[sharkweek]

I don’t know much about the stock market outside of throwing any savings I can muster into a vanguard fund, but articles like this remind me of the scene from Silicon Valley where the Pied Piper team is talking about finding a revenue stream.

Their investor, the Mark Cuban caricature, Russ Hanneman butts in and yells at them about the dangers of showing revenue and how it proves you might only be a 2x-er.

"It's not about how much you earn. It's about what you're worth. And who is worth the most? Companies that lose money!"

He goes on to argue that if you don’t show any revenue then the possibilities are left only to the imagination!

Pre-revenue = maybe a 100x-er at some point!

Obviously silly and over simplified, but I do think that there is truth in the humor. Once this company gets its act together, it could shoot to the moon!

Edit: Here's a link to the scene: https://www.youtube.com/watch?v=BzAdXyPYKQo

[tornato7]

Here's a thought experiment about a theoretical company that can obtain incredible valuation.

You start out with some money from friends and family, and you use this money to sell $100 bills for $50. Lots of takers.

Soon enough, you go to a VC and show them your revenue stream, and tell them with more capital you can make the margins much better. They hand you a few million, and you start selling more $100 bills for $70 instead. Wow, you're reducing margins and seeing insane sales growth!

A few more investments later and you're selling $100 bills for $95 en masse. You have ads everywhere, your IPO and ICO are coming up. You probably have a few billion in funding from SoftBank.

Your stock price skyrockets because you're THIS CLOSE to showing profitability and if the trend continues you'll be making billions.

[vasco]

You're obviously mocking this whole thing but the fact is that if you can get away with it, you can use that valuation to acquire actual smaller companies and talent and if you're running an online business and acquire a lot of customers (even if selling $100 bills for $95) you'll have huge distribution that you can then sell whatever you come up with next.

Or as they use to say, we lose money on each unit but we'll make it up in volume.

[sequoia]

> Or as they use to say, we lose money on each unit but we'll make it up in volume.

I believe this is a joke, no? I.e. you can't lose money on each unit and "make it up in volume."

[lotsofpulp]

It's a joke, because the strategy is to undercut or buyout the competition to survive long enough to be the last one standing.

[NoOneNew]

Dude, that's a ponzi scheme with a few extra steps...

...

Ah shit...

Jokes aside, this is also why there are so many "haters" for such companies. A lot are the ones pointing this out since it's clear as day. But hey, people like their high horse. They trade out your classical deity religions for mortal idol cults and act enlightened. Its creepy how tech these days are just cults.

[ludocode]

This article from two years ago describes the "75 cent dollar store" as an analogy for MoviePass which is basically the same idea:

https://www.nytimes.com/2018/05/16/technology/moviepass-econ...

[simonsarris]

This is more or less how PayPal started, yeah.

(When they sold the $100 for $80 they also onboarded them to do other things, once there were enough of them. Eventually they reduced the payout to selling $100 for $95.)

[dmarlow]

> Their investor, the Mark Cuban caricature, Russ Hanneman

I didn't know that's what they had intended. I never once thought that's what they were going for.

[elefanten]

1. The character made money selling "Radio on the Internet" -- Mark Cuban sold Broadcast.com to Yahoo for $5.7B in 1999.

2. The character recounts popping a boner when he saw his net worth cross 1B. There's some old Cuban video about watching his stock price while sitting in his boxers.

3. There's a bit in the show about the character showing both rows of teeth when he smiles. Cuban smiles like that.

[fotta]

Cuban also owns Three Commas[0] and Hanneman makes it very clear how proud he is of being in the "Three Comma Club" [1].

[0] https://threecommas.com

[1] https://www.youtube.com/watch?v=xzMUrB-Um1Y

[sharkweek]

I'm not sure if it was ever explicitly stated by the writers, but IIRC, Russ put "radio on the internet," while Mark Cuban first hit it big with broadcast.com.

I believe they based him off of Mark's big personality too, mocking things like "three commas" and investing in a bunch of stinkers over the last 20 years.

[sharadov]

I always thought Russ Hanneman was based on Sean Parker, he had an over the top flashy lifestyle.

[glennpratt]

I scratched my head too, but I forgot about this detail.

> Russ Hanneman is a multi-billionaire who claims to have "put radio on the internet".

[exdsq]

Yeah I thought it was just a bro-VC type person rather than anyone specific

[doggosphere]

Russ also made his money putting radio on the internet.

[baron_harkonnen]

> outside of throwing any savings I can muster into a vanguard fund,

I know the popular advice for the last decade has been "stock market always goes up! 8% a year!" but do you really believe it's wise to align your future investment strategy with the general well being of the economic.

I'm not saying don't have a 401k (well if you really press me, I will say that), but if all of your savings are directly tied to the market that means that you are most successful when the rest of the market succeeds, but in the case that the market collapses you also collapse. This is leverage, the opposite of hedging.

It has always seemed strange to me that Wallstreet has convinced American's to treat their retirement as leverage rather than a hedge. If the market is doing fantastic, then it's not as important to have savings, and if the market is doing poorly it's important have other means of economic stability.

[majormajor]

> If the market is doing fantastic, then it's not as important to have savings

This makes no sense to me in the context of retirement savings.

You've retired. You aren't capturing part of that market anymore.

The standard wisdom is "switch to lower risk investments as retirement gets closer" which is specifically because the market may turn. But if you're never in the market, you're gonna miss out on a lot of gains before then, unless you're expecting decades straight of poor performance.

[ip26]

I see it as a hedge against inflation. In boom times with soaring markets, there is (usually) considerable inflation. If you ride the market, you probably won't see outsize returns but you won't lose purchasing power to inflation either.

For this reason I frequently wonder whether I should invest HSA funds exclusively in medical stocks. If healthcare gets more expensive, my HSA has probably grown. If healthcare gets cheaper, my HSA might shrink, but that's fine because healthcare is cheap.

[panopticon]

> If healthcare gets cheaper, my HSA might shrink, but that's fine because healthcare is cheap.

Isn't the conventional min/max strategy to not use your HSA for any medical expenses? That is, you just treat your HSA as a traditional IRA and don't touch it until 65+.

[ip26]

The funds in the HSA are to be withdrawn to cover medical expenses.

So, you do leave it in the HSA as long as possible- but ultimately it's all going towards medical expenses eventually, otherwise you lose the tax advantage.

[panopticon]

After 65+ you can withdraw the funds for any reason without penalty. The so "prevailing wisdom" seems to be to not use the HSA for medical expenses and cover those with after-tax money so your HSA can continue to grow.

Of course, this is predicated on being able to cover medical expenses without your HSA.

[ip26]

At age 65, you can take penalty-free distributions from the HSA for any reason. However, in order to be both tax-free and penalty-free the distribution must be for a qualified medical expense. Withdrawals made for other purposes will be subject to ordinary income taxes. -- https://www.wellesley.edu/sites/default/files/assets/departm...

You don't have to withdraw funds from the HSA at time of billing, however. If you spend $1,000 at the ER today, you can take those $1,000 out twenty years from now.

[autokad]

its neither a hedge nor leverage. It's a place to put your long term money to grow, probably the best place. if by 'Wallstreet' you mean financial advisors, they recommend a mix of assets, not a single asset class in stocks. most people have a mix of stocks, bonds, and real estate.

it use to be 10%, in the late 2000s it got revised to 7%, though many today think it's realistically 5%.

[ac29]

Leverage does have a specific meaning in investing: it means using debt to amplify returns. This means if the market increases by X%, your investments return >X%, and the same in the negative direction. Having the same returns as the market is not leverage.

[ornornor]

Well what else do you propose? The whole system is tied to that: pensions, house values, salaries. If you squirrel away your money under you mattress you probably won’t earn enough money in a lifetime to retire off of it. I don’t see an alternative?

[Slartie]

The thinking behind this strategy is: there is enormous incentive to make the market perform well, which is why society will make the market perform well, with whatever means necessary. The incentive to make the market fail is much smaller (and even those shorting the market do eventually have an incentive for a well-doing market, because the money they make is worthless if it's not spendable for stuff, which depends on a well-doing market).

You can clearly see this play out right now in terms of current worldwide monetary policy: for the sake of a well-doing market, central banks are printing money like there's no tomorrow.

[closeparen]

The sane form of this advice drops the "always" and adds "over sufficiently long time horizons."

[lokedhs]

That's the key. If you are looking at a horizon of 10 years or more, the stock market has always (with some rare exceptions) gone up. That is to say that if you take a random point in time, and look at the stock market 10 years later, you will have a very hard time finding a point where it didn't go up more than inflation.

If you do this exercise with shorter and shorter time frames, more and more points in time will show a negative return.

This was just a long-winded way of saying that I agree with you. Stock markets are good investments, but your horizon has to be long, and that means at least 10 years.

[jariel]

There is reality to this, but it's generally for private companies raising money that can hold their cards close to their chest.

Pinterest, I believe, would not tell investors the 'results of their ad tests' precisely because they didn't want investors to be able to hard-value the company.

Once the 'analyst in the investor' gets enough data, that mind will crunch the numbers quickly to figure out the 'net present value' etc. and come up with a number.

If they don't have that data, then some of them can be allowed to 'dream'.

With public companies, there should be enough data on the table for people to make reasonable conclusions, but investing is taking a pop-culture angle these days and it's problematic.

WeWork valuations were crazy.

It's hard to see how Palantir is worth much.

Peleton and Tesla should be controversial, but at least the have solid foundations.

[JMTQp8lwXL]

Anything with no record has the potential to be the next FANG. It's far clearer for a company that's existed for awhile, what its potential might be. And that insane growth will only be found early on, typically during a time when the company isn't profitable.

[john_moscow]

>I don’t know much about the stock market outside of throwing any savings I can muster into a vanguard fund.

You have just answered your own question. If enough people make financial decisions based on a specific metric, rather than their own understanding, of course they will be a whole industry of companies trying to game the KPI and make sure your uninformed dollar ends up in their coffers.

[bvaldivielso]

What question are you talking about? What is your point exactly?

[john_moscow]

The point is that blindly copying the investment strategy used by a majority of other players inevitably leads to what some call a bubble.

[pc86]

Stocks are their own product. They have value because people are willing to buy them, which is only incidental to their belief that the value of the underlying company will increase. The price of a stock goes up because people want to buy it.

[ralston3]

Absolutely hilarious scene. Made even more funny by how scarily accurate it is XD

[taneq]

"It's the perfect play!"

That show is so on point sometimes.