mxx1's avatar

Investment Explained



Here’s an interesting thought.





As the certainty of a financial return from an investment goes up, the rate of return goes down. This is a result of the usual forces of supply and demand.





However when the average rate of return dips below zero, and you tip into the gambling world, the “possible” rate of return goes up to nearly bloody infinity. The actual average rate of return to all punters is negative of course, but is feasible that one or more punters may make a motza.





Which leads me to three thoughts:




  1. The better the odds, the greater the gap between the feasible and probable return to the investor. This gap must be able to be described mathematically.
  2. No one seems to have systematically applied the idea of a motza on investments that usually have a positive return. Imagine, you invest in a Superfund and there is a feasible chance that you could be a multi billionaire. The reason this doesn’t exist is because the fund managers don’t need the motza to attract investors and they wouldn’t share their management fee under any scenario.
  3. But what about a mixed investment fund that mixes both positive and negative yield investment classes, and includes a motza to attract the punters?




What got me here in the first place is investment into IP. The punters that apply for patents are in fact gamblers, but they just don’t know it. In essence though, they are waiting for a motza with little or no opportunity for a guaranteed yield from their investment. But they are working without a pool of other punters; the more likely motza is from a large pool of patents, where one among many is used to extract a lot of money or some corporation and some of this is used to fund the general pool of patents, and one lucky investor gets a lottery style return (and not necessarily the original owner of the patent).

The moral to the story is this: anytime one sees motzas hanging around it’s a clue that there no real underlying positive steady state of return.