In the game of modern enterprises, it's not always winner-takes-all. Capitalists who are not "free" may very well be shackled.
If this is the first round of the game, the winners can be ranked accordingly: capitalists have the highest paper premium, followed by equity investors, then entrepreneurs, and lastly 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 enterprise.
After returning to China, I learned about the game of "Dou Dizhu," where three players play two against one. From the perspective of fairness, this setup is extremely asymmetrical. This is quite similar to how modern enterprises operate, with capitalists, entrepreneurs, and equity investors sitting at the table, issuing part of the shares at high premiums to stock investors. A year later, equity investment gradually withdraws, completing the entire investment process, and the internal peace between the owners and managers of the enterprise is restored.
The definition of a bubble
Equity investors' pursuit of "freedom" far exceeds their desire for profit. In the trade-off between profit maximization and liquidity premium, equity investors prefer liquidity, while capitalists prefer profit maximization. Therefore, the game of "Dou Dizhu" is not always winner-takes-all. After a company goes public, capitalists have the highest paper asset premium, but due to lack of freedom, their asset premium fluctuates with stock price volatility. 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 revolving door, and entrepreneurs can choose to step away perfectly after the realization of equity incentives. Only the capitalist does 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 phase and exit during the growth phase, giving up the pursuit of profit in exchange for liquidity premium. This behavior pattern sometimes spreads to capitalists, even turning them into equity investors. In such a case,
The exit of equity investment involves trade-offs. After painstakingly cultivating the enterprise for many years, choosing to exit at its most glorious stage means neither taking away the enterprise'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 for the sake of freedom, 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. So what is it? It is the liquidity premium obtained by the enterprise after going public.
The liquidity premium of modern enterprises comes from the capital market. This premium is related to the enterprise's profits, but there is no linear relationship. The fact that the GEM opened with a skyrocketing price indicates that the premium gained by enterprises after going public mainly stems from investors' irrational frenzy, as the growth premium represented by enterprise profits has already been reflected in the issue P/E ratio. In reality, 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 enterprise, stock investors focus more on transactional premiums, and equity investors focus more on liquidity premiums. I once said 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.
Saying no to winner-takes-all
Enterprise development 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 spreads to capitalists, even turning them into equity investors. In such a case, in the game of modern enterprises, it's not always winner-takes-all. Capitalists who are not "free" may very well be shackled.
The liquidity premium of modern enterprises comes from the capital market. This premium is related to the enterprise's profits, but there is no linear relationship. The fact that the GEM opened with a skyrocketing price indicates that the premium gained by enterprises after going public mainly stems from investors' irrational frenzy, as the growth premium represented by enterprise profits has already been reflected in the issue P/E ratio. In reality, 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 enterprise, stock investors focus more on transactional premiums, and equity investors focus more on liquidity premiums. I once said 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.
The exit of equity investment involves trade-offs. After painstakingly cultivating the enterprise for many years, choosing to exit at its most glorious stage means neither taking away the enterprise'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 for the sake of freedom, 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. So what is it? It is the liquidity premium obtained by the enterprise after going public.
If this is the first round of the game, the winners can be ranked accordingly: capitalists have the highest paper premium, followed by equity investors, then entrepreneurs, and lastly 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 enterprise.
After returning to China, I learned about the game of "real-money Dou Dizhu," where three players play two against one. From the perspective of fairness, this setup is extremely asymmetrical. This is quite similar to how modern enterprises operate, with capitalists, entrepreneurs, and equity investors sitting at the table, issuing part of the shares at high premiums to stock investors. A year later, equity investment gradually withdraws, completing the entire investment process, and the internal peace between the owners and managers of the enterprise is restored.
Equity investors' pursuit of "freedom" far exceeds their desire for profit. In the trade-off between profit maximization and liquidity premium, equity investors prefer liquidity, while capitalists prefer profit maximization. Therefore, the game of "Dou Dizhu" is not always winner-takes-all. After a company goes public, capitalists have the highest paper asset premium, but due to lack of freedom, their asset premium fluctuates with stock price volatility. 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 revolving door, and entrepreneurs can choose to step away perfectly after the realization of equity incentives. Only the capitalist does 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.
Saying no to winner-takes-all
Forum Signature: Cheng Ming: Modern Enterprise "Dou Dizhu"? Living Language