We no longer live in a world where institutions can determine the future of the company based on its finances and its potential ROI. I have a focus on quantitative finance, of course, and of course I believe everything has a price and everything can be measured in currency. However, we all forget important things while chasing big ROI numbers.
Have you heard of the accounting term “goodwill”? If not, let me just share Investopedia’s definition to save time: “Goodwill is a distinct category of intangible assets that are harder to analyze individually or to value directly. Customer loyalty, brand awareness, and other non-quantifiable assets are considered goodwill. “Why am I bringing it here? Simply because there are some intangible assets that we sometimes forget when evaluating a company and / or defining its future by submitting a buy / sell order.
A company is not just a technology, but also people, brand, resources and many other things combined. In many cases, debilitating companies suffer from poor management, a lack of rotation and a lack of understanding of how to adapt to the new market environment. Hence, we know PE companies are looking for such “weak” companies to make radical business transformations and later bring them back to market as a newly renamed lucrative investment opportunity.
Startups are always asked about the “purpose”. For example, why are you building this business? One of the main goals that has a major impact on society is job creation. The company creates jobs for the people in order to maintain and drive the economy forward. When an institution decides to sell a particular company, they don’t see people behind it, but money in their trading account.
You can’t win the market can you?
Market participants and democratization of investments
Traditional finance courses and professors always said, “You can’t win the market.” But who and what is this “market”? It is made up of many different actors: institutions (investment bank, hedge funds, corporations, etc.), HNWIs, retail investors, professional traders and “the crowd”. Investing used to be something not easily accessible. It used to be for people who know (or think they know what they are doing). Nowadays, apps like Robinhood have opened up a whole different world and brought a different category of people into the “crowd”. Now let’s change our question a little: “You can’t win the market, can you?”
Gen X, Y, Z – market shifts come with generations
We also need to consider the mindset and the main drivers of Generation X and Generation Y. Generation X are the people who value stability and who are looking for ways to have a better income and a stable income. While millennials go for YOLO trades. Millennials are born with technology and easily adapt to all new tools and try out all new apps that appear in the market. Gen Y are the people who are also used to communicate online, have a social network, and participate in communities. Millennials and growing Gen Z also believe they can make a difference and are ready to fight for it.
Gen Y and Z believe that they can make a difference and are ready to fight for it
Bringing YOLO dealers to the fore as a Covid Crisis
Any generation that has experienced a great deal of injustice and economic failure is no longer an exception. The Covid crisis has fundamentally changed the financial industry. It has kicked off the fintech market and taken it to a whole new level to enable finance, banking, saving and ultimately investing for the masses. Many people have lost their jobs, had severe financial difficulties, and at the same time got stuck at home with their laptops as everything else is closed due to the pandemic. People were spending more time developing themselves, reading, doing new things, and one of them turned out to be an “investment” in apps like Robinhood, which were a very simple solution to this. Can it be worse if I try? Many wondered.
People started discussing investment strategies, talking to each other, joining various investment communities, and having fun playing with options and meme stocks. Stories of someone earning crazy xxx% spread across the internet. These stories have inspired newbies to invest in investing (or gambling, to be precise). Anyone who adds $ 100 to $ 1,000 in capital is nothing on an individual level. Imagine how much capital it is when your community has 10 million people. Now imagine how tired these people are from the traditional financial system that hasn’t helped them and how much they want to make fun of it.
Anyone who adds $ 100 to $ 1,000 in capital is nothing on an individual level. Imagine how much capital it is when your community has 10 million people
The most recent case with GameStop and AMC showed that “the crowd” can be more powerful than any institution and can determine the rules of the game. They’re irrational, they’re not driven by xx% ROI initially, they’re driven by things like “F *** the Wall Street”. The crowd doesn’t want to dictate rules, they want to be the one who dictates them.
I have been asked many times about the possible outcome of such meme trades. I always replied that people gave the company a chance to survive and turn around. They might as well do it as they might lose this opportunity. Personally, I wanted to believe in the first case and was pleased to hear that GameStop is launching an NFT platform.
Be friends with the crowd and the crowd will help you out
You can please the average investor by giving them some good return numbers, but you cannot please the crowd just by doing that. You should be cool, you should make an impact, you should be a company that does something for people with sales a secondary factor. The crowd values your “goodwill” even if they don’t think in those terms.
I believe that digital communities are changing the way companies think. You could piss someone off without harming your business first. Now imagine this one person shares how you pissed them off in a community of 10 million people. You get an angry crowd going against you. I want to believe that while people are watching, we are moving to more transparent, impactful, and sustainable companies.