The liquidity premium of modern enterprises comes from the capital market. This premium is related to the enterprise's profit, but there is no linear relationship between them. The fact that the Growth Enterprise Market (GEM) opened with a skyrocketing price indicates that the premium an enterprise gains after going public mainly stems from investors' irrational frenzy, because the growth premium represented by the enterprise's profit has already been reflected in the issue price-earnings ratio. In fact, neither stock investment nor equity investment have the profit motive of capitalists and entrepreneurs. Although their returns are premised on the sustainable growth of the enterprise, stock investors focus more on the transactional premium of the enterprise, while equity investors focus more on the liquidity premium. I once said that the transaction value is the mainstream value of the modern financial market. So what is the liquidity premium? It is a form of transaction value, which is also 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.
The development of an enterprise has three stages: the start-up stage, the growth stage, and the maturity stage. Equity investors can choose to enter during the start-up stage and exit during the growth stage, abandoning the pursuit of profit in exchange for liquidity premium. This behavior pattern sometimes also infects capitalists, making even capitalists or entrepreneurs turn into equity investors. In this situation, the pursuit of "freedom" in equity investment far exceeds the desire for profit. Among the choices between profit maximization and liquidity premium, equity investors prefer liquidity, while capitalists prefer profit maximization. Therefore, the game of "Landlord" is not always a winner-takes-all situation. After the enterprise goes public, capitalists have the highest account asset premium, but due to the lack of freedom, their account asset premium will fluctuate with the rise and fall of the stock price. Capitalists not only have to bear the operational risks of the enterprise, but also the transaction risks of stocks. After equity investors exit, stock investors will come and go like a carousel. Entrepreneurs can also choose to leave perfectly after realizing equity incentives, except that capitalists do not have this freedom. In this round of "Landlord", the loser becomes the capitalist, 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 finally the stock investor who bears the transaction risk. However, from the perspective of liquidity, equity investors exit at a premium and no longer bear the operational risks of the enterprise.
Definition of bubbles
Saying no to winner-takes-all
After returning home, I learned about the game of "Real Money Landlord". In this three-player game, two teams fight against one, which is very asymmetrical from the perspective of fairness. This is very similar to the modern enterprise model, where capitalists, entrepreneurs, and equity investors act as hosts, 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 enterprise restores peaceful coexistence between the landlord and the manager.
The exit of equity investment involves trade-offs. After painstakingly nurturing an enterprise for many years, choosing to exit at its most glorious stage means not taking away the enterprise's profits and no longer sharing in its growth. This mindset can be interpreted by rewriting a famous poem: "Profit is truly precious, growth is even more valuable, if for freedom's sake, both can be abandoned." Here, "freedom" refers to the liquidity of capital, and the price of obtaining "freedom" is neither past profits nor future growth. What is it? It is the liquidity premium that the enterprise obtains after going public.
The exit of equity investment involves trade-offs. After painstakingly cultivating an enterprise for many years, choosing to exit at its most glorious stage means not taking away the enterprise's profits and no longer sharing in its growth. This mindset can be interpreted by rewriting a famous poem: "Profit is truly precious, growth is even more valuable, if for freedom's sake, both can be abandoned." Here, "freedom" refers to the liquidity of capital, and the price of obtaining "freedom" is neither past profits nor future growth. What is it? It is the liquidity premium that the enterprise obtains after going public.
Definition of bubbles
The liquidity premium of modern enterprises comes from the capital market. This premium is related to the enterprise's profit, but there is no linear relationship between them. The fact that the GEM opened with a skyrocketing price shows that the premium an enterprise gains after going public mainly stems from investors' irrational frenzy, because the growth premium represented by the enterprise's profit has already been reflected in the issue price-earnings ratio. In fact, neither stock investment nor equity investment have the profit motive of capitalists and entrepreneurs. Although their returns are premised on the sustainable growth of the enterprise, stock investors focus more on the transactional premium of the enterprise, while equity investors focus more on the liquidity premium. I once said that the transaction value is the mainstream value of the modern financial market. So what is the liquidity premium? It is a form of transaction value, which is also 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. In the game of modern enterprises, it is not always a winner-takes-all situation, and capitalists without "freedom" may be shackled.
Saying no to winner-takes-all
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 finally the stock investor who bears the transaction risk. However, from the perspective of liquidity, equity investors exit at a premium and no longer bear the operational risks of the enterprise.
Equity investment's pursuit of "freedom" far exceeds its desire for profit. Between profit maximization and liquidity premium, equity investors prefer liquidity, while capitalists prefer profit maximization. Therefore, the game of "Landlord" is not always a winner-takes-all situation. After the enterprise goes public, capitalists have the highest account asset premium, but due to the lack of freedom, their account asset premium will fluctuate with the rise and fall of the stock price. Capitalists not only have to bear the operational risks of the enterprise, but also the transaction risks of stocks. After equity investors exit, stock investors will come and go like a carousel. Entrepreneurs can also choose to leave perfectly after realizing equity incentives, except that capitalists do not have this freedom. In this round of "Landlord", the loser becomes the capitalist, because the enterprise's pursuit of profit maximization is both an incentive and a shackle.
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