Record Dou Dizhu
Shenzhen Ultrasonic