Exiting from equity investments involves trade-offs. After painstakingly nurturing a company for years, investors choose to exit at the peak of its success, without taking away the company's profits or continuing to share in its growth. This mindset can be interpreted through a rephrased famous poem: "Profit is truly precious, growth is even more valuable, but for the sake of freedom, both can be abandoned." Here, "freedom" refers to the liquidity of capital. What is the price paid for gaining this "freedom," which is neither past profits nor future growth? It is the liquidity premium that the company gains after going public.
After returning home, I learned about the game "Dou Dizhu," where three players form two teams to fight against one. From the perspective of fairness, it is highly asymmetrical. This resembles the modern corporate setup where capitalists, entrepreneurs, and equity investors sit at the table, issuing some shares at high premiums to stock investors. A year later, equity investors gradually exit, completing the investment cycle, and internal harmony between owners and managers is restored.
The Definition of Bubbles
Equity investors' pursuit of "freedom" far outweighs 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" does not always result in a winner-takes-all scenario. After a company goes public, capitalists have the highest paper asset premium, but due to lack of "freedom," their paper asset premium fluctuates with stock prices. Capitalists must bear both the operational risks of the enterprise and the trading risks of stocks. After equity investors exit, stock investors come and go like a revolving door, and entrepreneurs can also leave gracefully after realizing their equity incentives, except for the capitalists who lack this freedom. In this round of "Dou Dizhu," the loser becomes the capitalist because the enterprise's pursuit of profit maximization serves as both an incentive and a shackle.
Equity investors' pursuit of "freedom" far exceeds their desire for profit. In choosing between profit maximization and liquidity premium, equity investors favor liquidity, while capitalists favor profit maximization. Thus, the game of "Dou Dizhu" is not always a winner-takes-all situation. After a company goes public, capitalists have the highest paper asset premium, but due to lack of "freedom," their paper asset premium fluctuates with stock prices. Capitalists must bear both the operational risks of the enterprise and the trading risks of stocks. After equity investors exit, stock investors come and go like a revolving door, and entrepreneurs can also leave gracefully after realizing their equity incentives, except for the capitalists who lack this freedom. In this round of "Dou Dizhu," the loser becomes the capitalist because the enterprise's pursuit of profit maximization serves as both an incentive and a shackle.
After returning home, I learned about the game of "Real Money Dou Dizhu," where three players form two teams to fight against one. From the perspective of fairness, it is highly asymmetrical. This resembles the modern corporate setup where capitalists, entrepreneurs, and equity investors sit at the table, issuing some shares at high premiums to stock investors. A year later, equity investors gradually exit, completing the investment cycle, and internal harmony between owners and managers is restored.
The liquidity premium of modern enterprises comes from the capital market. This premium has a connection with the company's profits, but not a linear one. The fact that the Growth Enterprise Market (GEM) experienced a surge on its opening day indicates that the premium obtained by companies after going public mainly stems from investors' irrational frenzy, as the growth premium represented by the company's profits is already reflected in the issue price-to-earnings ratio. Stock investment and equity investment do not actually align with the profit motives of capitalists and entrepreneurs. Although their returns are premised on the company's sustainable growth, stock investors focus more on transactional premiums, while equity investors focus more on liquidity premiums. I once said that transaction value is the mainstream value in modern financial markets. So what is liquidity premium? It is a form of transaction value, or what people commonly refer to as asset bubbles. If I were to define asset bubbles, they would be: liquidity premiums generated based on expectations and transactions.
If this is the first round of the game, the winners can be ranked accordingly: the highest paper premium belongs to the capitalists, followed by equity investors, then entrepreneurs, and finally stock investors who bear the trading risks. However, from the perspective of liquidity, equity investors exit at a premium and no longer bear the operational risks of the company.
Saying No to Winner-Takes-All
A company’s development has three stages: the start-up phase, the growth phase, and the maturity phase. Equity investors can choose to enter during the start-up phase and exit during the growth phase, abandoning 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 such a case, the modern corporate game is not a winner-takes-all situation, and capitalists without "freedom" may find themselves shackled.
The Definition of Bubbles
Saying No to Winner-Takes-All
If this is the first round of the game, the winners can be ranked accordingly: the highest paper premium belongs to the capitalists, followed by equity investors, then entrepreneurs, and finally stock investors who bear the trading risks. However, from the perspective of liquidity, equity investors exit at a premium and no longer bear the operational risks of the company. In the modern corporate game, it is not a winner-takes-all situation, and capitalists without "freedom" may find themselves shackled.
A company’s development has three stages: the start-up phase, the growth phase, and the maturity phase. Equity investors can choose to enter during the start-up phase and exit during the growth phase, abandoning 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 such a case, the modern corporate game is not a winner-takes-all situation, and capitalists without "freedom" may find themselves shackled.
Forum Signature: Yi Xiang Kou Fu, Thirteen. How did I turn into a hamster spirit? Dou Dizhu
Shenzhen Ultrasonic