On December 9, Hong Kong real estate tycoon, Executive Vice Chairman and Chief Executive Officer of New World, Zheng Zhigang announced that he had invested in the blockchain sandbox game The Sandbox and bought the largest virtual land in the game for US$5 million. It is said that the plot will include an “innovation center” to showcase the commercial success of startups in the Greater Bay Area.
As the concept of Metaverse gets more and more popular, more and more capital enters the game. There has even been a phenomenon of “Metaverse real estate speculation”. In response to this problem, the People’s Daily commented that “the risk of scalding hot enough to be prevented”.
For ordinary investors, is “Metaverse real estate speculation” a wealth opportunity or a capital trap?
In fact, to answer this question, we must understand the difference between investment and speculation.
In this regard, John C. Bogle, an evergreen tree in the investment industry, gave a very detailed analysis in his 2008 book “Enough: John Bogle’s Code of Money, Business, and Life.”
John Borg is the founder of The Vanguard Group and the issuer of the world’s first index fund, the Vanguard 500. In Borg’s half-century investment career, he has not only contributed to countless investors, but also influenced the entire investment industry.
“If a statue is to be erected to commemorate those who made outstanding contributions to American investors, it is none other than John Borg.” This is Buffett’s evaluation of John Borg.
Today, let’s look at John Borg’s short book “Enough”. In the book, John Borg is divided into three parts, giving his advice on money, business, and life. We should be able to get enlightenment from his great wisdom.
After reading this article, you will know:
1. What is the difference between investment and speculation? How to choose ?
2. How to balance the relationship between digital and trust in business activities?
3. How can business interests gradually erode professional appeals?
What is the difference between investment and speculation?
Investment is essentially the investor’s long-term ownership of the company. Because you recognize the intrinsic value of the opinion company (which can be simply understood as the discounted value of the cash flow that a company can generate in the rest of its life), you are willing to invest money.
Investment behavior is based on real business activities. In the real market, in order to manufacture real products and provide real services, real companies will spend real money to hire real people and invest in real equipment.
Speculation is the opposite. Speculation is related to short-term transactions rather than long-term holdings. The theoretical basis of speculation comes from the judgment that the price of financial instruments temporarily deviates from their intrinsic value and will eventually return. Speculators expect that the price of their chosen stock will increase more than other stocks.
In other words, speculation is based on “expectations.” And such “expectations” often come from figures given by corporate executives, that is, financial statements, future expectations, etc.
Putting it into the Metaverse example, many investors are actually not very clear about the concept of Metaverse. Their cognition of the concept often comes from large companies that “enter” the Metaverse. These big companies described a harmonious and perfect virtual world to everyone, but they didn’t tell everyone the cost and price of achieving all of this.
When big companies that you are familiar with have endorsed the concept of Metaverse, it is difficult to guarantee that you will not make short-term “investments” that are bullish and bearish. And this behavior is essentially short-sighted speculation.
Similar to technology companies, financial companies also use different strategies to shape their market image.
Borg believes that the use of stock options to reward corporate executives is one of the reasons for the great distortion of the financial system. He gave a simple example: CEOs hold a lot of their company’s stock as if the NBA center bets on their team before the game.
When the short-term stock price deviates significantly from the intrinsic value of the company, a crisis arises. This part of the difference is called a bubble. And these bubbles sometimes burst without warning.
New York Dow Jones Industrial Average (July 19, 1987-January 19, 1988)
On Black Monday, October 19, 1987, the stock market crash came without warning, from Hong Kong to the west, passing through Europe, and spreading to the United States. On that day, the Dow Jones Industrial Average, which represents the US industry, plummeted by 508 points, a 22.61% drop.
Analysts have tried to fabricate reasons for its occurrence to make it interpretable and predictable, but until today, no one can definitively state when the next stock market crash will occur.
Borg mentioned in the book: “We have already had too many short-term speculations and lost our long-term investments, but our long-term investments are far from enough.” It has been 13 years since he wrote this sentence. Has the investment market changed for the better? This question can only be left to investors’ judgment.
Don’t trust the numbers too much
In addition to the analysis of market behavior, John Borg also gave a lot of practical suggestions by way of comparison. For example, he believes that modern investors are more inclined to believe in “numbers” such as financial statements than business conditions.
Borg’s advice is: Don’t trust the numbers too much.
Bubbles originate from speculative behavior that exceeds a threshold, and it is often paper data that prompt investors to make short-term decisions.
It is undeniable that numbers are very useful as a tool for communicating financial goals and performance. But in investment, numbers are often confusing.
In response to this, Borg also cited a few examples. Among them, statistics from the US Bureau of Labor Statistics in 2008 show that the unemployment rate in the United States is only 5.2%. But this number does not include workers who have run into a wall and do not want to find another job, part-time workers who want to find a full-time job, people who want a job but are not actively looking for work, and people who live on social welfare and disability benefits. If these factors are added, the unemployment rate will be as high as 9%.
Official agencies are good at using data to “deceive people”, and companies are even better in this regard.
Take the early 1980s as an example. At that time, the bull market had just started, and the expected return on pension assets assumed by major companies was 7%. At the beginning of 2000, the stock market rose to its highest point, and almost every company raised its expected yield to 10% or even higher. However, the ensuing bear market made these numbers look like a joke.
Borg quoted Keynes’s view of “numbers”: the bubble generated by all the sentiments that promote prosperity is bound to burst. These are things that “numbers” will never tell investors.
“Not everything that can be calculated is critical.” Today we rely too much on numbers, but we do not rely heavily on trust. He suggested that investors can have part of their energy not to calculate, but to uphold the spirit of trust, give a chance to judgement, so as to find a balance between the two.
Borg not only provided advice to investors, but also raised expectations for financial practitioners. He believes that, while pursuing profits, companies must also operate with professional ethics.
There used to be eight major accounting firms in the United States (now only the “big four”). The eight major accounting firms started with the audit business and began to provide lucrative consulting services for their audit clients step by step. They became business partners of the management, and No longer an independent and professional evaluator who generally complies with accounting principles.
In 2001, Enron’s financial scandal broke out. Arthur Andersen, which provides audit services to Enron, also provides consulting services to Enron. As a result, many operations of audit services cannot remain independent. Finally, in 2003, Arthur Andersen declared bankruptcy and Big5 became Big4. This is a dramatic example of the serious consequences of a conflict of interest relationship.
In fact, many industries have examples of commercial interests eroding professional appeals. For example, in the medical industry, basic humanitarian and patient humanistic needs give way to the commercial interests of many subjects. The huge healthcare system is composed of hospitals, insurance companies, drug manufacturers, and pharmacies. These links must maintain their own profits, and these profits are derived from the only consumer-the patient.
This is not to say that companies should hold high the banner of “dedication.” In fact, if income cannot cover expenditures, no organization can survive, even noble charities. However, as many professions we are proud of gradually change their traditional concepts, and no longer focus on the interests of customers, but become companies that only pursue competitive advantages and profits, those who rely on them for services will naturally become losers.
Today’s financial industry has actually exposed many problems. For example, the sales volume of financial products is too much, but the corresponding services are too few.
The author mentioned in the book that before the dot-com bubble in 2000, a large number of Internet industry funds were established due to the popularity of the Internet. In contrast, today, the concept of Metaverse is very popular, and many Metaverse concept funds have poured into the market. The same was true for the liquor industry last year.
But in fact, when an industry is affirmed by a large group of people, it is often when its market confidence is most sufficient. Entering the market at this time will inevitably be “trapped.”
John Borg gave us a lot of investment advice and life advice. They all seem simple, but there are not many people who can ask themselves according to many criteria like the author himself. For investors who want long-term stable income, perhaps the most important thing is to avoid speculation.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/are-you-investing-in-the-metaverse-or-are-you-speculating-in-the-metaverse-this-book-13-years-ago-made-it-clear/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.