I think every treasury bond is a malinvestment since the amount of interest you can earn on them is lower then the inflation.
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A good example of a very bad investment in my country was the TEŠ6 project (thermal power plant) proposed in 2003 and included in the government development programme of 2007. The project was originally expected to cost €690m, but over the years the costs have escalated to €1.43bn. Coal or lignite project doesn’t make a profitable business, especially when many ‘advisors’ are feeding on the project. The end result of dodgy deals is normally that the taxpayers and energy customers have to pay to clean up the mess. Operational costs per MW are higher than electricity on free market.
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While a bailout may avert further financial crisis, we’ll still be left with the structural problems and delay the necessary deleveraging and purging of what the Austrian economists always referred to as malinvestment (these are capital structures created during a bubble period but unsupported by real demand).
"An investment in knowledge pays the best interest."
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Uber… In no way would this company be worth the evaluation of 68 million. Its in all reality a fancy bit of software and employees using their own vehicles. The mechanical overhead isn’t even theirs is falls on the driver as it is their personal vehicle.
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I think a current example of this is the covid spending by the US Government. Simply printing trillions of dollars to “stimulate” the economy will have a long term effect of the value of the dollar. As more money is printed the scarcity becomes lesser making a dollar more common, therefore less valuable per unit. As a citizen of the US, I already see the effects of this hitting all types of markets including homes, cars, rec. vehicles, etc.
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A clear misallocation of capital would be leaving your own money in the bank beacuse it’s “safe”. The purchasing power of your currency (no matter which currency is) it’s loosing valu, every single day and besides that, inflation is going up rapidly, that means that by a couple of years you will loose a very high % of the value of your money. Invest it wisely.
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A lottery ticket. You pay x amount and hope the 1 in 10,000,000 chance lands on you.
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- Subprime Mortgages - Lehman Brother/ AIG. Mortgages were given to the people who did not have proper credit and whether that person can pay the monthly mortgage causing ripple effect Banking sector.
- Theranos - Misguided investor on blood sample innovation causing failure of company and losing lot of money for Investors
- Enron - Misguided investors on how they were making money using shell companies.
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I don’t know how to answer this… It’s all corrupt! The whole world! We need to go back to precious metals… gold and silver… And barter…
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In Poland sometime ago celebrities encouraged to invest in DasCoin which supposed to be another cryptocurrency. As it turned out it was a clasical Ponzi scheme. People lost invested money.
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An example of a malinvestment would be an enterprise whose business is becoming/about to become obsolete and irrelevant due to inventions of new technologies, a change of consumer habits, etc. For example GameStop. Oh… wait…?! LOL
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Indian government’s investment into Indias premier airline Air India. On average Indian government spends around $300 million every year to sustain the operation of the airlines.
It’s been happening since at least 2 decades. They do it to safeguard the employment & reputation of the country.
Anyways government trying to divest the holding in the airline by allowing bids from private players & offering them additional benefits.
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Bitconnect, which promised a 480% annual return on investment with no risk at all.
It was later uncovered to be a ponzi scheme which got it delisted on every exchange, making it worthless.
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I think tulip mania is a good example of a malinvestment. It happened in 1636 in Holland, but we still hear about it today. If you were buying tulips at absurdly high prices, and you thought that the prices were just going to keep climbing, then you were making a bad investment. Tulips are not a good a store of value, because they die relatively soon
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Government subsides at least in the US specifically in the northwest region is a malinvestment. Tax payer money is going without consent to a specific group with an unsustainable potential growth of money. Without pointing out the biggest city in NW region of the US, that specific state is in some serious debt and providing subsides to huge corporations to relocate in poor income neighborhoods, they are not only driving housing pricing up but restructuring the culture and economic make up of the neighborhood by pushing out those who made up the neighborhood.
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When the New York Times bought the Boston Globe in 1993, they paid $1.1 billion. I think their biggest mistake was expecting the newspaper to remain a dominant vessel in the distribution of news and information. Maybe if they had seen the writing on the wall that the internet was up and coming and had begun to strategize a change in the business model over the next few years, they would’ve been able to make it profitable.
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Shiba Inu Coin - Cryptocurrency
Shiba Inu coin is basically a rip off of Doge coin that is already a meme coin even in itself. Its just trying to get the current attention that Doge has and trying to cash in on the large community around it. I expect it to be a big pump and dump.
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Renewable energy (what a debate), regulations like the green new deal set in place to prepare for global warming that may not (is not happening) happen to the extent that some predict. Although solar power is beneficial and cost effective in some climates, in more temperate climates, it proves to be inefficient and a waste compared to cheap natural gas. This year in Texas, there was much loss with the failure of their wind turbines that froze over. Some say there was no proper planning but then again the question to ask really is if windmills are viable in such climates at all and compare the expense to maintaining them vs natural gas. https://www.nasdaq.com/articles/texas-grid-operator-ercot-calls-for-energy-conservation-amid-outages-cold-front-2021-04-0
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Easy access to large amounts of government backed student loans are a primary cause of rising tuition costs thus constitute a malinvestment.
- Supply of higher education has not significantly increased, but because it is easily accessible due to the available funding the demand has increased.
- Similarly, since there is more money available, it drives up the price.
- Private funding sources expect a return on their investment so it would be considered not only more diligent in funding studies that have a higher chance of producing graduates than can repay the loans but also in a sense of feeding the economy with professionals that can nurture a sound economy.
2021-04-20T19:07:00Z
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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 hope it’s not a problem if I go on a reverse argument, which is the investment reduction of the SNS here in Portugal, by the government, that I believe to be a malinvestment in itself.
By removing the capital needed to maintain, or increase the previous conditions, this reduction caused the following predicaments, just as an example:
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Life expectancy reduction
- From 2006-2017 - increase from 79 to 81.6 years
- From 2017-2019 - decrease from 81.6 to 80.9 years
The 2020 pandemic only accentuated this decrease
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Decrease in the number of Doctors and Nurses
- Due to poor income and lack of carrer progression.
- This has resulted in the emigration of resources to countries with better working conditions.
Paradoxically, this pandemic has shown that the SNS degradation resulted in less capacity to deal with the health crisis in protecting their population, which led to consecutive confinements that destroyed the economy, increased the GDP debt and overall poverty.
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