The effect of low interest rates has enabled the cheap exploration and extraction of fossil fuels such as shale. This would otherwise have not been profitable. This obviously goes against true market price discovery. The fossil fuel industry obviously plays a vital role at present for the world economy producing cheap energy, and so it has been important to support it financially, although by giving it this artificially cheap financial support has probably detracted the industry and it’s financiers from investment in it’s inevitable replacement such as solar and other new clean technologies eg fusion . Basically at present it is costing more and more money to find less and less fossil fuels.
Dubai:
It seems the government/ruling family had been existing in a delusional state for yeas before the pretty much literal overnight crash in the property boom, grossly overspending, seemingly for vanity projects. My friend lived and worked there at the time. He said work on skyscrapers ceased overnight, and workers were stranded without pay, and without a means to get home.
From Wikipedia:
"Dubai was a land full of grandiose, landmark projects, only to see the bubble burst…
…Burj Dubai, the tallest building in the world (about 2,600 feet high with 160 stories) has been at its opening in January, 2010, described as mostly empty. 90% of its 900 apartments were still empty a year later…" This is indeed a misallocation of capital.
Being a swede, the first thing to come to mind is easily the Swedish “Nuonaffären” where in 2009, Vattenfall, a Swedish state-owned energycompany wanted to buy Nuon- a big energycompany in the Netherlands, which would in theory make Vattenfall a huge player in the north Europen market and let Sweden make some nice gains from non-Swedish energy consumers. However, the price was incredibly high and the Nuon-deal was vastly overvalued at 97 billion SEK. And even though experts and public officials warned about the price being way to high, they bought it. And have had to massively devaluate is assets because the profitable net-parts of nuon was not included in the deal, and Vattenfalls idea about running biofuel in a coal power plant was extremely expensive. This is know as Swedens biggest malinvestment. And it was sen as a political scandal and followed by massive media turmoil.
The infamous “Bridge to Nowhere” in Alaska would be a prime example of malinvestment. Despite there being a ferry service that supported the islands 50 residents; a proposed bridge at a projected cost of $398 million dollars became part of omnibus spending bill in Congress and although eventually canceled I found this bit of interesting information.
“After canceling the bridge, Palin’s administration spent more than $25 million to build the Gravina Island Highway, which would have connected with the proposed bridge. According to Alaskan state officials, the road project went ahead because the money came from the federal government, and would otherwise have had to be returned.” c.f. Anchorage Daily News 8/31/2008
An example of malinvestments in Chile are the continuous building and expansion of shopping malls by large retail holdings. At the time of writing this reply, there are large malls being built even though every e-commerce metric for the last decade has pointed to more and more people buying things online. Even more now, that consumers are becoming ever more e-commerce savvy with the country in lockdown.
I mean there are so many examples. Let me pick a product at random, Okay, because I have a daughter, plastic toys. You need to buy them but they are bad for the world.
I could be wrong about this, but based on what I’ve been learning, the impact of inflation on the worlds currencies works against itself. The concept is that the value of the currency will always hold the same value throughout time, but we know that isn’t true.
The rate of inflation goods and services effectively, over time, causes for you to not be able to buy the same amount of goods or services with that same dollar, in the future.
So if wages remain the same, but the cost of everything else goes up, then you’ll need more of that dollar to purchase the same amount of that product or service in the future.
Last summer I put money into cannabis stocks that should’ve obviously in hindsight been put into crypto.
There was a hopium-pump because it looked like federal legislation was on it’s way and I took a chance and bought Aurora Cannabis Inc on the hype.
I was already having my doubts about the company since they were deep in debt and have changed leadership way too often. I only took a 100$ position thinking that it was likely that a market crash would bankrupt the company. The stock has “soared” after the crisis putting it back at where it was before COVID.
I’m still expecting shareholder dilution and further sell-offs because of lacking revenue and cash reserves.
Anyway I’ll hodl my 10$ until it either returns to a 100 or hits zero
I can’t think of a worse investment that the one made by the people that invested their money on the Venezuelan Petro, a crypto currency in concept, was soon change by the government as soon as they realize that they couldn´t continue with their corruption practices, the white paper was modified various times, and the only people that use it are the ones that are obligated by the venezuelan goverment.
Central banks around the world printing money to buy assets and bailing out airlines, hotel industry is an example of the misallocation of the capital.
Tax payers collectively malinvesting in promises of Government agency spokes persons (MP’s, Prime Minister’s Presidents,etc) I think have often been good examples of malinvestments. Or when Brave Browser sneaked in their affiliate links while blocking that actual websites people had been trying to reach. That might have damaged their reputation making that a malinvestment. Often when people get credit cards and can’t pay them back due to changes in financial incomes. malinvestments.
Research an investment that you believe meets the definition of a malinvestment, why you think it’s a misallocation of capital
The housing bubble bust of 2008 Banks manipulated the ratings of bad mortgages by mixing with good mortgages, then repackaged back on the market, to other banks and retail.
The New York Times purchased the Boston Globe newspaper business in 1993 for $1.1 billion ($1.72 after inflation nowadays). This has turned to be a huge loss of 100’s millions of dollars because that was the time of the internet boom. So all the information became availalbe online and the newspaper business became much less profitable. When the New York Times looked for selling the Boston Globe they were offered a couple hundred millions while they have invested more than a billion.
Boeing is a zombie company. It’s only being held up by the government. It should be broken up and sold off and let capitalism do its magic.
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Another better example is when Russian government has made preparations and built stadium and structures for Olympics in Sochi in 2014 for the reason of hype. That costed a huge amount of money for the country with bad economics and finance problems. At the end of Olympics the stadium and everything was abandoned (Google: “sochi olympics abandoned”). So it a very good example of malinvestment.
In Spain, Local Governments are specialists on malinvestments under different political interests we can find a good example in Castellon where the airport was inaugurated in 2011 and until 2015 there was no movement of passengers generating a debt of 220milions Euro. Unfortunately, there are many examples like this around the Spanish geography during a long period of time. Castellon aeropuerto sin aviones
This is what I call a malinvestment: $50 billion airline bailout won’t be enough to save US industry
Wouldn’t it be a better idea to let new and more agile investors take over and bring in more efficiency?
I would consider any company that borrows money to buy back stock is a malinvestment. The drawbacks outweigh the possible benefits, particularly with investors who have little to no say in the way money is invested. When share prices drop, companies may be forced to liquidate shares in order to pay back loans, leaving the small investor exposed.
i see buying a co-op piece of real estate as a terrible investment. There are conditions involved in the purchasing and maintaining of the property that limits any potential growth that could be harnessed. one way i see is the exclusion of renting out the co-op home as way of generating $$$. another i see is not being to force appreciation of the home buy fixing and investing into it. another issue i see is the limiting of borrowing against the asset. one more is the dealing with others who share in the co-op, generally the many different visions don’t always line up for the individual.
The US housing market in 2008. People were continually pouring money into this system that had clear examples of malpractice.