The development of a business 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, forsaking the pursuit of profit in exchange for liquidity premium. This behavioral pattern sometimes also influences capitalists, turning them into equity investors, even transforming entrepreneurs in some cases.
In this scenario, modern businesses derive their liquidity premium from the capital market. This premium is associated with a company's profits but not linearly so. The fact that the Growth Enterprise Market (GEM) opens with a surge indicates that the premium obtained by companies after listing mainly stems from the irrational fervor of investors. After all, the growth premium represented by corporate profits is already reflected in the issue price-earnings ratio. Neither stock investment nor equity investment actually carries the profit motive of capitalists or entrepreneurs. Although their returns are premised on the sustainable growth of the enterprise, stock investors focus more on transactional premiums while equity investors focus more on liquidity premiums.
I once mentioned 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 referred to as an asset bubble. If I were to define an asset bubble, it would be: a liquidity premium generated based on expectations and transactions.
Modern enterprises' liquidity premium comes from the capital market. This premium is related to the company's profits, but there is no linear relationship. The fact that the GEM surges at the opening bell suggests that the premium gained by companies after going public mainly comes from investors' irrational frenzy because the growth premium represented by corporate profits has already been reflected in the issue P/E ratio. In fact, neither stock investment nor equity investment carries the profit motive of capitalists and entrepreneurs. Although their gains are contingent on the company's sustainable growth, stock investors focus more on the trading premium of the company, and equity investors focus more on the liquidity premium of the company.
Equity investment pursues "freedom" far more than profit. Among the choices between profit maximization and liquidity premium, equity investors prefer liquidity, while capitalists prefer profit maximization. Therefore, in the game of "Landlord", it is not always the case that the winner takes all. After the company goes public, the capitalist has the highest account asset premium, but due to lack of freedom, its account asset premium fluctuates with the rise and fall of stock prices. Capitalists not only bear the operational risks of the company but also the trading risks of stocks. After equity investors exit, stock investors will come and go like revolving lanterns. Entrepreneurs can also choose to step aside perfectly after the realization of equity incentives, except for the capitalist who does not have such freedom. In this round of "Landlord", the loser becomes the capitalist because the company's pursuit of profit maximization is both an incentive and a shackle.
After returning, I learned about the game of "Real Money Landlord". In a three-person card game where two fight one, it is very asymmetrical from the perspective of fairness. This is very similar to the way modern enterprises operate, where capitalists, entrepreneurs, and equity investors sit together, issuing part of the shares to stock investors at high premiums. A year later, equity investments fade out, completing the entire investment process, and the internal peace between the landlord and the manager of the enterprise is restored.
The development of a business 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, forsaking the pursuit of profit in exchange for liquidity premium. This behavior pattern sometimes also infects capitalists, making them, and even entrepreneurs, turn into equity investors. In this situation, in the modern business game, it is not always the case that the winner takes all, and the capitalist without "freedom" may easily be shackled.
In the modern business game, it is not always the case that the winner takes all, and the capitalist without "freedom" may easily be shackled.
Definition of Bubble
Saying No to Winner Takes All
If this is the first round of the game, the winners are ranked sequentially: the capitalist has the highest account premium, followed by the equity investor, then the entrepreneur, and finally, the stock investor bears the trading risk. However, from the perspective of liquidity, the equity investor exits at a premium and no longer bears the operational risks of the company.
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, and capitalists prefer profit maximization. Therefore, the game of "Landlord" is not always winner-takes-all. After the company goes public, the capitalist has the highest account asset premium, but due to the lack of freedom, this premium fluctuates with the rise and fall of stock prices. The capitalist must bear both the operational risks of the company and the trading risks of stocks. After the equity investor exits, stock investors will come and go like revolving lanterns, and entrepreneurs can also choose to step aside perfectly after the realization of equity incentives, except for the capitalist who does not have this freedom. In this round of "Landlord," the loser becomes the capitalist because the company's pursuit of profit maximization is both an incentive and a shackle.
The exit of equity investment involves choices. After painstakingly nurturing a company for many years, choosing to exit at its most glorious stage means neither taking away the company's profits nor sharing in its growth. This mindset can be interpreted through rewriting a famous poem: Profit is truly precious, growth is more valuable, but if it's for freedom, both can be discarded. Here, "freedom" is the liquidity of capital, and the price paid for obtaining "freedom" is neither past profits nor future growth. What is it then? It is the liquidity premium the company gains after going public.
Saying No to Winner Takes All
The exit of equity investment involves choices. After painstakingly nurturing a company for many years, choosing to exit at its most glorious stage means neither taking away the company's profits nor sharing in its growth. This mindset can be interpreted through rewriting a famous poem: Profit is truly precious, growth is more valuable, but if it's for freedom, both can be discarded. Here, "freedom" is the liquidity of capital, and the price paid for obtaining "freedom" is neither past profits nor future growth. What is it then? It is the liquidity premium the company gains after going public.
If this is the first round of the game, the winners are ranked sequentially: the capitalist has the highest account premium, followed by the equity investor, then the entrepreneur, and finally, the stock investor bears the trading risk. However, from the perspective of liquidity, the equity investor exits at a premium and no longer bears the operational risks of the company.
Definition of Bubble
After returning, I learned about the game of "Landlord." In a three-person card game where two fight one, it is very asymmetrical from the perspective of fairness. This is very similar to the way modern enterprises operate, where capitalists, entrepreneurs, and equity investors work together, issuing part of the shares to stock investors at high premiums. A year later, equity investments fade out, completing the entire investment process, and the internal peace between the landlord and the manager of the enterprise is restored.
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