I couldnt agree more.
If there was ever a way to WIN a thread, this would have to be it.
Penny stocks, a big lack of history and information about most of these projects makes them risky, with many of them being scams due to the lack of history and poor liquidity opening doors to fraudsters, or being on the verge of bankruptcy. Many of these stocks also have incredibly low liquidity, which creates selling problems and market manipulation. Not all are as risky and many can provide gains but the micro cap market has been home to many terrible investments.
I am going to say that Facebook is beginning to look a bit like a malinvestment. It is a company that is currently making billions off of its users data while offering nothing in the form of benefits to its users beyond the social aspect. Going forward a peer to peer social network build on a blockchain network that incentivizes usage will not have a hard time removing Facebook from the top of the social media list. I think its public offering is overpriced at the time of this writing and it will eventually be replaced by a better more incentivized form of social media.
The first thing that comes to my mind is $doge (dogecoin). This thing grew 10x in a few weeks and ~25x in a few months just because Elon Musk started tweeting about it and therefore everyone else started tweeting about it too. it is powered by memes and false promises/wishes. “Doge to 1$! Insert rockets”
The coin has absolutely zero use. There is no max supply. There is no long-term value. And now many newcomers have lost a lot of money because they didn’t know better. Oh well, unless they buy high and sell low, maybe doge will have another shot in a few years if the whole market is like 10x of what it is now.
Look at Slovenija…
Investing in nuclear power plant that is yet to be build going on now for roughly 10 years, costs just pilling up…or the Karavanke tunel…Austrians almost made it through, we haven’t even started yet and paid stupid money.
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ok ill throw out there the building of harrahs casino in New Orleans which opened on 1999. i witnessed the financing bond floating back room deals and long over runs in the construction of Harrahs hotel and casino.
https://www.nytimes.com/1996/06/02/business/a-big-casino-wager-that-hasn-t-paid-off.html?smid=url-share
first off they got a lot of state and city money for construction promising jobs and tax revenue. the project took forever went waaay over budget and never was able to contribute the promised tax benefits and high wage jobs that we all expected. looking back it feels like it was a rip off to the taxpayers and the state from the git go… even before Katrina Harrahs wasn’t paying their taxes claiming they were operating at a loss. which is hard to understand when every time i visited the place was PACKED with both locals and tourists. Obviously when it was all said and dont the debt was more than the business was ever capable of servicing… but i kinda think somebody somewhere had to know that going in right? lol.
good one! great example!
omg that’s horrific!!!
I believe one good example we have in Portugal it’s our current airline company, TAP. Even though it was sold to privates a few years ago, and it’s revenue has been increasing, but also it’s debt has skyrocket. Every year or so, since the government has its shares in company quotes, it’s with the tax payers money that they have been keeping the company over the waves, to prevent total bankruptcy. I understand (and I pretty much like flying in our company) that it’s a symbol of Portugal, but feeding an endless wormhole will exhaust our public liquidity.
Not to talk about saving banks by nationalizing them, just to save a few friends… By spending tax-payers money… Until now we are in the second nationalized bank, lets see if we end here!
A Canadian example of interest would actually be the contrast between the federal government’s continued investment in Bombardier (airplane/train manufacturer) and the ship-building industry. Here in Canada, the ship-building industry has virtually collapsed, despite the continued market for long-haul shipping, and the need for coastal vessels for national sovereignty. This can be contrasted with the continued investment into Bombardier; a company that has failed to produce on-time/on-budget products, and been on the verge of bankruptcy on numerous occasions, mostly due to the competition from larger manufactures such as Boeing, and Airbus.
I am going with Ripple XRP as a malinvestment. Working from the little I know, they have a Circulating Supply of 45.7 billion out of a possible 100 billion coins suggesting they can increase supply and deflate the value. They also have a management that is sort of bait and switch, trading on the XRP confidence but not necessarily using the XRP/Ripple protocol when interacting with new development. I could be wrong!
I would argue that investing in oil and gas companies (e.g. BP, Shell, Exxon, Total etc.) meets the definition of a malinvestment. Although demand for energy is increasing and will continue to do so (especially as the “middle classes” grow in countries such as China and India), I believe/hope that the rapid advancements being made within the renewable energy sector will meet this increasing demand. Moreover, I would argue that the oil and gas industry sector as a whole has already fulfilled the bulk of its growth potential over the course of the 20th century. Ultimately, I think that any long-term investment in renewable energy would surpass any potential investment returns from the oil and gas sector over the course of the next few decades. Finally, and most obviously, given that climate change is arguably the most pressing concern of our time, investments should (hopefully) flow towards the development of mitigating solutions…
I think the US housing market bubble of 2008 is good example of malinvestment. The housing bubble was huge rush to lend money to homeowners without any regard to if they could pay it back. It had people all over Wallstreet trying to lend money through non traditional mortgages called NINJA mortgages. These subprime mortgages were private - label mortgage - backed securities. The new lenders and investors created alot created alot of leverage/risk to the system through expanding credit to everyone everywhere. This caused alot of remortgaging to the point you were trapped by increasing interest rates causing the system to fail and crash the market as well as many globally connect markets.
Italy is a paramount example of a capital-consuming economy, where the investment level has plummeted (Figure 1) and labor productivity stagnates (Figure 2). Moreover, unfavorable demography (almost one Italian in four is older than 65) and decreasing natality (on average roughly half as many children as were born in the 1950s and '60s are born annually) put further stress on the frail pension system-which has was very poorly devised in the 1970s and '80s.
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 junk bonds meet the definition of a malinvestment. Junk bonds carry a number of risks including default risk (credit risk), interest rate risk, economic risk, and liquidity risk. It is a misallocation of capital because although it provides high yields these high yields are not worth the overwhelming high risk of investment.
I believe investors who have positions in the MCSI China Index meets the criteria for malinvestment. Adopting Western style stock markets in a command type economy does not yield similar results compared to markets in quasi free markets. This is because China’s companies on the exchange aren’t actually up for sale like in Western markets. China’s ownership of these companies never changes, so the price of the so called “stock” does not reflect any metric related to performance. This has led to China’s market to remain stagnant or shrink despite it’s GDP skyrocketing.
Saving in national currencies witch theirs reserves are based on US dollar because all the currency supply is based on government debt that increase every day, making your national currency weaker and weaker.
The ‘Empty’ city of Ordos in Inner Mongolia, historically a very important city. an entire district was built and standing empty. The district was originally designed to house, support and entertain more than 1 million people, but has never boomed dispire the region having an abundance of natural resources. an example of Chinas runaway property bubble.
Looking into Purdue Pharma’s company track record I believe this company is a malinvesment. Purdue Pharma paid $8.3 billion dollars and pleaded guilty for creating and exacerbating the opioid epidemic. September 15 2019 Purdue filed for chapter 11 bankruptcy. On October 21 2020 Purdue Pharma reached a settlement ending an unfortunate saga in modern American history. Doing thorough due diligence seems to me a valuable lesson in investing. Signs of this demise first appeared ion October 4, 2007 when Kentucky officials sued Purdue Pharma. It took approximately 12 years for the demise to play out, a huge window for investors to catch on to the fact that it’s a bad investment.
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I researched a subsidized housing project in my City. Federal and State government allocated 14M for the renovation of 40 units under 900sf each. These units cost around 350K each in an area where the average market value did not exceed 140k. No financial education for subsidized tenants. This meets the definition of malinvestment and misallocation of capital.