I think that index stock S&P 500 is malinvestment at this point, because it’s price clearly does not reflect the true value of these companies. When there has been a significant decrease in global economical activity and the GDP of USA has fallen in Q1 and will fall also more in Q2, to invest in this or similar index stock would be a malinvestment. The fair price of SP500 would be much lower, not market price, as it sits near ATH today.
I believe the current price of the Tesla stock met the definition of a malinvestment due to the hype it receives which pumped up the price of the stock. With the company cashflow and revenue not having constant higher high in the past years, it is dangerous to invest in a company which could turn bad during a pandemic or recession.
Currently the Federal Reserve is buying up a bunch of corporate bonds. It’s a tiny fractional amount of the bond market that spams over 10 trillion but it leaves me wondering why? Americans are paying for it in the form of dollar inflation Purchasing power loss.
UNITED STATES HOUSING BUBBLE:
In 2001, Alan Greenspan dropped interest rates to 1% in order to boost the economy after the “.com” bubble.
Bankers and other Wall Street firms started borrowing money due to its inexpensiveness.
Banks made it easy for people to get mortgages at low interest rate even if they could not realistically afford them.
People started viewing properties as a safe and profitable investment.
People bought properties above their means, often buying multiple properties by refinancing.
The mortgage and credit crisis was caused by the inability of a large number of home owners to pay their mortgages when their low introductory-rate mortgages reverted to regular interest rates.
Causes:
BORROWING DECISIONS BY INDIVIDUALS:
- Home perceived as safe investment, reinforced by context of recent dot com bust
- Rising housing price trend (profit opportunity)
- Exemption of housing from capital gains
- Expectations that refinancing will be available
- Housing speculation and overbuilding
- High household debt levels
- Cultural pressure for home ownership driven by media and government promotion
LENDING DECISIONS BY INSTITUTIONS:
- Low interest rates -> capital and credit availability
- High risk tolerance and leverage -> borrowing to invest
- Foreign investment
- Government objectives regarding low-income housing
- Outdated credit rating policies
- Management bonuses, incentives for short-term profit
- Investors demand for mortgage-backed securities
- Failure of regulators to intervene
EFFECTS:
- Housing prices decline (household wealth declines)
- Negative equity (home worth less than mortgage)
- Inability to refinance mortgage
- Homeowners walk away or bank takes back property
- Mortgages are not paid
- Value of mortgage-backed securities declines
- Banks incur losses
- Bank capital (loanable funds) declines
- Banks restrict lending
- Economic activity slows
- Unemployement increases
- Increased supply of homes on the market
GOVERNMENT RESPONSE:
- Central bank lowers interest rates to increase lending
- Fiscal stimulus package (tax rebates)
- Bailout of large mortgage lender institutions
I would say that buying Hertz stock AFTER the company announced that it is going bankrupt would be a good example of malinvestment. But many people did it nonetheless.
Tulips in the Dutch economy during the 17th century are an interesting example. The “free coinage” from the Dutch government at the time coincided with the skyrocketing price of tulip bulbs and futures (contracts for future tulips). Then the prices abruptly dropped in a sharp way. It was a misallocation of capital because the popular opinion was to invest while the prices were rising, but ultimately the prices of tulips were unsustainable.
- I had experienced in the past malinvestment in the Ponzi scheme called Trend Sound Promoter AMG, Corporation as a work-at-home internet-marketing scheme, which at the time claims to be an online advertising and marketing company, created to promote music and other goods and services on the Internet. In fact, Trend Sound Promoter was a Ponzi scheme without a commercially viable product or investors.
So at some point they just stopped to pay money and used obtained money from the individuals located throughout the world in personal use and benefits.
An example of a malinvestment could be the Irish housing bubble that occurred around 2006. By 2007 Irish banks were lending 40% more to property builders than they had lended to the entire population of Ireland 7 years earlier. As expected by some the prices of the Irish Real Estate fell by approimately 50% in relation to its income. They had built more houses in Ireland than citizens were to inhabit them. By 2010 nearly 180 000 had been granted planning permission of which only 78, 195 were completely occupied, whilst others remained unfinished.
for the canadian tax payer a good example of malinvestment is the 600 million that the canadian govt gives the media every year due to its being classified as an endangered industry. In a free economy they would be allowed a nice burial.
Unfortunately, this is only half the story as the government essentially bought the media and now controls it with an iron fist. They decide who is favored with the money and who does not and at 12000 an employee per year it is quite an enticement . https://spencerfernando.com/2019/09/01/watch-arrogant-trudeau-brags-about-bribing-the-media-with-your-money/
We’ve increasingly used PFI (private finance initiatives) in the uk to fund and build facilities such as schools and hospitals. Private companies (often comprised of banks, construction companies and service providers) undertake to build projects, with fairly high interest rates (little competition to keep them down) . The repayments are often so high that the new facilities cannot even open, as they are so far in debt before opening. To add insult to injury, a range of circumstances (including the big crash) has resulted in situations where the Gov has had to loan funding to the Initiatives in order for them to complete the work
On December 12, 2015, Barack Obama helped to finalize the Paris Climate Agreement whereby countries agreed to reduce carbon emissions in an effort to tackle (man made) climate change. Developed countries also agreed to contribute $100 billion a year to assist emerging markets.
The existence of man made climate change is a hugely speculative area based mostly on hysteria and misinformation perpetuated by a large number of vested interests.
Yet developed countries agreed to spend massive amounts of taxpayer’s money tackling a problem that almost certainly doesn’t exist.
On June 1, 2017, Trump announced the United States would withdraw from the Paris Climate Agreement but the damage had been done for the US taxpayer and continues to deplete the funds of countries still irresponsible enough to continue to pay.
“The Federal Reserve bought 428 million bonds of individual companies through mid-June [2020] making investment in house hold names like Walmart and AT & T as well as major oil firms, tobacco giant Philip Morris International and a utility of subsidy of Berkshire Hathaway Holding Company.” Reuters, June 28 2020/https://www.reuters.com/article/us-usa-fed-bonds/big-tobacco-big-oil-and-buffett-join-feds-portfolio-idUSKBN23Z0M8" This is a mis-allocation of funds because the above mentioned companies should be allowed to fail so that we can have an accurate reflection of what is going on in the market. The too big to fail companies will be reliant on help from the government /Federal Reserve to keep them a float and not worry about the poor business choices they make because they know they will be saved. It is inherently unfair to help some businesses and not others in the same manner. It is also unfair that the investment expense will be passed along to the tax payer. Also, some of the companies, like Berkshire Hathaway are not actually failing and may not even need the help. This
Quaker Oats acquiring Snapple. Poor due diligence on the acquired business and assessment of what it takes to run successfully leads to mismanagement and ruining your investment. Acquired for $1.7bn, sold for $300mln. only 27 months later. A loss of $1.6mln a day since the day of acquisition.
Research an investment (could be a public company, private company, government agency, infrastructure project, etc) that you believe meets the definition of a malinvestment (past or present) and argue why you think it’s a misallocation of capital (3-5 sentences).
I believe that the whole concept of Student Loans meets the definition of a Malinvestment. Young students are lured by Low interest rates to take on loans that they can’t afford and can’t easily repay. All for a useless education that is out-dated, doesn’t prepare them for the work force and quite frankly is not worth the paper it is written on.
Most stocks today.
The stockprizes in this crisis are going through the roof but the fundametals are terrible.
This is because the central banks, in cooperation with the hedge funds pumping the stocks artificial into oblivion.
This creates massive price distortions and bubbles and this will end at some point.
Even guys like Warren Buffet dont buy this fake “V” recovery. 
No problem, the investments the US government is making into zombie companies. Actually the gov. knows that there are not investments, they are just giving money away (not even their money) just to prolong the life of companies that need to die to be replaced by better organizations.
I live in Australia and I would argue that our housing market is a malinvestment at the current point in time. We have had something like 29 years of growth without any significant correction or pullback. We took a small break in the GFC and then continued upwards due to our government encouraging people to buy homes with things like ‘First Home Owners Grant’ and the ‘First Home Builders Grant’ etc. At the present time, there are I think currently 2 states where you can get up to $45,000 in grants if you are building and have never bought or owned before - this was implemented within the last few months to combat the down turn resulting from the Covid Pandemic. Absolutely ludicrous measures in order to stimulate the housing market and prolong the overvalued, overinflated system for as long as possible before the whole thing inevitably comes crashing down.
Bailouts, IOU bonds due to the Corona 19 not only to S&P 500 companies but they even whet one step further by choosing to whom they will donate and in that way putting the money directly in there friends pockets…
The productivity of the company’s is not the issue but the reliance of USA on there stocks prices are… malinvestment in its best.
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One investment I see as a malinvestment is Bernard L. Madoff Investment Securities. One of the biggest ponzi schemes of the century with over $60 billion worth of fraud. The misallocation of capital comes from the amount of returns that were often purported on reports. No one was getting returns like this firm was. A lot of red flags came about but no one called bluff for the longest time.
2019 fiscal year budget supplied the Department of Justice with 2.4 percent increase from 2017. That is now 14 billion dollars. With all that money police are still killing black people in 2020. They clearly lack training. Total And complete misallocation of funds by the government. Clearly showing signs of a malinvestments given the protests and rioting all over the world.